Latest / The Financial Exchange Show / Markets Surge on Ceasefire, Oil Plunges, and What Comes Next

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Markets Surge on Ceasefire, Oil Plunges, and What Comes Next · The Financial Exchange Show

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Speaker 2: Chuck, Paul and Tucker with you here, and as we
1:12
Speaker 2: kick things off on a Wednesday, the big news that
1:15
Speaker 2: broke a little bit after six pm yesterday the United
1:19
Speaker 2: States and Iran agreeing to a two week ceasefire in
1:24
Speaker 2: which they are going to begin conducting negotiations for a
1:29
Speaker 2: broader resolution to the conflict that the region has been
1:33
Speaker 2: in for the past five and a half weeks. As
1:37
Speaker 2: you would expect, market's reaction is very positive. You've got
1:41
Speaker 2: all major US indices up north of two percent. You've
1:46
Speaker 2: got bonds being bid to the tune of the tenure
1:50
Speaker 2: Treasury being down to four point twenty six percent, down
1:53
Speaker 2: eight and a half basis points. You've got oil prices
1:57
Speaker 2: falling as well, down anywhere from about thirteen to fifteen
1:59
Speaker 2: percent on your major benchmark oil prices. And so the
2:06
Speaker 2: immediate reaction that you have in markets is exactly again
2:09
Speaker 2: what you would expect, which is a move back to
2:12
Speaker 2: a risk on posture. The big thing that I think
2:17
Speaker 2: is worth watching over the next couple of weeks is
2:19
Speaker 2: how the situation continues to evolve. And I guess Paul
2:24
Speaker 2: kind of lay up my initial thoughts and then we
2:26
Speaker 2: can kind of go from there. But basically, look, this
2:30
Speaker 2: is the first major positive sign that we've seen in
2:34
Speaker 2: the last five and a half weeks as far as
2:36
Speaker 2: a de escalation, yep, it's also one that still has
2:40
Speaker 2: a number of questions related to it. The first is
2:44
Speaker 2: that Israel and Iran are still lobbing projectiles back and
2:47
Speaker 2: forth at each other, and Iron's also still striking other
2:49
Speaker 2: parts of the region. So this is somewhat to be
2:54
Speaker 2: expected in the first day or so after the ceasefire
2:58
Speaker 2: for a couple of reasons, the first being Iran. As
3:01
Speaker 2: we talked about at the outset of this, they apply
3:03
Speaker 2: what's called a mosaic defense structure, where local units are
3:07
Speaker 2: able to operate autonomously. There's a very good chance, based
3:11
Speaker 2: on you know, communication in Iran, that some of these
3:14
Speaker 2: units simply have not received communication of the ceasefire yet.
3:18
Speaker 2: It takes a little while, and they may also just
3:20
Speaker 2: be disregarding it because they say, no, we're going to
3:22
Speaker 2: operate as we need to, and we don't necessarily trust that.
3:26
Speaker 2: So that's to be expected on that side. On the
3:30
Speaker 2: Israeli side, Israel very much by all accounts, wants to
3:34
Speaker 2: continue military action in Lebanon, But Iran is of the
3:39
Speaker 2: opinion that this ceasefire would include any action against Hesbola
3:44
Speaker 2: targets in Lebanon, and so it might take a little
3:47
Speaker 2: bit of time to sort things out there. So I
3:50
Speaker 2: wouldn't be surprised if you see, you know, some continued
3:52
Speaker 2: fighting over the course of the day, If it continues
3:56
Speaker 2: through the rest of the week, it does potentially get
3:59
Speaker 2: to a point where where you know, you start wondering,
4:01
Speaker 2: doesn't jeopardize the larger you know, idea of a cease
4:05
Speaker 2: fire if the firing has not ceased. Sure other questions
4:11
Speaker 2: that we'll need to answer the next couple weeks. There
4:14
Speaker 2: is a ton of debate over exactly what has been
4:20
Speaker 2: agreed to a knot at this point. Again, you have,
4:24
Speaker 2: you know, significant differences between the Iranian negotiating position, their
4:28
Speaker 2: ten point plan, and the us IS fifteen point plan
4:31
Speaker 2: that they brought to the table. Can you bridge those
4:34
Speaker 2: differences and can you actually get to something that sticks there?
4:38
Speaker 2: Don't necessarily know, We'll see again. I think there's there's
4:42
Speaker 2: clearly some positive momentum, but these are questions that are
4:44
Speaker 2: going to need to be answered, and they can be
4:46
Speaker 2: answered positively don't get me wrong, I'm just laying out
4:49
Speaker 2: what needs to happen here.
4:51
Speaker 3: Other questions that we need to see.
4:53
Speaker 2: Iran as part of this, has said that they are
4:55
Speaker 2: going to allow traffic through the straight of Hormus and
4:58
Speaker 2: a controlled manner consistent with you know, their operating procedures.
5:03
Speaker 2: We don't know if that means full resumption. We don't
5:05
Speaker 2: know if it means quarter resumption, half resumption. We have
5:09
Speaker 2: no idea. They also have indicated that they are not
5:12
Speaker 2: yet willing to let ships through that are US or Israeli.
