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Why is Trump removing Fed Bank Presidents? · The Financial Exchange Show

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1:03
Speaker 1: This is the Financial Exchange with Chuck Zada and Mark Vandetti's.
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Speaker 2: Chuck, Mark and Tucker with you here today, and not
1:15
Speaker 2: a ton in the way of major economic data. We
1:17
Speaker 2: got some mortgage applications data that came through, not really
1:22
Speaker 2: a major shift. Mortgage purchase applications up about one point
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Speaker 2: five percent, so a little bit of a move in
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Speaker 2: the positive direction given the quarter percent move down that
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Speaker 2: we've seen in interest rates over the last couple of weeks,
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Speaker 2: but not a huge shift in terms of what we're
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Speaker 2: seeing for mortgage demand at the moment. All eyes today
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Speaker 2: are really going to be focused on in video earnings
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Speaker 2: after the bell, and so we're obviously going to talk
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Speaker 2: about that quite a bit tomorrow. We'll preview some of
1:52
Speaker 2: that today too, But our top story to kick things
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Speaker 2: off today continues to be the Federal Reserve and questions
2:00
Speaker 2: surrounding its independence in the future. With President Trump seeking
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Speaker 2: to remove Cook from her position as one of the
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Speaker 2: governors of the FED Board, So Mark, this sets the
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Speaker 2: stage for Lyle Brainerd, who's a former vice chair of
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Speaker 2: the FED. She occupied a position on the Board of
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Speaker 2: Governors from twenty fourteen through twenty twenty three and was
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Speaker 2: the vice chair was just the last three years of
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Speaker 2: her term. I can't remember how long she served in
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Speaker 2: that particular role, but I think it was the last
2:36
Speaker 2: two or three years of her term, somewhere in that range.
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Speaker 2: And basically she lays out a number of concerns that
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Speaker 2: she has regarding the potential independence of the FED going forward,
2:47
Speaker 2: and concerned that a FED with greater control by the
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Speaker 2: executive branch would not be able to conduct policy as effectively,
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Speaker 2: something we've talked about quite a bit.
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Speaker 3: Yeah, the most important thing for the Federal Reserve is credibility.
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Speaker 3: Credibility believability that they will squash inflation when the time comes,
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Speaker 3: or that they will not try to exploit the short
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Speaker 3: term trade off between unexpected inflation, which the FED can generate.
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Speaker 3: The FED can tell the public we're going to be focused,
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Speaker 3: laser focused on inflation, and we're going to grow the
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Speaker 3: money supply modestly, and then when the public sets expectations
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Speaker 3: and prices and wages based on that commitment, the FED
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Speaker 3: can reneg it can cheat. So, but if the public
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Speaker 3: knows the Federal reneg it will in turn not believe it.
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Speaker 2: A lot of the model on that decision, Yeah.
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Speaker 3: Exactly, a lot of the modeling, A lot of the
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Speaker 3: changes in the thinking about monetary policy that came out
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Speaker 3: of the experience of the nineteen seventies focus on that
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Speaker 3: issue of commitment and the timing of the commitment and
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Speaker 3: the role that expectations play. And it all boils down
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Speaker 3: to a word. You're going to be hearing a lot
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Speaker 3: from commentators over the next I think probably a few years,
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Speaker 3: given the direction that things are going in here is credibility.
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Speaker 3: Credibility makes it easier for the FED to control inflation
4:00
Speaker 3: prevent it from getting going. It also makes it easier
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Speaker 3: for the FED to bring inflation down when it inevitably
4:06
Speaker 3: has to without economic pain and its credibility. Chuck, that's
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Speaker 3: at risk right now.
4:11
Speaker 2: And the big thing is look for the better part
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Speaker 2: of the last forty years, up until twenty twenty one
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Speaker 2: and twenty two, the United States did not see any
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Speaker 2: meaningful rise in inflation.
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Speaker 4: It moved along.
