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Why is the US economy growing less than expected? · The Financial Exchange Show

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FACE is the Financial Exchange with Chuck Zada and Mark Fandetti.
1:14
Speaker 2: Chuck and Mark with you as well as Tucker and
1:17
as we continue through the week again one of the
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busiest weeks of the year as far as economic data
1:24
and earnings reports, we're continuing to get a little bit
1:27
more information about the current state of the US economy,
1:31
and we are going to kick things off today talking
1:33
about the Q three GDP report that we got this
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morning at eight thirty am. Came out and it showed
1:40
that according to again the first estimate, which look, we
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all react to this, and the funny thing about this
1:47
is that, hey, this estimate is revised two more times
1:51
in the next three months, and then is revised over
1:54
the next couple of years as they get additional data.
1:56
But everyone freaks out now over a data point that's
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backwards looking, that undergo significant revisions over the next couple
2:03
of years and might not look anything like this when
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we finally have everything all said and Doc, that's what.
2:08
Speaker 3: I tell my doctor. He said, you're at one sixty five.
2:10
I said, it's just a first estimate of weight. It's
2:12
backward looking. Don't freak out subject.
2:15
Speaker 2: I'm gonna steal that subject to take that.
2:17
Speaker 3: Yeah, it's it's not just a pathetic attempt at comedy
2:21
from a failed funny person or would be funny person.
2:25
It's it's true.
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Speaker 2: Did you ever have a stand up career?
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Speaker 3: Why would That's the last thing I would People would
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associate I make no chuck.
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Speaker 1: Have we met?
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Speaker 3: I make charts and do.
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Speaker 2: There's a niche that you could like.
2:39
Speaker 3: They're like economics or finance comedy. No, we find finance funny.
2:43
You and I laugh a lot about finance.
2:45
Speaker 2: The way that you transposed that over to visiting your doctor,
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I think I just.
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Speaker 3: Went from my physical. It was on that. It was
2:52
it was top of mind.
2:52
Speaker 2: Sorry, I think there's something relevant there. So I'm just saying.
2:55
Some people say, don't quit your day job. I say, hey,
2:59
a night job might job.
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Speaker 3: I'm in trouble because it's a fair point.
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Speaker 2: So in any case, let's talk about what we saw
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in this GDP report. So two point eight percent is
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the top line real growth that's after inflation. The inflation
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that was measured in this quarter using PCE inflation data
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was one point eight percent, So that gets you to
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nominal growth of four point six The real growth after
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inflation is a two point eight percent annualized pace. So
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where did it actually come from? This? This is, you know,
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kind of the question that we're always looking to ask.
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In terms of the areas that saw fastest growth. Personal
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consumption expenditure is up three point seven percent, which is
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an absolutely torrid pace of of personal consumption. Expenditure is, Hey,
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how much your household spending on stuff? And mostly the
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interesting thing there was an acceleration in good spending. So
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I find that kind of interesting that that, you know,
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for all the chatter the last couple of years, hey,
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people are spending more on services and good spending is
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kind of languishing. We've kind of moved back to good spending.
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Good spending grew at six percent on an annuallyzed rate
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for the quarter. Services spending actually declined a little bit
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from two point seven percent down to a two point
4:19
six percent annualized growth rate, but overall consumer spending strong.
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What's called gross domestic private investment basically, how much are
4:30
companies and or households spending to really like build stuff
4:36
or buy stuff. That's the long term in nature, that
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out of the inner hand is kind of stagnant this
4:41
quarter after a monster number last quarter. And this this
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this series sees big swings from quarter to quarter, So
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like just because it goes down one quarter doesn't mean
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it's inherently gonna be bad in the future. But one
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trend that we do have now is a two quarter
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trend of residential fixed investment, kind of sucking wind out
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of the sales of what would have otherwise been a
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hotter quarter residential fixed investment. You can read that as
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building of houses declined at a five point one percent
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annualized pace for the quarter. And remember this was the
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quarter in which rates were the lowest they've been in
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a couple of years for mortgages for much of the
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quarter as well. Your thoughts, Mark, So.
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Speaker 3: I like to think of this in law. You just
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gave an excellent overview of the detail. The power was
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in spending. That was the engine that drove GDP. To me,
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that's the big takeaway. But as two point eight percent
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annualized roughly three percent over the past four quarters, is
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that good bad? Should we be celebrating it? For historical
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perspective and for what it is worth, we all remember
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the eighties and the nineties as being strong growth decades
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following a recession, a very severe one at the beginning
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of the eighties and a milder one but a lengthier
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and more painful one in some senses. In some sense
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in the early nineteen nineties. I say that because unemployment
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was high from many years. Following the early nineties, recession,
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growth grew and an average this is average annual, so
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directly comparable to the numbers that Chuck just gave you.