5:16
Speaker 2: So again there's there's some questions as to exactly what
5:20
Speaker 2: resumes on that front. Other ones. The big thing oil
5:25
Speaker 2: production remains heavily offline in the Persian Gulf region. Twelve
5:29
Speaker 2: and a half million barrels a day are shut in
5:31
Speaker 2: across the various Persian Golf countries. And so what you
5:35
Speaker 2: have right now is that somewhere in the ballpark of
5:38
Speaker 2: four hundred million to four hundred and fifty million barrels
5:41
Speaker 2: have been shut into this point, and that number continues
5:44
Speaker 2: to move. And this is where you get into kind
5:46
Speaker 2: of a catch twenty two situation where ships won't tankers
5:50
Speaker 2: won't want to transit in unless they have cargoes to
5:54
Speaker 2: pick up. But the producers won't want to pump, or
5:57
Speaker 2: rather won't be able to pump unless they have ship
6:00
Speaker 2: that they can offload into, because all the on land
6:03
Speaker 2: storage in the Persian Gulf is already full. So it's
6:06
Speaker 2: kind of a chicken and egg scenario. You've also got
6:09
Speaker 2: some longer term things that you're gonna have to work through,
6:11
Speaker 2: repairing damaged infrastructure and things like that. And so even
6:16
Speaker 2: if things go the best case possible where we do
6:19
Speaker 2: get these questions resolved in the coming weeks, it's gonna
6:22
Speaker 2: be multiple quarters before the area and region are back
6:26
Speaker 2: to anything resembling normalcy, And so you could still see
6:31
Speaker 2: some unexpected glitches in supply chains and product pricing and
6:35
Speaker 2: things like that as we go through the remainder of
6:38
Speaker 2: the spring and summer at the very least, So I
6:41
Speaker 2: think again room for optimism. But let's see how things
6:45
Speaker 2: develop here and we'll see what the next couple weeks bring,
6:48
Speaker 2: and hopefully it is more good news as far as
6:51
Speaker 2: continuing to see a resumption of more normalized activities rather
6:56
Speaker 2: than a resumption of hostilities after a brief break.
6:59
Speaker 4: Yeah, the biggest takeaways from this is, certainly it's a
7:02
Speaker 4: step in the right direction, and obviously equity markets are
7:04
Speaker 4: reflecting that this morning and early trading, But like you mentioned,
7:08
Speaker 4: things that are worth monitoring over the course of the
7:10
Speaker 4: next few weeks here is there still are significant differences
7:14
Speaker 4: to sort of overcome between what the US would like
7:16
Speaker 4: to see happen versus what Iran would like to see happen,
7:20
Speaker 4: and in particular with the straight up home moves, which
7:22
Speaker 4: has been the biggest economic focus of this whole issue. Yes,
7:26
Speaker 4: they have opened it up, like you mentioned, with their
7:29
Speaker 4: military coordination. Ultimately it's not something the US is going
7:33
Speaker 4: to want that this is the solution here going forward,
7:36
Speaker 4: that Iran would have influence on what happens with the Strait,
7:40
Speaker 4: which was previously able to be navigated without really concern
7:45
Speaker 4: of having to deal with the Iran military, So that
7:47
Speaker 4: one is something that is really bears worth watching. And
7:50
Speaker 4: then on Iran side of things, they would like the
7:52
Speaker 4: lifting of economic sanctions in place and guarantees of no
7:57
Speaker 4: more hostilities. All of those are sort of in the
8:00
Speaker 4: air and could be sort of undermined at any point
8:03
Speaker 4: in time. And then the other big takeaway regardless of
8:06
Speaker 4: you know, both sides coming to an agreement. Like you mentioned,
8:09
Speaker 4: is the energy infrastructure impact. While we do have West
8:13
Speaker 4: Texas Intermedia and all the major oil benchmarks selling off
8:16
Speaker 4: significantly today, like you mentioned, Chuck, this is going to
8:19
Speaker 4: take a while to sort out.
8:22
Speaker 3: It is very.
8:23
Speaker 4: Important for us to reiterate that this is not like
8:26
Speaker 4: turning on a light switch to get these plants back online.
8:29
Speaker 4: There's a lot that goes into this in terms of
8:32
Speaker 4: pressure underground and different considerations that you have with getting
8:36
Speaker 4: these plants back up online that will take weeks to
8:39
Speaker 4: sort out. And then you also have just some energy
8:41
Speaker 4: infrastructure like you mentioned, that has been completely decimated and
8:45
Speaker 4: the capacity is just offline that will take years to resolve.
8:48
Speaker 4: So all these shocks have to take sort of some
8:51
Speaker 4: time to play out. So those are probably the two
8:54
Speaker 4: biggest things that are going to be worth monitoring. Step
8:57
Speaker 4: in the right direction here. Markets are reflecting that, but
8:59
Speaker 4: we need to find out sort of what concessions are
9:02
Speaker 4: going to be made or what agreements are going to
9:03
Speaker 4: be made between the two countries, and then see what
9:05
Speaker 4: the energy infrastructure impact is going to be and how
9:08
Speaker 4: quickly we get to getting back trending in the right direction,
9:12
Speaker 4: because the slower this process takes, as you mentioned, the
9:15
Speaker 4: clock just continues to tick and more barrels continue to
9:18
Speaker 4: sit on ice and not be produced. So it's something
9:21
Speaker 4: that step in the right direction, but a lot of
9:23
Speaker 4: work to be done here.