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Speaker 2: Pretty consistently at somewhere around a two and a half
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Speaker 2: percent clip. Some years it was a little bit higher,
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Speaker 2: some years it was a little bit lower, but it
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Speaker 2: was pretty well anchored there, and so the FED really
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Speaker 2: didn't need to use that credibility very often or very strongly,
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Speaker 2: at least because there were really rare instances where inflation
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Speaker 2: actually crept up to the point where there were potential
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Speaker 2: problems there, and in most of them it was due
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Speaker 2: to transitory items, largely because of energy. The early nineteen
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Speaker 2: nineties with the first Gulf War, the mid to late
4:54
Speaker 2: two thousands, call it that two thousand and seven period
4:57
Speaker 2: where actually it was two thousand and eight, where during
5:01
Speaker 2: that summer right before the financial crisis, I still remember,
5:04
Speaker 2: oil prices jumped up to one hundred and forty nine
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Speaker 2: dollars a barrel, which is still the highest that we
5:09
Speaker 2: have ever seen on record. But the FED you know,
5:13
Speaker 2: rightly at that time, looked through and was like, no,
5:15
Speaker 2: there's some real problems brewing, you know elsewhere. I don't
5:18
Speaker 2: think we need to be hiking because of you know,
5:20
Speaker 2: oil prices moving up this summer. I think we're good
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Speaker 2: on that. So the FED hasn't really had to act
5:27
Speaker 2: strongly in order to enforce that credibility. Yeah, and this
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Speaker 2: is something that if you talk to if anyone has
5:34
Speaker 2: any friends that live in I think the best example
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Speaker 2: of this is is probably Brazil, just like everyone likes
5:41
Speaker 2: to point to like Argentina as a country that has
5:43
Speaker 2: you know, failed banking systems on a number of occasions.
5:48
Speaker 2: Brazil is an example of one where today I think
5:51
Speaker 2: you you can point to it and pretty much say, look,
5:54
Speaker 2: it's very much still an emerging market. It still is
5:57
Speaker 2: the wild West when it comes to a number of
5:58
Speaker 2: different things. But the central bank there and largely the
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Speaker 2: presidency understands, hey, we need to let the central banker
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Speaker 2: do their thing, and they need to act quickly in
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Speaker 2: response to any inflationary threat because if you don't stamp
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Speaker 2: it out quickly, you run into real problems. And this
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Speaker 2: is not to say that the US is going to
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Speaker 2: turn into you know, Brazil. It's more just, hey, banks
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Speaker 2: that have to deal with inflationary threats on a regular basis,
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Speaker 2: they act strongly in order to maintain that credibility because
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Speaker 2: otherwise they do become Argentina's. That's kind of how things go.
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Speaker 2: And so I think the place that we continue to
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Speaker 2: look at this from is one where hey, the FED
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Speaker 2: is by no means a perfect institution. You can want
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Speaker 2: to reform the FED in any number of different ways,
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Speaker 2: and we could talk about some of those in terms of, hey,
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Speaker 2: how do we make the FED more accountable to Congress
6:53
Speaker 2: or the court system or any you know, potential third
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Speaker 2: party review that allows them to operate more effectively. But
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Speaker 2: consolidating the power of money supply within the executive branch
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Speaker 2: is a real problem, not because of any one particular president,
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Speaker 2: but because of you don't know who could be president
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Speaker 2: in the future and the actions that they may take
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Speaker 2: as an individual that larger, more balanced institutions might not undertake.
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Speaker 3: Yeah, we got to this point because of the cumulative
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Speaker 3: experience of past generations here and elsewhere, with every possible
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Speaker 3: monetary arrangement. Hey, let's let the king clip coins. What
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Speaker 3: could go wrong? And right on down the line. From
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Speaker 3: ancient times to the present, every goofy scheme to goose
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Speaker 3: the economy in the short run has been tried. It
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Speaker 3: has invariably resulted in rapidly increasing prices, in some cases
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Speaker 3: in an extreme version so called hyperinflation, which is technically difficult.
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Speaker 3: People use that casually to mean like high inflation. It
7:58
Speaker 3: actually means something like a thousand percent a month, and
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Speaker 3: they've only been.
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Speaker 2: A yeah, no, no, no exactly.