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Three point one percent during the go go nineteen eighties,
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three point four percent during the go go go nineteen nineties.
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So relative to those two decades, the past four quarters
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and I'm just going to call it three percent growth
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look pretty good. Not quite at that historic pace that
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we all associate with a very strong economy. But keep
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in mind, and I'll wrap up this little point with this.
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The economy's potential, or its speed limit, if you like,
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can be calculated. It's a function of underlying forces that
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add up to the productive capacity of the economy. We
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can actually estimate that, and that's about two percent. So
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relative to the economy's potential, growth has been excellent. I
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know that's not consistent with everybody's I caveat this every time,
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because some of you are shouting at the radio. Growth
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has not been good. The economy stinks. I know, unemployed people.
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I hear you.
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Speaker 4: These are just averages, but.
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Speaker 3: Relative chuck to either historical experience, which isn't the best
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reference point because the economy changes over time, relative maybe
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more pertinently, to what economists think the economy can can do,
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can add year over year. Sure, growth has been very
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very strong. So have big federal So have federal deficits.
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Those help propel growth. So you could argue that some
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of this is due to excess government stimulus, which we
7:24
don't need. But putting that aside, for the moment, growth
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has been really strong.
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Speaker 2: And I think if the other stuff that I've seen,
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you know, with regards to this is, look, if you
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look at this in terms of, hey, how does this,
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you know, stack up to where people thought growth was
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going to be. If you look at you know, the way,
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look at the projections and kind of the long term trends,
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we're continuing to see above trend growth compared to what
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we saw in the twenty tens.
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Speaker 3: That's a good way to put the point I was
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trying to make earlier. You could think about GDP what
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the economy should be doing as relative to potential GDP,
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which is sort of a bottom up approach, or just
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drawing a trend line. It's not quite that simple, but
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you estimate a trend and then look at where we
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are over above right in line. For a lot of
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years we were below the pre Great Recession trend. We've
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finally gotten back up to the point where we're more
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or less at a reasonably estimated trend line. So the
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long winded way of saying, we are doing about as
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well as anybody could have expected or hoped.
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Speaker 5: Mark.
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Speaker 2: When we talk about any security in the investment world,
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the disclaimer that immediately follows is past performance is not
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indicative of future results. Is this true with GDP as well?
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Does past GDP predict what's coming in subsequent quarters?
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Speaker 4: Yeah?
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Speaker 3: Great question. So there is some persistence, the researcher would
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say to GDP, there's persistence to all the big macroeconomic
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measures that we report on here, unemployment, inflation, they have
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more simply put momentum. So yeah, Chuck, if I were
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building a simple model and you told me, well, GDP
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last quarter was two point zs eight percent. As we
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just learned this morning. In the quarter before that it
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was about three percent, etc. I don't remember the exact number.
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What do you expect it to be next quarter, sir?
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Absent a shock, apps in a surprise that is, which
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by definition nobody can predict, I'd say, well, economies that
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are growing tend to continue to grow. Think of your
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daily routine. You're not going to mix it up unless
9:17
some surprise hits that forces you to in aggregate that
9:21
translates into what the economy's doing, So chuck. My best
9:24
guess would be continued steady growth, unless, of course, a
9:27
surprise hits, which they always do. That's the nature of
9:30
a surprise. Sure, take us off track.
9:32
Speaker 2: Let's take a quick break here. When we come back,
9:35
talk about what's going on in the treasury market, and
9:38
also a little bit of breaking news as it relates
9:40
to an AI related company, and we'll cover that when
9:45
we return.
9:47
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Speaker 2: On March eighteenth of this year, super Microcomputer Incorporated was
10:56
added to the S and P five hundred. At the time,
11:00
it traded at a split adjusted price of about one
11:04
hundred dollars a share. It did a ten for one
11:06
split shortly after, but that's that's where it was today.