9:24
Speaker 2: Yes, So again I think that my view remains the
9:28
Speaker 2: same as it's been from the beginning, which is, don't
9:31
Speaker 2: pay attention to what is being said publicly, because ultimately
9:34
Speaker 2: both sides are going to try to negotiate the best
9:36
Speaker 2: deal they can and want to appear to be saving face,
9:39
Speaker 2: you know, with their respective populations. But instead focus on, Hey,
9:44
Speaker 2: from an economic standpoint, the things that matter, when do
9:47
Speaker 2: transits pick up, what is the rate of pickup? What
9:50
Speaker 2: flows are going in both directions? You know, what can
9:53
Speaker 2: you see there that's going to be you know what
9:56
Speaker 2: determines this? And obviously, hey, do hostilities you know, continue
9:59
Speaker 2: to take down from the levels that we've seen this morning,
10:03
Speaker 2: and do we get to a point where they have
10:05
Speaker 2: ceased entirely? I think these are the questions that are
10:09
Speaker 2: worth asking right now because trying to sort through, well,
10:14
Speaker 2: this side saying they want this, and this one's saying
10:16
Speaker 2: they want Look, I want a pony, but it doesn't
10:19
Speaker 2: matter if I don't have a farm for one, you know.
10:22
Speaker 2: So ultimately you got to sit back and say, look,
10:25
Speaker 2: each side is going to negotiate as they do, but
10:28
Speaker 2: the stuff that matters to the world economy is not
10:32
Speaker 2: what they're saying. It's what is flowing through hor moves
10:36
Speaker 2: and what the region looks like as it adjusts to
10:39
Speaker 2: whatever the new reality is going to be, you know,
10:43
Speaker 2: once the conflict has.
10:46
Speaker 3: Fully ended here, so excuse me. So that's where we
10:51
Speaker 3: stand right now.
10:52
Speaker 2: Let's take a quick break when we return to talk
10:55
Speaker 2: a little bit about what's going on in gas prices.
10:58
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12:07
Speaker 2: So let's let's talk a little bit about what the
12:11
Speaker 2: current state of play, the new state of play means
12:13
Speaker 2: for oil and gas flowing out of the Persian Gulf
12:17
Speaker 2: and by extension, what it means for energy prices worldwide.
12:22
Speaker 2: Big take that I have on this, Paul is number one.
12:25
Speaker 2: In a perfect world, even if you get things moving
12:28
Speaker 2: right away, and this is data from Rory Johnston, who's
12:31
Speaker 2: an energy analyst, you've got twelve and a half million
12:34
Speaker 2: barrels of production that's shut in across the Persian Gulf
12:37
Speaker 2: right now. Even if they were able to start turning
12:40
Speaker 2: that stuff on right now, it takes a couple months
12:41
Speaker 2: for it to happen, and so you still have another
12:43
Speaker 2: few hundred million barrels of production that is offline during
12:48
Speaker 2: that time, and so you're gonna be dealing with some
12:52
Speaker 2: short term supply issues for a couple months even if
12:55
Speaker 2: things get turned on right now. Not so much in
12:57
Speaker 2: the US, but internationally, getting supply is gonna be a
13:01
Speaker 2: problem because you've got this air pocket where just stuff
13:03
Speaker 2: was not going out of the Gulf, and so supply
13:06
Speaker 2: is limited until that happens. But the other piece here
13:11
Speaker 2: is I've heard from a number of people who are
13:16
Speaker 2: shipping adjacent. Is that the term that we want to use.
13:20
Speaker 3: Sure, adjacent, I know the people, but I'll go with
13:22
Speaker 3: it shipping adjacent.
13:24
Speaker 2: And basically the sense that they have from chatting directly
13:29
Speaker 2: with people in this shipping industry is everyone wants to
13:32
Speaker 2: get their boats out of the golf because they've been
13:36
Speaker 2: stuck there for five weeks. The crews are nervous, they're tired,
13:39
Speaker 2: they're exhausted, they're hungry, like it's it's been a mess.
13:42
Speaker 2: So they're like, get our boats out. No one's in
13:46
Speaker 2: a huge hurry to send new boats in because they
13:47
Speaker 2: don't want more to get stuck right now, which is understandable.
13:50
Speaker 3: Like for two reasons.
13:51
Speaker 2: Number one, you don't want your boat being damaged in
13:54
Speaker 2: the event that something happens. Number two, Remember, the reason
13:57
Speaker 2: that you own big, giant ships that hold lots of
14:00
Speaker 2: stuff is really simple. It's to make money. And if
14:05
Speaker 2: it is riskier to make money doing anything going through
14:08
Speaker 2: horror moves than it is to go anywhere else in
14:10
Speaker 2: the world, shipping companies may simply say, hey, even with
14:14
Speaker 2: you know, insurance in this and that. Remember, insurance might
14:17
Speaker 2: cover the cost of the ship, it doesn't cover all
14:20
Speaker 2: of your lost cargoes for like future trips that you
14:23
Speaker 2: can't take if that ship gets sunk for whatever reason.
14:26
Speaker 2: And so ultimately you may have shippers say, yeah, let's
14:30
Speaker 2: get all of our boats out as quickly as possible.
14:32
Speaker 2: There's still you know, four hundred tankers of various sizes
14:35
Speaker 2: in the Gulf holding about one hundred and seventy million
14:37
Speaker 2: barrels of oil. Let's get those out as quickly as possible.
14:41
Speaker 2: Are we gonna send another four hundred boats right back in,
14:45
Speaker 2: let's seeze into this. So this becomes the problem number
14:48
Speaker 2: one of Hey, if you aren't seeing more boats coming
14:52
Speaker 2: in to pick up a bunch of new oil, then
14:55
Speaker 2: all of that shut in production. Doesn't come back online
14:58
Speaker 2: right away, like it doesn't start back up, and he
15:01
Speaker 2: doesn't even begin the process of starting up right away
15:03
Speaker 2: because they've.
15:04
Speaker 3: Nowhere to put it right.