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Speaker 3: So every goofball scheme that you can think of to
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Speaker 3: goose the economy in the short run for political benefit
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Speaker 3: has ended in tears, high inflation, turmoil, societal convulsions, which
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Speaker 3: is why we got to the point we're at today.
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Speaker 2: And there's a very good reason why you don't want
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Speaker 2: the person or more appropriately, people who determine monetary policy
8:27
Speaker 2: to be running for office. It's very simple, Hey, who
8:31
Speaker 2: are you going to vote for? Oh, I'm going to
8:32
Speaker 2: vote for the guy who's going to lower interest rates.
8:35
Speaker 2: Is that the right thing to do? I don't know,
8:36
Speaker 2: but it's gonna help my mortgage to be more affordable. It, yeah, right,
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Speaker 2: dumb comparison. But when I was in seventh grade, I
8:45
Speaker 2: ran for a class treasurer, and you know, I got
8:49
Speaker 2: into finance early obviously, you know, I was like, oh yeah,
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Speaker 2: this is gonna be it. And my campaign slogan was
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Speaker 2: really simple. It was dollars for donuts. Dollars two donuts,
9:01
Speaker 2: but dollars for donuts, because my whole campaign was, Hey,
9:04
Speaker 2: I'm gonna take you know, the class treasury, and I'm
9:06
Speaker 2: gonna use it to buy donuts for you know, we
9:08
Speaker 2: for ourselves. You know, we're gonna have donuts, you know,
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Speaker 2: once a week. You know what happened Mark, we ran
9:14
Speaker 2: out of money?
9:14
Speaker 1: Diabetes.
9:15
Speaker 2: Well, these are seventh graders. You know, oh yes, we
9:19
Speaker 2: ran out of money very early in the year, because
9:21
Speaker 2: it turns out that you don't have just unlimited money
9:24
Speaker 2: in these things. Now, when you're the Federal Reserve, you
9:27
Speaker 2: do have unlimited money, which gives you the idea that hey,
9:31
Speaker 2: like I can do things that no one else can.
9:33
Speaker 2: And it's true that you can. But as Spider Man says,
9:36
Speaker 2: with great power comes great responsibility, and if you don't
9:39
Speaker 2: act responsibly with that money that you have there, you
9:43
Speaker 2: end up with all kinds of problems in terms of
9:46
Speaker 2: either inflation or people out of work. So there's a
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Speaker 2: good reason why you don't want to have someone running
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Speaker 2: for FED chair, as you know, a publicly elected position.
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Speaker 2: And if the executive branch able to assert that control
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Speaker 2: over the FED, it pretty much turns the president then
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Speaker 2: into the elected head of monetary policy, which is really
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Speaker 2: dangerous because what president would ever vote for higher interest rates? Comparison,
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Speaker 2: do you ever see any presidents successfully campaign on I'm
10:22
Speaker 2: gonna raise your taxes successfully?
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Speaker 3: Clinton may have, you know, he was he ran as
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Speaker 3: a fiscal and governed as a fiscal conservative. But your
10:32
Speaker 3: tax is speaking to the middle.
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Speaker 2: No, No, I mean, look, it's it doesn't work.
10:37
Speaker 3: People do Mondale said it, then we know what happened
10:39
Speaker 3: to Walter Mondale?
10:40
Speaker 2: How long was he president?
10:41
Speaker 1: For right?
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Speaker 3: And there are other factors there, of course.
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Speaker 2: Correct, But the big thing is no one is ever
10:49
Speaker 2: going to running campaign. Hey I'm going to raise borrowing rates.
10:53
Speaker 2: But ultimately that's something that still sometimes needs to be done.
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Speaker 2: And if you have a captive FED to the presidency,
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Speaker 2: it presents real risks that inflation gets out of hand
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Speaker 2: in the long run because it's not a competent and
11:09
Speaker 2: not a not a credible institution. Then because everyone looks
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Speaker 2: at it and says, Okay, whatever the president wants, they're
11:16
Speaker 2: going to get, and who knows what future presidents may want,
11:18
Speaker 2: but it's usually going to be lower interest rates, and
11:21
Speaker 2: that's not always the thing that you need, kind of
11:24
Speaker 2: like donuts.