11:10
The share price is thirty five dollars a share, down
11:13
twenty eight percent today and sixty five percent from that
11:18
from the date was added to the S and P
11:20
five hundred today. Why is it down twenty eight percent? Well,
11:23
they here's the deal with super Micro. Ernst and Young
11:27
just resigned as their auditor. They were hired about four
11:30
months ago because of well, basically super Micro came out
11:34
and said, hey, we have material problems with our financial
11:38
reporting and we need a third party auditor to come
11:41
in and, you know, figure out what's going on. Ernst
11:45
and Young, in its resignation letter I'm quoting here from CNBC,
11:48
said it was quote unwilling to be associated with the
11:51
financial statements prepared by management and the accounts. He also
11:54
raised concerns about the board's independence from CEO Charles Lang
11:57
and other members of management. Guys like Ernst and Young
12:03
basically came out today and said there's nothing to support
12:07
any of the documents that they've prepared previously. It's not
12:13
going so far as saying, hey, they're committing fraud, but
12:17
it's about as far as an accountancy will go.
12:20
Speaker 3: Do you and Mike Armstrong talk about Hindenburg research and
12:23
that just the devastating, brilliant work they've done to expose
12:28
potential fraud of companies. Like we've talked about it to
12:30
a couple of cases. So Hindenburg did they were in
12:33
on this, You guys did talk. I'm sorry, I don't,
12:36
and everyone.
12:37
Speaker 2: Was like criticized them. They're like, oh, you just hate AI.
12:39
You don't know you understand the growth. It's like the
12:42
literal accountants that they hired to try to give some
12:45
legitimacy to the company walked away in four months because
12:49
they're like, Nope, can't do it. This doesn't make any sense.
12:53
Speaker 3: Hindenburg again, really keen incisive. You guys already reported on this,
12:58
so I won't rash it, and I don't know enough
13:00
to say anything insightful about it other than that they're
13:04
right every single time they get trashed, but they end
13:07
up being right in a broad sense.
13:10
Speaker 2: Sure. So this here again has super micro shares down.
13:15
They were down at one point today as much as
13:17
thirty five percent now about twenty eight percent. Uh And
13:22
this coupled with a somewhat lackluster earnings report from AMD,
13:26
has anything that's kind of AI adjacent getting hit pretty
13:32
hard today as a result so we'll see where things
13:36
end up going for super Micro. Again, I'm sure there's
13:39
some you know, memestock people that are like, oh, like,
13:42
what a great, you know, opportunity, and look at it
13:44
might ultimately be. I have no idea. I've literally never
13:47
even looked at the company, like, I have no idea
13:50
what they are or aren't doing. But I do know
13:52
that when your accountant resign saying they are unwilling to
13:56
be associated with the financial statements prepared by management, it's
14:01
not really a good sign. It's not something that you
14:05
usually see at the bottom. It just it doesn't feel
14:10
good when the when the accountants who have they have
14:14
one job make sure the numbers add up, are saying
14:18
we can't get this to add up. It's just kind
14:21
of concerning to me.
14:22
Speaker 3: You got to read the Hindenburgh if you're interested in this,
14:24
not not you check, but you listening. If you're interested,
14:27
just google Hindenburg and SMCI.
14:29
Speaker 4: Their reports.
14:30
Speaker 3: Hindenburg's reports are very entertaining. They're also excellent writers.
14:35
Speaker 2: And they've also By the way, super Micro has hired
14:38
a law firm and forensic accounting firm to review their
14:41
internal controls as well. Those reports have not yet been
14:43
published and are still ongoing. Again. It's it's not great
14:51
when your auditor says piece like we're gone. Let's talk
14:56
a little bit about the treasury market. This piece from
15:00
Bloomberg all quote, your treasuries are on track for their
15:02
worst month and more than two years, amidst signs of
15:04
economic strength. The reason why that's the case, when you
15:07
have economic strength, you generally say, Okay, I need to
15:11
demand more as a risk free rate of return, because
15:15
I think I'll be able to get more in risk
15:17
assets if the economy is stronger. And so you've had
15:21
treasuries selling off over the course of the really last
15:25
six weeks or so, pretty much since the Fed mating
15:27
where they cut interest rates, and it has raised the
15:30
question for people, hey, is this something? Are we're heading
15:33
back to five percent on the ten year treasury? Is
15:37
this where we're going? And ultimately, I don't think any
15:41
of us know for certain, but I think that when
15:44
you look at the economy today compared to a year ago,
15:48
which is pretty much when the ten year was at
15:50
five percent, it's an economy that the under the hood
15:54
stuff looks a lot slower, even if the top line
15:57
numbers are still printing pretty similar to what they did
16:00
last year.