15:05
Speaker 2: All the tanks are full in Kuwait, all the tanks
15:07
Speaker 2: are full in Iraq, all the tanks are full in
15:10
Speaker 2: the UAE, all the tanks are full in everywhere Bahrain,
15:14
Speaker 2: in Saudi Arabia, like you go through the list, they
15:17
Speaker 2: don't have any more storage. And then even once you
15:19
Speaker 2: do start, remember there's all kinds of damage that's been
15:22
Speaker 2: done to these facilities. When you're talking refineries, it might
15:25
Speaker 2: be weeks and months to get those repaired. When you're
15:28
Speaker 2: talking about some of the LNG facilities in Qatar specifically,
15:32
Speaker 2: the estimates that we've seen are three to five years
15:34
Speaker 2: of repairs because these things are so complex and there's
15:39
Speaker 2: so much power that goes into making natural gas into
15:44
Speaker 2: LNG that if anything is slightly off, the whole thing
15:47
Speaker 2: doesn't work. So it's going to be a process here.
15:51
Speaker 2: And the read through then to the United States is
15:57
Speaker 2: look in the short term overnight, yes, remember gas prices
16:01
Speaker 2: reflect what happened with oil the day before. Typically you
16:04
Speaker 2: ended up with West Texas. I'm sorry, with a regular
16:07
Speaker 2: gas moving up two and a half cents to four
16:09
Speaker 2: sixteen and four tenths. Diesel went up another two and
16:12
Speaker 2: a half cents as well to five sixty six and
16:13
Speaker 2: nine tenths.
16:15
Speaker 3: You're likely to see those prices.
16:17
Speaker 2: Come down a little over the next few days, probably
16:21
Speaker 2: from you know, four fifteen down into the three eighties
16:24
Speaker 2: three nineties is probably where you land anything from there.
16:29
Speaker 2: Don't be surprised if you maybe end up getting a
16:30
Speaker 2: little bounced, because over the next month or two supplies
16:33
Speaker 2: are likely to be constrained, and then if you see
16:37
Speaker 2: a conclusive improvement over the course of April and May,
16:41
Speaker 2: then you've got your path to prices falling over the
16:44
Speaker 2: course of the summer and later into this year. How
16:47
Speaker 2: far I have no idea, but that's your path to
16:50
Speaker 2: where prices fall from a more extended period and potentially
16:54
Speaker 2: greater magnitude. But short term, I think my expectation would be, yeah,
16:59
Speaker 2: prices fall probably into that three eighty to three ninety range,
17:03
Speaker 2: and then you might get a little bit of a
17:04
Speaker 2: bounce if oil as oil prices probably bounce a bit
17:07
Speaker 2: in the short term, just because we're still supply constrained.
17:10
Speaker 2: Over the next few months and then you can maybe
17:13
Speaker 2: get the improvement in pricing from there. So it's kind
17:16
Speaker 2: of a multi phase decline that you'd go through there.
17:20
Speaker 4: So if you're a shipper, what you'd likely need to
17:23
Speaker 4: see over the course of the next two weeks while
17:25
Speaker 4: you have this ceasefire agreement in place, is further progression
17:29
Speaker 4: in terms of deal points being agreed on between the
17:32
Speaker 4: US and I ran before you even consider sending that
17:35
Speaker 4: next ship out right. I mean, first there's getting just
17:38
Speaker 4: the people who the boats that are stranded there through. Yes,
17:40
Speaker 4: but you're probably gonna need to see more improvements in
17:43
Speaker 4: terms of the agreement or maybe perhaps it's just a
17:46
Speaker 4: concrete agreement over two weeks, which which I think is
17:49
Speaker 4: is a tough ass. Hopefully that can occur, but a
17:53
Speaker 4: lot would need to go right to get that agreement
17:55
Speaker 4: in place and then in turn result in those new
17:58
Speaker 4: ships being sent back out with more oil or giving
18:01
Speaker 4: the full green light to resume production.
18:04
Speaker 2: Yes, because the last thing you want to do is
18:05
Speaker 2: send a ship in today, because remember, first of all,
18:08
Speaker 2: the transit takes a week or so to go through
18:11
Speaker 2: horror moves, get to where you're loading and load up.
18:14
Speaker 2: Then you've got to send it back out, which is
18:15
Speaker 2: another week. So the last thing you want to do
18:17
Speaker 2: is send a ship in you know, today or tomorrow,
18:19
Speaker 2: and then it gets stuck just before horror moves again
18:22
Speaker 2: if something happens, you know, right at the two week deadline. Yeah,
18:25
Speaker 2: so I think you're gonna see again traffic moving out,
18:30
Speaker 2: which is a good thing, but you need to see
18:32
Speaker 2: corresponding traffic moving back in. It a good clip in
18:35
Speaker 2: order for this to be anything sustainable. And based on
18:39
Speaker 2: what I've heard, you know, anecdotally, shippers are gonna wait
18:42
Speaker 2: a few days just to see what the lay of
18:44
Speaker 2: the land is before making any decisions, and then they'll
18:47
Speaker 2: see where they go. So it's again, things are better
18:52
Speaker 2: than they were yesterday morning. We're still not to the
18:56
Speaker 2: point where we can say, yep, you're gonna have you know,
18:59
Speaker 2: regular transit just moving through later this week. It's gonna
19:02
Speaker 2: take a little time to figure out what the lay
19:04
Speaker 2: of the land is and for shippers to get comfortable
19:07
Speaker 2: taking the risk again, and then that's where you can
19:12
Speaker 2: start to see, you know, the real progress made. But
19:15
Speaker 2: we've got a few phases that we've got to go
19:17
Speaker 2: through before we potentially get back to regular transits. And
19:22
Speaker 2: the other piece that I'll add long term, the amount
19:24
Speaker 2: of traffic that goes through hor Moves will likely drop
19:28
Speaker 2: because countries are going to start building more pipelines to
19:30
Speaker 2: avoid this problem in the future. But that's a multi
19:33
Speaker 2: year thing, not a right now thing. Let's take a
19:35
Speaker 2: quick break. We've got Wall Street Watch and Todd Lutsky
19:38
Speaker 2: up next.