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Speaker 3: Last few years has been years of relearning old lessons
11:28
Speaker 3: and monetary theory and good policy, and I think we
11:31
Speaker 3: have to relearn the lesson of why FED independence is
11:35
Speaker 3: important for economic stability.
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Speaker 2: And the problem is it doesn't matter until it does.
11:40
Speaker 2: You know, it's you could look at the last forty
11:43
Speaker 2: years and say, Okay, the FED didn't really need to
11:45
Speaker 2: do much during that time, and it's true, but when
11:47
Speaker 2: it does matter, boy, it's important. And also you can't
11:51
Speaker 2: look at the last forty years and definitively say, hey,
11:54
Speaker 2: if the Fed had looser policy, things would have been
11:56
Speaker 2: the same. Maybe you would have had a resurgence in inflation.
11:59
Speaker 2: Maybe that credibility would have been shotowed.
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Speaker 4: I don't know.
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Speaker 3: It almost certainly would have been. The credibility itself is
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Speaker 3: what prevented inflation. Most researchers think, not everybody, but most
12:06
Speaker 3: think it's the credibility itself that kept expectations under control
12:10
Speaker 3: and inflation as a consequence under control.
12:12
Speaker 2: Let's take a bit of a break here. When we
12:14
Speaker 2: come back, we're talking India. Right after this.
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13:16
Speaker 2: Pe'ce in the Wall Street Journal today talking about the
13:19
Speaker 2: fact that the additional twenty five percent tariff on Indian
13:24
Speaker 2: imports goes into effect today, if making the effective teriff
13:28
Speaker 2: freight on Indian imports fifty percent. This additional twenty five
13:32
Speaker 2: percent ostensibly due to India purchasing oil from Russia in
13:39
Speaker 2: large quantities, which does raise the question, Okay, if it's
13:42
Speaker 2: really about that, why are you not instituting something similar
13:45
Speaker 2: on China, who also purchases quite a bit of Russian oil,
13:48
Speaker 2: Which means that it's probably not actually about the Russian oil.
13:54
Speaker 2: It's probably about something else that the US wants in
13:59
Speaker 2: this relationship and in this deal. But what exactly that is.
14:04
Speaker 2: I have, you know, things I can speculate on, but ultimately,
14:07
Speaker 2: if this stays in place, you know, you've got almost
14:10
Speaker 2: ninety billion dollars in goods that India exports to the
14:13
Speaker 2: United States, about sixty billion of which will be subject
14:16
Speaker 2: to these new taxes.
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Speaker 3: Yeah, like you said, we don't know what the motive
14:21
Speaker 3: or the endgame is here. What's he playing at in
14:24
Speaker 3: the short term geopolitically not my area of expertise. If
14:28
Speaker 3: I have such a thing, it seems to be foolhardy.
14:31
Speaker 3: It's pushing India closer to our our strategic foes, Russia
14:36
Speaker 3: and perhaps China.
14:37
Speaker 2: I don't really buy that, okay, So, like India and
14:40
Speaker 2: China do not like each other very much, Well.
14:42
Speaker 3: They can't they have they share a border. I mean,
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Speaker 3: the basic geostrategic consideration suggests they should be adversaries, correct,
14:50
Speaker 3: Whereas you know, like we should not naturally be adversaries
14:53
Speaker 3: with India or even China. Our interests are too far
14:56
Speaker 3: excuse me, Russia unmost Russia in day's Europe, and then
14:59
Speaker 3: we do have skin in the game. Anyway, I think
15:02
Speaker 3: way way out of my league here. But my point
15:05
Speaker 3: is that we could probably use their help against China.
15:10
Speaker 3: It seems foolish in the short term. But you say
15:13
Speaker 3: there may be ulterior, hidden, more sophisticated motive when we
15:16
Speaker 3: just have to let this kind of play out.