16:00
Speaker 3: Yeah, the moving longer term rates since the Fed East
16:03
on September eighteenth was when they made the announcement and.
16:07
Speaker 2: Longer term rates sixteenth.
16:09
Speaker 3: It's interesting. It's a good reminder that interest rates are
16:12
not like a unitary concept. They're not a monolith or
16:15
whatever your preferred analogy is when something's not homogenous. I
16:19
can't think of a non sort of pretentious sounding way
16:22
of saying this. There's all kinds of different industr the
16:27
and the yield on the ten year is up nearly
16:31
sixty five point sixty five percentage points, with sixty five
16:35
basis points in finance parlance. Since that happens, so this
16:38
seems paradoxical. Rates have gone up for a lot of
16:41
different types of loans, and to your point, a growing
16:44
economy needs loans, So it makes sense that if the
16:47
economy is going to continue on its current path, interest
16:49
rates aren't going to collapse or even go down. Indeed,
16:52
they've gone up, and we can actually we can decompose
16:55
that rise into inflation expectations. Are they going up because
17:00
people are worried about increasing prices, and as a bondholder,
17:03
you need to be compensated for increased inflation, or are
17:06
they going up because of say, improved economic prospects, or
17:09
because people need to be paid more to hold the
17:12
ballooning federal debt. And the answer is it's mostly real,
17:16
which could mean debt concerns we don't really know, or
17:19
it could mean enthusiasm about economic growth prospects.
17:25
Speaker 2: So I think that, you know, in looking at this,
17:29
ultimately none of us have a crystal ball for exactly
17:31
where the economy is going to go. But I think
17:33
it's a fair bet to say, hey, if the data
17:37
continues to come in strong, you know, and make no
17:41
mistake that, like, the last six weeks of economic data
17:44
have been really good aside from again, then we get
17:47
a Jolts report like we got yesterday. That's kind of poopy,
17:51
I think, is the technical term. And you're like, oh, gee, like,
17:54
are we kind of heeading back to where things were,
17:56
you know, in the summer as far as labor market concerns.
17:59
But look that the broad data over the last six
18:02
weeks has been better, and if that continues, you say, okay,
18:07
the Fed might do a couple more rate cuts, but
18:10
maybe that estimate they have of where the neutral rate
18:13
is is way too low, and maybe the neutral rate
18:15
is closer to four and a half to five percent
18:18
instead of you know, three to three and a quarter percent.
18:21
Speaker 3: Yeah, higher interest rates are evidence of economic health and vigor.
18:26
Low interest rates are.
18:27
Speaker 2: Well, they can be all ll sql.
18:30
Speaker 3: I'm sorry, Yeah, to the extent that.
18:32
Speaker 4: I'm sorry.
18:33
Speaker 3: Yeah, now you're right, you're right, you're right. There there
18:34
are different companies. I just finished saying and then stepped
18:37
on my own last point. Yeah, yeah, it depends on
18:40
why they're going up. But all l sql uh. Interest
18:42
rates that are in the doldrums I ere low and
18:44
languishing there are generally symptoms of economic malaise. It's not
18:48
a good you don't want really. For example, yeah, they
18:52
would say they're happy with their because they're their GDP
18:54
per capital is still high, but they don't grow very fast.
18:57
Speaker 4: No, right, and we.
18:57
Speaker 3: Demand fast growth here. We want we want to what
19:01
did Kennedy say the queen? Oh that was Ricky Bobby,
19:06
same thing, jfk Ricky Bobby.
19:08
Speaker 2: Yeah, I think it's basically the same.
19:10
Speaker 3: Yeah, A lot of wisdom either way.
19:11
Speaker 2: It's uh, listen, if you're not first your last, I
19:14
mean that is the American way, and that's kind of
19:18
how we're looking at it from an economic growth perspective.
19:20
Speaker 3: Yeah, you've got to run fast just to stand still,
19:22
JFK said, And to me that that sums up what
19:25
that was forst.
19:26
Speaker 1: Gump.
19:26
Speaker 2: What Jesus Sorry, No, I'm kidding.
19:29
Speaker 3: Can you dump that so my mom doesn't hear me?
19:31
Speaker 4: No? No, take the name of the.
19:33
Speaker 2: Lord and Dane probably JFK. We'll we'll take a quick
19:35
break and then we'll do uh, Wall Street Watch, and
19:37
Todd Letsky will come and take your place after this
19:39
as well.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter at
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TFE show. Breaking business news is always first right here
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on the Financial Exchange Radio Network. Time now for Wall
19:54
Street Watch a complete look at what's moving markets so
19:57
far today right here on the Financial Change Radio Network.