19:41
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Speaker 1: driving markets so far today right here on the an
20:00
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20:01
Speaker 5: Network, markets are surging higher after the US and Iran
20:04
Speaker 5: agreed to a two week ceasefire if the straight at
20:06
Speaker 5: four Moves was reopened, immediately, setting the price of oil plunging.
20:10
Speaker 5: Right now, the Dow is up two and a half percent,
20:13
Speaker 5: SMP five hundred up over two percent to one hundred
20:17
Speaker 5: and forty three points, NASDAC up two point six percent
20:21
Speaker 5: or five hundred and eighty nine points. RUSTED two thousand
20:24
Speaker 5: trading three point two percent higher. Ten Your Treasure reeled
20:28
Speaker 5: down seven basis points at four point two seven to
20:30
Speaker 5: one percent, and oil down sixteen percent, trading a ninety
20:35
Speaker 5: four dollars a barrel. Several travel stocks are rallying on
20:38
Speaker 5: the heels of this ceasefire announcement. The American Airlines up
20:41
Speaker 5: nine percent, United jumping eleven percent higher. Separately, Delta reported
20:46
Speaker 5: better than expected first quarter results. However, the airline plans
20:50
Speaker 5: higher fares and fewer flights to manage costs as consumer
20:54
Speaker 5: demand for travel remains strong despite price increases. Delta stock
20:58
Speaker 5: up by seven percent. Meanwhile, several energy stocks are pulling
21:02
Speaker 5: back in reaction to the ceasefire and the pullback in
21:06
Speaker 5: oil prices. Exxon Mobile set a lass six percent of
21:09
Speaker 5: its global production in the first quarter due to the war.
21:13
Speaker 5: Exon shares are following six percent on the day. In
21:16
Speaker 5: Levi's seeing its stock rally eleven percent after the apparel
21:19
Speaker 5: company reported an earning exam revenue beat in the previous quarter.
21:23
Speaker 5: We're direct to consumers sales for the first time made
21:26
Speaker 5: up half of its revenue. Levi also hiked its full
21:31
Speaker 5: year guidance. I'm Tucker Silva and that is Wall Street Watch.
21:37
Speaker 1: This is ask Todd on the Financial Exchange Radio network.
21:41
Speaker 1: If you have an existing estate plan or in the
21:43
Speaker 1: market for one. Tod Letsky is here to answer your
21:46
Speaker 1: questions and help you plan for a later life. Ask
21:48
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
21:51
Speaker 1: New England for more than thirty five years, helping families
21:55
Speaker 1: with the state and tax planning, medicaid planning, and probate law.
21:58
Speaker 1: Visit Cushing Dolan. No, here's Todd Lutsky.
22:04
Speaker 2: We are now joined by Todd Lutsky from the law
22:07
Speaker 2: firm of Cushing and Dolan, and the segment is Asked Todd,
22:12
Speaker 2: Which is your chance to ask Todd your state planning questions.
22:16
Speaker 2: Phone lines are wide open at eight eight eight to
22:19
Speaker 2: zero five two two sixty three. That is the number
22:22
Speaker 2: to call to chat with Todd live on air right
22:25
Speaker 2: now about your state planning questions.
22:28
Speaker 3: Again, eight eight eight to.
22:30
Speaker 2: Zero five two two sixty three is the number we
22:32
Speaker 2: can usually get through a couple of these, so make
22:34
Speaker 2: sure you get calling early so that you don't.
22:39
Speaker 3: Not get to ask Todd your question. That would be
22:41
Speaker 3: a shame.
22:42
Speaker 2: Again, that phone number is eight eight eight to zero
22:45
Speaker 2: five two two six three. Mister Lutsky, how are you
22:48
Speaker 2: doing today?
22:49
Speaker 3: I am never better.
22:51
Speaker 6: Now, how are you doing?
22:53
Speaker 3: Uh, I'm okay a little bit. Uh hurt. I dropped
22:56
Speaker 3: my cactus the other day.
22:57
Speaker 6: It's always something with you.
22:59
Speaker 3: Well the worst part I caught it. Yeah, yeah, you
23:03
Speaker 3: never want to catch your cactus.
23:04
Speaker 2: Toddle's talking a little bit about beneficiaries. So most people,
23:10
Speaker 2: I'm guessing you have some semblance of an idea as
23:13
Speaker 2: to who they want to name or who they want
23:17
Speaker 2: to inherit their assets when they pass away. When we're
23:22
Speaker 2: talking about naming beneficiaries on a bank account or an
23:26
Speaker 2: investment account, what are some of the considerations for making
23:30
Speaker 2: sure that that's meshing with the estate planning that has
23:34
Speaker 2: been done in addition to what's tight what the beneficiary
23:38
Speaker 2: designation say?
23:40
Speaker 6: Yeah, I think it's it's very important because remember, if
23:42
Speaker 6: you just think you're going to avoid probate, if you
23:45
Speaker 6: don't have an estate plan you just name kids as beneficiaries,
23:47
Speaker 6: you could accidentally disinherit one. So we don't want that.