15:18
Speaker 2: I think there are And here's the thing, So Indian
15:21
Speaker 2: President Narendra Modi and President Trump generally have shared like
15:24
Speaker 2: a pretty good relationship historically. Beyond that, Vice President Vance
15:29
Speaker 2: went out to India I think it was in maybe
15:31
Speaker 2: February or March of this year and reportedly had a
15:34
Speaker 2: good visit there as well. And so I think a
15:38
Speaker 2: you have, you know, two presidents who have generally gotten
15:40
Speaker 2: along pretty well during their tenures in office. The other
15:46
Speaker 2: thing that I look at is look India, is India
15:52
Speaker 2: is a potential natural bulwark against China when you look
15:57
Speaker 2: at combination of two things. Number one, the region that
16:01
Speaker 2: they occupy geographically, and number two just the sheer number
16:06
Speaker 2: of people that you have there that could potentially be
16:09
Speaker 2: you know, an economic engine that helps to power you know,
16:13
Speaker 2: the non China aligned world. The problem that you do have,
16:18
Speaker 2: I think you have a few different problems, and the
16:20
Speaker 2: question is like which one of these are are we
16:22
Speaker 2: trying to solve here? Trying to you know, figure out
16:25
Speaker 2: how do we you know, be part of the solution.
16:27
Speaker 2: On the first is when you look at if you
16:32
Speaker 2: talk to anyone who's actually worked in India with you know, manufacturing,
16:37
Speaker 2: which is really what this is about.
16:38
Speaker 1: It.
16:39
Speaker 2: It's about trying to replace some of China's manufacturing capacity.
16:43
Speaker 2: One thing that China does really well is they will
16:45
Speaker 2: quite literally like clear the road for you with whatever
16:49
Speaker 2: you want. And I mean that literally and figurative. You
16:52
Speaker 2: go to China and you say, hey, I need X
16:55
Speaker 2: number of workers in this location with these specs and
16:58
Speaker 2: blah blah blah, and they say, great, where bulldoze all
17:00
Speaker 2: the houses that were there before. Here are the workers
17:02
Speaker 2: that you. I'm not saying this is good like for
17:05
Speaker 2: like human rights are like that population. It's just no,
17:08
Speaker 2: this is this is what they do. And if you're
17:10
Speaker 2: a US investor that doesn't care about any of the
17:14
Speaker 2: other stuff, you're like, Okay, great, this is just what
17:16
Speaker 2: I need, even though like there's some pretty horrendous implications
17:19
Speaker 2: from it. Obviously, India does not do that. First and
17:22
Speaker 2: foremost beyond that, the sheer level of just organization and
17:25
Speaker 2: coordination inside of India, it's it's really messy. It's just
17:30
Speaker 2: like things are not particularly well organized. You have all
17:34
Speaker 2: kinds of different divisions in terms of you know, just
17:37
Speaker 2: how things operate from you know, one part of India
17:39
Speaker 2: to the other. It's it's just not something where you
17:42
Speaker 2: have tremendous uniformity in what you get from manufacturers in
17:48
Speaker 2: different parts of the country and regulations and laws and
17:50
Speaker 2: things like that. It's it's very much a patchwork. I
17:53
Speaker 2: don't get the sense that we're really trying to solve
17:55
Speaker 2: that because I don't think we really care. Quite honestly, it's.
17:58
Speaker 3: Deeply embedded for historical reasons. Like China was an empire,
18:01
Speaker 3: it had an imperial structure of bureaucracy. For millennia, India
18:05
Speaker 3: was a bunch of principality.
18:06
Speaker 1: Correct is that?
18:07
Speaker 3: Yeah, so you're not going to change.
18:09
Speaker 2: That right dimply, And I don't think we would want to.
18:12
Speaker 2: I don't think that's what's a footthare. What I do
18:15
Speaker 2: think is at play here is, even though India and
18:20
Speaker 2: China don't really get along particularly well, the economic ties
18:25
Speaker 2: have deepened in recent years, and in particular, there is
18:29
Speaker 2: a big threat that India could be used for transshipments
18:33
Speaker 2: from China to try to skirt different tariffs and other
18:38
Speaker 2: regulations and things like that about US imports. And I
18:42
Speaker 2: think there's some meat on that bone there, just based
18:44
Speaker 2: on you know, what I see from other countries around it.