20:01
Speaker 6: Well, the busy week on Wall Street continues as traders
20:04
react to big earnings reports from Alphabet AMD and others,
20:08
as well as the first estimate of third quarter GDP
20:10
unveiled earlier this morning, which showed the economy grew two
20:14
point eight percent, slightly weaker than estimates of two point
20:17
nine percent. At the moment, the Dow is up by
20:20
a third of a percent, SMP five hundred is up
20:23
nearly a quarter of a percent, and the Nasdaq is
20:26
up by a third of a percent as well. Russell
20:27
two thousand is up nearly one percent. Ten year Treasureel
20:31
down by three basis points at four point two to
20:34
three percent, and crude oil is up one in a
20:38
third percent, trading just above sixty eight dollars a barrel.
20:42
Alphabet up by over six percent after the Google parent
20:45
company posted strong third quarter earnings, where it's revenue jumped
20:49
fifteen percent, driven by strong cloud revenue growth, up thirty
20:53
five percent from a year ago. Breaking news in the
20:56
semiconductor space this morning after super Microcomputer disclosed its auto
21:00
Ernst and Young had resigned following months of disagreement with
21:03
the firm over its governance and board independence. Super Micro
21:07
shares down by twenty eight percent. Meanwhile, AMD down by
21:11
nine percent after the chip maker's third quarter earnings came
21:14
in line with expectations while it's revenue beat. However, the
21:18
company's revenue I'll look for the fourth quarter fell just
21:20
short of estimates. Elsewhere, social media company Reddit reported its
21:24
first quarterly profit as a public company, where its revenue
21:27
handily beat expectations on the heels of increases in advertising
21:31
in data licensing sales. Reddit shares up by thirty six percent.
21:36
According to the Wall Street Journal, Visa plans to lay
21:38
off about fourteen hundred employees and contractors. Separately, the credit
21:42
card Giant posted better than expected revenue and profit, sending
21:45
that stock up by three percent. In Microsoft, Meta, Coinbase,
21:49
and Robinhood are all scheduled to report their third quarter
21:52
earnings after today's closing bell. I'm Tucker Silvan.
21:56
Speaker 1: That's Wall Street Watch. This is Ask Todd on the
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and probate law. Visit Cushingdolan dot com. Now here's Todd
22:23
Lutsky as problems.
22:25
Speaker 2: We're now joined by Todd Lutsky from the law firm
22:28
of Cushing and Dolan. The segment here has asked Todd
22:31
and we got the phone lines open so you can
22:33
ask Todd your questions about your estate plans. Eight eight
22:39
eight two zero five two two sixty three. That is
22:42
the number to call. Last few weeks, we have been
22:45
getting quite a few calls, so if you do want
22:47
to make sure that we get to you, call early.
22:50
It's the only way to do it. Eight eight eight
22:53
two zero five two two sixty three again is the number,
22:57
and we're happy to take your calls for again your
23:00
questions with Todd. That number again is eight eight eight
23:04
two zero five two two six three. Mister Latsky, how
23:09
are you today? I'm doing great? You uh good. I
23:12
got asked yesterday if someone someone asked me if I
23:16
could name a country that does not have the letter
23:20
R in.
23:20
Speaker 4: It, country that doesn't have the letter ARE in it.
23:23
And I said, no way, no, no, oh, yeah, that's good, yeah, norway, Todd.
23:29
Speaker 2: I want to talk a little bit about the current
23:31
state of federal estate taxes. What are the current exemption amounts,
23:37
what are the current tax rates like today?
23:40
Speaker 7: So those are going to be changing too, so it's
23:43
good that we're sort of talking about those. You've taken
23:46
all the stuff where I'm gonna go todd all right, Sorry,
23:49
So today I only asked you where they are today.
23:51
Speaker 4: Today I'm trying. I'll try to be a good witness.
23:54
Speaker 2: Okay, I appreciate that.
23:55
Speaker 7: Today the Massachusetts estate tax exemption is two million, okay,
24:02
the federal estate tax exemption is thirteen point six one million,
24:09
and the federal gift tax exemption is thirteen point six
24:15
to one million. And there are no state gift tax
24:21
is except Connecticut.
24:23
Speaker 2: Let's say that you are over those thresholds, what's the
24:26
actual tax rate, Like, how much do you actually have
24:29
to pay if you're over the Massachusetts or federal estate
24:32
tax thresholds?