23:50
Speaker 6: But if we want to put like a trust in place,
23:54
Speaker 6: and let's start with a brokerage account and bank account,
23:58
Speaker 6: you simply don't. You're asking a question about beneficiaries. I
24:02
Speaker 6: get it, but I'm gonna I'm sort of gonna take
24:04
Speaker 6: it one step further and say, Okay, maybe I don't
24:07
Speaker 6: even need the beneficiary because if I have a trust,
24:10
Speaker 6: a revocable or irrevocable for that matter, if I have
24:13
Speaker 6: a trust in place, I might instead take that brokerage
24:17
Speaker 6: account or those bank accounts and retitle the owner to
24:22
Speaker 6: be the trust. If I retitle the owner to be
24:27
Speaker 6: the trust, then I don't need beneficiary designations. Don't even
24:30
Speaker 6: need them. Why because the trust owns it, and the
24:34
Speaker 6: trust has language that says where all the assets of
24:38
Speaker 6: the trust go when you die, so it'll take care
24:42
Speaker 6: of all the people, children, grandchildren. However, you have it
24:44
Speaker 6: laid out, and that's money, real estate, et cetera. So
24:47
Speaker 6: that's one distinction. However, iras four oh one k's those
24:54
Speaker 6: kind of things they can't go in that. You can't
24:56
Speaker 6: retitle those to the trust. No, so you do need
25:01
Speaker 6: designated beneficiaries. And now here's where the meshing comes in
25:05
Speaker 6: that you talked about.
25:06
Speaker 3: Yeah, Chuck, please.
25:09
Speaker 6: Read the beneficiary, read the language of the trust in
25:13
Speaker 6: making this decision. So if the language of my trust
25:15
Speaker 6: says all the assets that are in there upon my
25:18
Speaker 6: death go equally to my kids, pay it out, take
25:22
Speaker 6: it and go Okay. Well, if it says that, then
25:25
Speaker 6: my beneficiary designation on my IRA contingent it's always first.
25:30
Speaker 6: The spouse contingent should not be the trust. Why because
25:35
Speaker 6: I don't need to run it through the trust. If
25:37
Speaker 6: it's going to just pay out to the kids, I'll
25:39
Speaker 6: just list the kids and let them get it over
25:42
Speaker 6: ten years. Sure, But if you've got a trust in
25:46
Speaker 6: place where you're saying, geez, you know, I want to
25:48
Speaker 6: protect these assets from future creditors and divorces of my kids.
25:52
Speaker 6: And if I can have generational building wealth tax free
25:55
Speaker 6: and skip a generation when they die and have it
25:57
Speaker 6: get to my grandkids and all this fancy stuff in
26:00
Speaker 6: my trust, well, then I would want my IRA assets
26:04
Speaker 6: to be treated the same way. So if that's the case,
26:07
Speaker 6: then the meshing comes in where I would want my
26:09
Speaker 6: IRA beneficiary contingent beneficiary to be the trust. So you
26:15
Speaker 6: can't get it there while you're alive, but you can
26:18
Speaker 6: when you're dead, and then it's going to be taken
26:20
Speaker 6: care of the same way your trust assets are.
26:22
Speaker 2: Talk with Todd Letsky from the law firm of Cushing
26:25
Speaker 2: and Dolan Remember, this is your chance to ask Todd
26:28
Speaker 2: your specific estate planning questions live on air right now,
26:32
Speaker 2: Still got room on the phone lines at eight eight
26:34
Speaker 2: eight two zero five two two six three. That phone
26:38
Speaker 2: number is eight eight eight two zero five two two
26:42
Speaker 2: six three. We're going to take a quick break now,
26:45
Speaker 2: but when we come back, we're gonna continue digging in.
26:48
Speaker 2: We'll get to your questions with Todd. That phone number
26:51
Speaker 2: one more time is eight eight eight two zero five
26:55
Speaker 2: two two sixty three.
26:57
Speaker 1: Ask Todd with Todd Letsky every WEDNESDA day at ten
27:00
Speaker 1: thirty only here on the Financial Exchange Radio Network. Todd
27:06
Speaker 1: Letsky answers your questions about a state and elder life
27:08
Speaker 1: planning every Wednesday at ten thirty. Right here on the
27:11
Speaker 1: Financial Exchange Radio Network.
27:24
Speaker 2: We've got Todd Lotsky, Form Cushing and Dolin with us
27:27
Speaker 2: UH for ask Todd here to help answer your estate
27:30
Speaker 2: planning questions. Still room on the phone lines at eight
27:33
Speaker 2: eight eight to zero five two two six three. Again,
27:38
Speaker 2: that is the number to call to ask your estate
27:40
Speaker 2: planning questions to Todd eight eight eight to zero five
27:44
Speaker 2: two two six three. Let's go to Lisa in Massachusetts. Lisa,
27:48
Speaker 2: what is your question for Todd Lotsky.
27:52
Speaker 7: Hi, good morning, Good morning. My question is up, is
27:57
Speaker 7: the whntal property or primary listed in the evorpal trust
28:05
Speaker 7: able to get the market while you step up upon
28:09
Speaker 7: the time.
28:11
Speaker 6: The step up and basis you're asking about right when
28:15
Speaker 6: they die yet? Okay, So the question, just so I
28:18
Speaker 6: can repeat it for everybody and make sure I'm understanding
28:21
Speaker 6: it is you might want to put either rental property
28:27
Speaker 6: or and or your primary residence into an irrevocable I'm
28:33
Speaker 6: thinking the kind of irrevocable medicaid trust where you can
28:36
Speaker 6: protect it from the nursing home.
28:38
Speaker 3: Is that correct?