18:48
Speaker 2: The Russian oil thing, maybe at the margins is actually
18:53
Speaker 2: a thing. But again, if that were actually the main
18:55
Speaker 2: driving force here, there are plenty of other countries that
18:58
Speaker 2: import Russian oil as well, the biggest one being China,
19:01
Speaker 2: and there is no additional twenty five percent tariff being
19:04
Speaker 2: levied on you're trying to right.
19:05
Speaker 3: I think you're a slorry. Trump doesn't care about Russia.
19:07
Speaker 3: He's not sanctioning the Shadow Fleet, he's not trying to
19:09
Speaker 3: attach their assets. He keeps threatening serious severe consequences if
19:13
Speaker 3: Russia doesn't do this or that in two weeks or
19:15
Speaker 3: some arbitrary timeframe. None of it's been followed through on.
19:17
Speaker 3: I think you're probably right here.
19:19
Speaker 2: So there's something else afoot here. Exactly what it is,
19:23
Speaker 2: I don't know, but we'll continue to watch this, and
19:26
Speaker 2: I'm not sure that these stick around too too long.
19:30
Speaker 2: Necessarily quick break here. When we return, it's Wall Street
19:34
Speaker 2: Watch and ask Todd.
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20:04
Speaker 5: earnings report from chip maker and AI giant Nvidia do
20:08
Speaker 5: out after today's closing bell. Right now, the Dow is
20:12
Speaker 5: up by about a quarter of percent, or one hundred
20:15
Speaker 5: and sixteen points higher. SMP five hundred is up two
20:18
Speaker 5: tenths of one percent, Nasdaq is up just over a
20:21
Speaker 5: tenth of a percent or thirty three points higher. Russell
20:24
Speaker 5: two thousand is up nearly four tenths of one percent.
20:27
Speaker 5: Ten year Treasure reeled up two basis points a four
20:30
Speaker 5: point two eight one percent, and crude oil up about
20:34
Speaker 5: two thirds of a percent higher, or sixty three dollars
20:37
Speaker 5: in sixty eight cents a barrel. Cole's jumping nearly twenty
20:42
Speaker 5: percent after the retailer surpassed street earnings and revenue expectations
20:46
Speaker 5: for the second quarter, despite its sales declining and its
20:49
Speaker 5: ongoing search for new CEO. Coles also reported a better
20:53
Speaker 5: than anticipated full year sales guidance. Another retailer, in Abercromine Fitch,
20:58
Speaker 5: also reported earnings where it's sales growth slowed during the quarter.
21:02
Speaker 5: Abercrombie sales slumped five percent, while comparable sales dropped eleven percent. However,
21:08
Speaker 5: sales from its Hollister brand grew nineteen percent in the quarter.
21:11
Speaker 5: Abercrombie that stock is up by almost two percent. Meanwhile,
21:16
Speaker 5: CNBC reporting that the controlling shareholder of Canada goose By
21:20
Speaker 5: Capital received bids to take the company private, valuing the
21:24
Speaker 5: retailer at about one point three five billion dollars. Canada
21:28
Speaker 5: goose shares are jumping fifteen percent on that news. Elsewhere,
21:32
Speaker 5: Octa shares climbing four percent after the identity security company
21:36
Speaker 5: posted higher quarterly results and raised its annual guidance. Database
21:41
Speaker 5: platform developer Mango dB, surging thirty two percent after it
21:46
Speaker 5: beat analysts estimates. In After controversy surrounding its new logo,
21:51
Speaker 5: Cracker Barrel reverted back to its original old Timer logo,
21:56
Speaker 5: resulting in that stock rebounding by seven percent.
21:59
Speaker 1: Today.
22:00
Speaker 5: I'm Tucker Silva and that is Wallstree.
22:02
Speaker 3: Watch.
22:04
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
22:08
Speaker 1: If you have an existing estate plan or in the
22:10
Speaker 1: market for one, Todd Lutsky is here to answer your
22:12
Speaker 1: questions and help you plan for a later life. Ask
22:15
Speaker 1: Todd is presented by Cushing and Dolan serving Massachusetts and
22:18
Speaker 1: New England for more than thirty five years, helping families
22:21
Speaker 1: with the state and tax planning, medicaid planning, and probate law.