24:33
Speaker 7: So federally it's a flat forty percent, So if you're.
24:38
Speaker 4: Wor on the overage or on everything, so it's on
24:41
the overage.
24:42
Speaker 7: So federally, you would calculate it by saying, let's say
24:46
i'm worth I'm worth twenty million, and I can shelter
24:51
just round it to thirteen million for easy numbers, right,
24:55
So that means that there is seven million subject to tax. Okay,
25:00
the amount over you take this seven million, and you
25:02
hit it really pretty much with a flat forty percent.
25:05
There's a little bit of a calculation on a chart
25:07
you use, but you're pretty close, you know, So if
25:09
you took seventy times forty percent, it gives you a
25:11
pretty good idea of where you're at. That's a lot
25:14
of tax two point eight million.
25:16
Speaker 2: What does the situation look like as we head into
25:20
twenty twenty five? Are there any changes expected next year?
25:24
Speaker 4: There is.
25:24
Speaker 7: Let me begin with the gift tax exemption, because the
25:29
gift tax in the federal estate tax exemption are the same.
25:33
But on the gift tax side there's actually two components.
25:36
There's something called the present interest exclusion, which means today
25:43
it is eighteen thousand dollars per year per person that
25:49
you can give right and in twenty twenty one, I'm sorry,
25:54
in twenty twenty five, it's going to go to nineteen.
25:57
It increases by one thousand and and the federal exemption
26:04
and by the way, that's the amount you can give,
26:06
I say said annually per year per person. The federal
26:10
estate tax and federal gift tax exemption are currently thirteen million,
26:14
six y ten, and they are jumping up to thirteen million,
26:19
nine ten. I believe thirteen million nine in change. I
26:23
don't have the exact number, but that's a big jump
26:25
from thirteen six to thirteen nine. Okay, so those will
26:30
be the new federal estate and federal once in a
26:33
lifetime gift tax exemptions, and the state. Staying at two,
26:38
talking with Todd W. Lotski from the law firm of
26:39
kushingan Dolan. If you've got questions about your estate plan,
26:43
this is the time to talk to Todd right now,
26:46
live on air. Eight eight eight two zero five two
26:51
two sixty three is the number.
26:52
Speaker 2: We still have room on the phone lines. If you've
26:55
got questions for Todd. That number is eight eight eight
26:59
to zero two two six three. We're gonna take a
27:03
quick break here, but when we come back, it's gonna
27:06
be right to your questions with Todd. Again, we still
27:09
have room on the phone lines at eight eight eight
27:11
to zero five two two sixty three. Get calling. When
27:15
we return, it's right to your questions with Todd. That
27:17
number one more time is eight eight eight to zero
27:21
five two two sixty three.
27:24
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:27
only here on the Financial Exchange Radio Network. You're listening
27:33
to Ask Todd with Todd Lutsky on the Financial Exchange
27:36
Radio Network.
27:49
Speaker 2: All right, Todd, We've got a few callers for you here.
27:51
Let's go first to Eileen in Chelsea.
27:54
Speaker 4: Eileen, you are on with Todd Lutsky.
27:57
Speaker 5: Hi.
27:58
Speaker 4: Hello, Hello, go ahead.
28:03
Speaker 8: Hi.
28:03
Speaker 5: Yeah. So, my mom is ninety and she recently went
28:07
into assisted here privately paid uh huh, and she is
28:13
in the process of selling her condo.
28:15
Speaker 4: Huh.
28:16
Speaker 5: So at this point we are not sure what to
28:19
do with like if we should just put it wad
28:23
have put it for my mom because she's going to
28:25
need it for her care? Here?
28:28
Speaker 7: Yeah, let me ask you this is is she going
28:32
to be able to stay in the assisted living you
28:34
thing for for a while? I mean, it's based on
28:37
her health. It's not like it's declining and she needs
28:39
to go to a nursing home.
28:43
Speaker 5: No, we're hoping that she can stay there and go
28:46
through all her money and stay as long as possible.
28:48
She's in big care. You know, she has a walker,
28:51
but she's healthy.
28:53
Speaker 7: And is there other money that your mom has forget
28:57
the house for a minute, but by the way, how
28:58
much could you sell the condo for?
29:01
Speaker 5: I'm guessing maybe four hundred all.
29:05
Speaker 7: Right, And is there other money that your mom has?