28:39
Speaker 7: That's correct?
28:40
Speaker 6: Okay?
28:41
Speaker 3: So are you married?
28:44
Speaker 7: Yes?
28:44
Speaker 6: Okay, so we would depending on you know, if you
28:47
Speaker 6: have that many properties, likely we would be talking about
28:50
Speaker 6: to trusts. And the one thing I might add prior
28:54
Speaker 6: to this is your rental property. You might want to
28:56
Speaker 6: put that into an LLC prior to putting the shares
29:01
Speaker 6: of the LLC into the trust. Okay, just because in
29:05
Speaker 6: case somebody gets hurt on the rental property, they slip,
29:09
Speaker 6: they fall, you know the drill, they're going to sue you,
29:13
Speaker 6: and if you're the owner, they're going to go after
29:16
Speaker 6: everything you and your husband owned, not just that rental property.
29:21
Speaker 6: Whereas if we place the rental property into an LLC first,
29:26
Speaker 6: which is a limited liability company, then the lawsuit would
29:30
Speaker 6: be against the LLC and not against you, the shareholder.
29:35
Speaker 6: So all your other assets, whether it's other real estate
29:39
Speaker 6: or money, would not be at risk for the nursing home,
29:43
Speaker 6: I mean, would not be at risk for the creditor.
29:45
Speaker 6: So that's one reason to do it. And then you
29:48
Speaker 6: put the shares of the LLC into the irrevocable trust,
29:53
Speaker 6: and that's what protects the building from the cost of
29:56
Speaker 6: nursing home care. So you get kind of a double
29:59
Speaker 6: protection with rental property. Now back to your question, can
30:04
Speaker 6: the rental property and the primary residents go into this LLC, Yes,
30:10
Speaker 6: I mean into the irrevocable trust.
30:12
Speaker 3: Yes they can.
30:14
Speaker 6: And once they're in there, your home's pretty easy, right,
30:17
Speaker 6: What can you do with it? Well, you can still
30:19
Speaker 6: live there, you can pay all your bills, you can
30:23
Speaker 6: you know, you can rent it if you want to
30:24
Speaker 6: rent it, and you can even sell your home and
30:28
Speaker 6: buy another home right inside the trust. So you keep
30:32
Speaker 6: a lot of control over your home and you get
30:35
Speaker 6: all the benefits of probate avoidance. And in your case,
30:38
Speaker 6: probably two separate irrevocable trusts. So I might put you know,
30:42
Speaker 6: the home in one trust, let's say husband's trust, and
30:45
Speaker 6: maybe the rental property in wife's trust right, and that
30:49
Speaker 6: way you don't have to worry about splitting the two
30:52
Speaker 6: properties up. The reason I would do that is because
30:55
Speaker 6: if the rent is coming in, I'd like the rent
30:56
Speaker 6: to come into just one trust rather than split it
30:59
Speaker 6: between the two. And so that takes care of the home.
31:03
Speaker 6: What about the rental property, Well, the rental property can
31:06
Speaker 6: go in as well. Let's say it does go in
31:07
Speaker 6: through the LLC and the shares are owned by let's
31:12
Speaker 6: just say, you know, maybe maybe your trust, Lisa, Okay,
31:16
Speaker 6: what can you do? Well, by the shares being owned
31:19
Speaker 6: in the LLC, it's protected from probate, it's avoiding probated,
31:23
Speaker 6: it's protected from the nursing home in five years. And
31:26
Speaker 6: of course creditors suing because they got hurt, their suing
31:29
Speaker 6: the LLC and not you, So again we have individual
31:32
Speaker 6: creditor protection as well. How do you deal with the rent? Well,
31:37
Speaker 6: the rent is going to be collected in a bank
31:39
Speaker 6: account in the name of the LLC. Who would be
31:42
Speaker 6: the manager how about Lisa. Lisa, you could be in
31:45
Speaker 6: charge of that LLC. You could be collecting the rent
31:49
Speaker 6: into that LLC bank account, paying the bills, et cetera,
31:54
Speaker 6: right out of that bank account. And then when there's
31:58
Speaker 6: excess rent left over, meaning you paid all your bills.
32:01
Speaker 6: But now you want the money in your pocket. Well,
32:04
Speaker 6: how do you get it? Well, you're the manager. You
32:06
Speaker 6: make a distribution from that bank account. In other words,
32:10
Speaker 6: just cut a check to the shareholder, which is this
32:13
Speaker 6: irrevocable trust, and now you deposit it into a bank
32:16
Speaker 6: account in the name of the irrevocable trust. And since
32:20
Speaker 6: that's rental income, remember it retains its character when it
32:25
Speaker 6: comes out of the LLC into the trust, it's still income.
32:30
Speaker 6: And the trust is designed to say all income belongs
32:34
Speaker 6: to Lisa. Remember their income only trusts, So that income
32:38
Speaker 6: comes into the bank account and the trust and automatically
32:42
Speaker 6: comes out to Lisa. You have it now in your pocket, Lisa,
32:45
Speaker 6: and you can go, you know, grocery shopping, put gas
32:48
Speaker 6: in the car, or whatever you want to do. It's
32:50
Speaker 6: your money to spend it, just like you were spending
32:53
Speaker 6: it before you did this. And the last comment I'll
32:56
Speaker 6: make is from an income tax perspective, there's no adverse
33:01
Speaker 6: income tax because the LLC is a single member LLC
33:05
Speaker 6: owned by the trust, so it doesn't file a tax return.
33:09
Speaker 6: And the trust is a grand or trust for income taxes,
33:12
Speaker 6: which means all the income gets picked up on your
33:15
Speaker 6: personal income tax return, Lisa, So no adverse income tax consequences. So, folks,
33:21
Speaker 6: that was a great question, and I hope provides a
33:25
Speaker 6: detailed answer for everybody thinking about these trusts. But folks,
33:30
Speaker 6: there's more to a state planning than just what we
33:32
Speaker 6: talked about, because that was income taxes and estate taxes
33:36
Speaker 6: and probate avoidance. But what happens when Lisa dies? What
33:40
Speaker 6: happens when you die? Where does all your assets go? Well,
33:45
Speaker 6: the guide we're giving away this month is how to
33:47
Speaker 6: leave assets to your beneficiaries, and that can be the
33:51
Speaker 6: most important part of your state plan. You might have
33:53
Speaker 6: special needs children, you might have kids that are not
33:56
Speaker 6: good with money, or you want to protect these assets
33:59
Speaker 6: from future divorces of the children. Maybe you're in a
34:02
Speaker 6: second marriage situation.
34:04
Speaker 3: Who knows.
34:05
Speaker 6: There's so many things to think about with your family
34:07
Speaker 6: as to how you leave these assets. Get it right,
34:11
Speaker 6: get the guide and learn what your options are eight
34:14
Speaker 6: six six eight four eight five six nine to nine
34:19
Speaker 6: or Legal Exchange Show dot com again eight six six
34:22
Speaker 6: eight four eight five six nine to nine or Legal
34:26
Speaker 6: Exchange show dot com And you can download it right
34:29
Speaker 6: there and go to our Instagram page Cushing Dolan PC
34:33
Speaker 6: for more information.
34:35
Speaker 2: Todd, I want to follow up on the conversation we were
34:38
Speaker 2: having earlier regarding beneficiaries and am I wrong in that
34:44
Speaker 2: the conventional wisdom surrounding naming beneficiaries on retirement accounts used
34:52
Speaker 2: to be to avoid naming a trust as a direct
34:56
Speaker 2: beneficiary Or am I misinterpreting and misremembering that?
34:59
Speaker 1: No?
35:00
Speaker 6: Probably not. I think I think in the past it
35:02
Speaker 6: was maybe a little harder to do the rules. Remember,
35:05
Speaker 6: the Secure Act came out and that kind of cleared
35:07
Speaker 6: up some of the problems we had before the Secure Act,
35:11
Speaker 6: which it was always so you're absolutely right, it was
35:15
Speaker 6: it was always that way, But I think the Secure
35:17
Speaker 6: Act cleared up some of those some of those issues
35:19
Speaker 6: and you can name the trust as the beneficiary.
35:22
Speaker 2: Are there any issues that are still present just in
35:25
Speaker 2: terms of if someone's you know, trying to think of, hey,
35:28
Speaker 2: what would the estate administration process look like for my errors,
35:32
Speaker 2: What what does it look like if a trust is
35:34
Speaker 2: named as the beneficiary of a retirement account?
35:39
Speaker 6: So the trust doesn't have to have necessarily any special
35:42
Speaker 6: language in it anymore. It just has to be clear
35:45
Speaker 6: that that you can identify beneficiaries. Usually you don't want
35:49
Speaker 6: to mix a charity with a you know, with the
35:53
Speaker 6: beneficiary in the trust, so you want to make sure
35:55
Speaker 6: that it that you can clearly identify humans as beneficiary.
36:00
Speaker 6: The nice part about that is once you've identified them,
36:03
Speaker 6: remember before you always had to say, well, who was
36:05
Speaker 6: the oldest child and all this different stuff with ages.
36:10
Speaker 3: You don't need that any Yeah.
36:11
Speaker 6: Now, now it's just if we can identify the group,
36:15
Speaker 6: and the group, let's say consists of children, well, then
36:18
Speaker 6: we know for distribution purposes, for what we call the
36:23
Speaker 6: required minimum distribution purposes, likely the IRA has to come
36:29
Speaker 6: out over ten years. But I think from an operational standpoint,
36:34
Speaker 6: a lot of people can't understand that. They mean, oh,
36:36
Speaker 6: so does the IRA then get dumped into the trust
36:39
Speaker 6: one hundred percent on the date of death. No, so
36:42
Speaker 6: it would stay Chuck's IRA, but the beneficiary would be
36:47
Speaker 6: the trust and you would literally reach into Chucks IIRA
36:50
Speaker 6: after he's dead and make a withdrawal and deposit it
36:54
Speaker 6: into the bank over ten year period into the trust
36:57
Speaker 6: rather over a ten year period. So so that's kind
37:00
Speaker 6: of operationally how it works, and that can be a
37:02
Speaker 6: little confusing for a lot of people.
37:04
Speaker 2: Yeah, no, that makes sense, and I again it does
37:08
Speaker 2: seem like things have changed quite a bit there.
37:10
Speaker 3: Todd, appreciate the time today, Thanks so much.
37:12
Speaker 6: Always a pleasure.
37:14
Speaker 1: This has been asked Odd on the Financial Exchange Radio
37:17
Speaker 1: network Aske Todd with Todd Lutsky has been presented by
37:20
Speaker 1: Cushing and Dolan, serving Massachusetts and New England for more
37:22
Speaker 1: than thirty years, helping families with the state and tax planning,
37:25
Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
37:28
Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
37:32
Speaker 1: The views expressed in this segment are solely those of
37:34
Speaker 1: Cushing and Dolan Armstrong Advisory. He does not provide any
37:36
Speaker 1: legal or tax advice. Please consult with your illegal or
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37:41
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