29:08
Other than that four hundred. Let's assume that becomes four
29:11
hundred thousand for the moment. But is there other money
29:14
currently that she can use to pay the assisted living?
29:18
Speaker 5: Yeah?
29:19
Speaker 4: About how much?
29:21
Speaker 5: Probably about eighty all.
29:22
Speaker 7: Right, so not a lot there for the assisted living
29:25
at the end of the day. So the four hundred
29:26
sounds like it will be needed. Now my thought would be,
29:30
you know, in the event over the however long it
29:32
takes to spend that eighty, it's going to last over
29:34
a year anyway, I would think in the assisted living
29:39
and if you want, you can wait a year only
29:42
because if her health does decline and she went to
29:46
a long term care facility, a house by itself, as
29:50
a house is a non countable asset, so at least
29:54
she'd be eligible for you know, Medicaid benefits, and you'd
29:58
pay a lot less money in the nursing home if
30:01
her health declines and she goes there. So you know,
30:05
I wouldn't jump to sell the house because it's it's
30:08
a possibility that you could save it. Whereas if you
30:11
convert it to money and you wait a year and
30:14
she needs the same thing happens, she needs you know,
30:17
long more care, then it's money, and it's a lot
30:21
harder for a ninety one year old to actually try to,
30:24
you know, save those dollars. It can be done, but
30:28
it's a little easier in the form of a house.
30:30
Doesn't mean you don't sell it. I just want to
30:32
give you those options. But if you do sell it, yeah,
30:34
go ahead, sell it. The money will sit in her
30:36
bank account. Hopefully one of you have power of attorney
30:39
that can you know, administer the money, pay the bills,
30:42
pay the assisted living for her, and likely with a
30:45
two hundred and fifty thousand dollars exclusion for selling her
30:47
primary residence, She's probably not going to have much capital
30:50
gains tax to pay on the property. So those are
30:53
your two options. But yes, she could absolutely sell it
30:56
or hang on to it.
30:58
Speaker 4: Folks.
30:59
Speaker 7: Speaking of hanging on one of the things we have
31:01
a guide that we are coming up to the end
31:03
of the month on in terms of getting you this information.
31:08
It is why name your estate and IRA beneficiary. It's
31:11
right near the end of the month. It is one
31:13
of these assets that are very complicated in dealing with
31:16
your estate from an.
31:17
Speaker 4: Estate planning standpoint.
31:19
Speaker 7: It has both an income tax issue and an estate
31:22
tax issue, and that's what makes it complicated. It's hard
31:27
to plan for. But this guide why name your estate
31:30
and ira beneficiary is under the New Secure Act. It
31:34
explains to you in here how you can actually name
31:38
the estate provided you generally would do this if you're
31:41
married and you're at seventy three years of age. You
31:45
name the estate the beneficiary and you can now shelter
31:49
it for estate tax purposes and at the same time
31:53
immediately protected from the nursing home with no five year
31:56
waiting period for the surviving spouse. It seems a little complicated, folks,
32:01
but it's really worth your time to take a look
32:04
at how this works. So we are at the end
32:06
of the month, call and get the guide eight six
32:08
six eight four eight five six nine nine or Legal
32:12
Exchange Show dot com again eight six six eight four
32:16
eight five six ninety nine or Legal Exchange Show dot com.
32:21
Speaker 2: Todd, I've got another caller for you, hero. Let's go
32:23
to John in Sandwich. John, what is your question for
32:26
Todd Lutsky?
32:29
Speaker 8: Thanks for taking my call. Sure, my father passed away
32:33
in February. He was ninety seven years old. He has
32:37
no assets, I mean, no house or anything. The only
32:39
thing he has is about ninety plus thousand dollars in
32:43
its checking account. My question is to settle that out
32:47
maybe one more. My brother and I are both named
32:50
in the will as the ones to get to split
32:53
that money, So do I have to go to probate
32:55
for that? And number two is and I just can
32:58
we just split it out all in one chumper? Do
33:01
we have to do that? Eighteen thousand fit per year?
33:04
Speaker 7: So yeah, that's a great, great question. So let me
33:07
ask you a few follow up questions, and this one
33:09
is really going to be the most important. Is that
33:12
account with the ninety thousand dollars in it in your
33:16
dad's name alone? Or does it have your name listed
33:20
as a joint owner or your brother's name as a
33:22
joint owner.
33:24
Speaker 8: My name is in as a joint owner.
33:26
Speaker 7: So this has your dad's name and your name joint
33:30
on the account?
33:31
Speaker 4: Correct?
33:32
Speaker 8: Correct?
33:33
Speaker 5: Correct?
33:33
Speaker 7: Okay, So here's the lung and the short of it,
33:35
and folks, this is exactly why I don't love joint accounts.
33:39
But there's pros and cons here for you, John. So
33:42
here's the pros and cons.
33:44
Speaker 5: Uh.
33:45
Speaker 7: One, because it's a joint account, you do not have
33:49
to go to probate Okay, you do not have to
33:52
go to probate. It would pass to the surviving joint owner. However,
33:57
it passes to the surviving joint owner not only outside
34:01
of probate. You could just go in and take the money.
34:04
But if effectively your dad effectively disinherited your brother because
34:10
it's your money. Now, I'm not saying you wouldn't do
34:12
the right thing and give him half, but you don't
34:17
have to. And this is why I'm telling this to
34:18
everybody else that's listening. If you run into this situations,
34:21
that's why we don't do this, because there's no obligation
34:25
by the surviving joint owner to actually give it to
34:29
the child and say, I want to do what dad
34:31
wanted and he really wanted to treat people equally, even
34:34
though his will says that by skipping the will and
34:37
bypassing the will and going directly to you, you don't
34:40
have to give it to him. Now, let's assume you say, well, Todd,
34:42
I want to fine, You're allowed to give him half
34:46
forty five thousand dollars. If you want to go eighteen
34:50
thousand per year per person, you can do that, and
34:53
those don't require any gift tax filings and no gift
34:56
tax at all. You have the ability though, to give
34:58
away thirteen points six million without hurting you, so there'll
35:02
be no estate tax or no no gift tax on that.
35:04
If you want to just give them the forty five
35:06
in one fell swoop, so that's an option for you.
35:10
So those are your two options on the gifting front.
35:12
Now I would check the will because in our document
35:16
we have a convenience clause in the will. We know
35:18
people do this as a matter of convenience, right. Sometimes
35:24
people just throw on like your dad threw your name
35:26
on there, because you know you're close by, you can
35:30
pay the bills, you can access the money, and it's
35:33
done out of convenience. So the benefit of that is
35:37
we put in our trusts in our wills that say
35:40
there may be joint accounts when I die, and I
35:44
acknowledge that, but I want them treated as that for
35:47
convenience only, and ignore the avoiding probate effect of the
35:53
joint account and instead ordering those accounts to go to probate,
35:58
to go through the will and then be paid out
36:01
according to the will. So now nobody's disinherited. The upside
36:05
of that is that now you don't have to worry
36:07
about gifting. There's no worry about getting him forty five
36:11
thousand dollars because it would be through the will and
36:14
there's no gift involved.
36:16
Speaker 4: Just do it.
36:16
Speaker 7: The only downside is it's got to go to probate
36:20
in order to do that, so you got to trade
36:23
those off. But the good news is we do it
36:25
because we don't want to accidentally disinherit children. We don't
36:29
want to have a parent, you know, accidentally create this
36:33
this what could be riffed. That probably doesn't exist between
36:36
you and your brother, but could exist among family members
36:39
saying hah, three bank accounts were in my name and
36:41
they're all mine now and I don't have to give
36:43
them to you, and arguably without that convenience clause in
36:46
the will, the answer is that's right, you don't have to,
36:50
So keep that in mind when when you're drafting wills
36:53
out there, folks, if you have it. But that's the answer.
36:55
Could be a little tricky. Seemed like a simple question, Chuck,
36:58
but had a lot of issues with it.
37:00
Speaker 4: Todd.
37:00
Speaker 2: I certainly appreciate you joining us today. Thank you so
37:02
much for the time, and we'll be talking to you soon.
37:05
Thank you always a pleasure.
37:08
Speaker 1: This has been asked Todd on the Financial Exchange Radio network,
37:12
Ask Todd with Todd. Lutsky has been presented by Cushing
37:14
and Dolan, serving Massachusetts and New England for more than
37:17
thirty years, helping families with the state and tax planning,
37:20
Medicaid planning, and probate law. Call eight hundred and three
37:23
nine three, four thousand and one or visit Cushingdolan dot com.
37:26
The views expressed in this segment are solely those of
37:28
Cushing and Dolan Armstrong advisor. He does not provide any
37:31
legal or tax advice. Please consult with your legal or
37:33
tax advisor on such matters. Cushing and Armstrong do not
37:35
endorse each other and are not affiliated.