22:25
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky as proms.
22:31
Speaker 2: We're now joined by Todd Lutsky from Cushing and Dolan.
22:34
Speaker 2: We've got the phone lines open and room for your
22:36
Speaker 2: calls about your estate plans. Why we call the segment
22:40
Speaker 2: Ask Todd is you get to ask Todd your questions live.
22:43
Speaker 4: On air right now.
22:45
Speaker 2: Phone number is eight eight eight two zero five two
22:49
Speaker 2: two six three. Again, that is eight eight eight two
22:52
Speaker 2: zero five two two six three. So make sure you
22:55
Speaker 2: call early and often, because we usually only get through
22:57
Speaker 2: two or three calls with Todd in any particular day.
23:01
Speaker 2: That number again is eight eight eight two zero five
23:05
Speaker 2: two two six three. Again, it's eight eight eight two
23:08
Speaker 2: zero five two two six three. Mister Lutsky. How are
23:12
Speaker 2: you doing today?
23:13
Speaker 4: I am never better? How about you?
23:16
Speaker 2: I'm good. I saw over the weekend, actually that the
23:21
Speaker 2: Navy Navy the training dolphins to carry first aid kits
23:27
Speaker 2: really medicinal porpoises only.
23:29
Speaker 4: That's good.
23:30
Speaker 2: Yeah, So it's it's exciting News Todd want to talk
23:33
Speaker 2: to you a little bit about trusts and beneficiaries. Can
23:37
Speaker 2: you talk a little bit about are there any benefits
23:41
Speaker 2: to using a trust to name beneficiaries for assets as
23:45
Speaker 2: opposed to simply naming them directly on an account.
23:50
Speaker 4: So there's obviously different kinds of trust that we have
23:54
Speaker 4: to deal with, uh when we talk about this, but
23:57
Speaker 4: and certain things that we'll go into trust in certain
24:00
Speaker 4: things that want So first of all, on IRA would
24:01
Speaker 4: would generally not go into trust period, So I wouldn't
24:04
Speaker 4: wouldn't even wouldn't even do it because you have a
24:06
Speaker 4: big tax problem.
24:07
Speaker 2: What about naming a trust as a beneficiary of an ira?
24:10
Speaker 4: And that's that's where I was headed. So you can't
24:12
Speaker 4: change the owner, and I think this is important owner
24:14
Speaker 4: versus beneficiaries, which what you're asking me for an IRA,
24:19
Speaker 4: I would say, you know, based on the kind of
24:22
Speaker 4: planning you're doing. So if you're trying to put you know,
24:25
Speaker 4: do it you know married couple or trying to ultimately
24:27
Speaker 4: get your IRA to your to your kids the next
24:30
Speaker 4: generation and maybe protect it from nursing home, not from
24:34
Speaker 4: nursing homes, but protecting it from your kids future creditors,
24:37
Speaker 4: future divorces, UH, passing it down to a generation even
24:41
Speaker 4: below the children tax free. So if you're looking to
24:45
Speaker 4: do all of those things, then the designated beneficiary always
24:49
Speaker 4: primary is spouse, So always start with that. The primary
24:52
Speaker 4: should be the spouse from an income tax perspective, and
24:56
Speaker 4: the contingent could be the trust. So while you you
25:00
Speaker 4: cannot put an IRA in the trust while you're alive,
25:04
Speaker 4: you can get it there when you die, So the
25:08
Speaker 4: beneficiary could be named that. Now for non IRA, and
25:11
Speaker 4: ask question, sure.
25:13
Speaker 2: Pros and cons of that approach? What are the good
25:15
Speaker 2: things you get from doing that? What are the bad
25:17
Speaker 2: things that happen from doing that?
25:19
Speaker 4: If if the goal is to protect the IRA, let's
25:24
Speaker 4: say got two three million dollar IRA? Sure big money, right,
25:26
Speaker 4: so we want to make sure that it's protected from
25:29
Speaker 4: the kids' future divorces, creditors, and generation skipping. Then there
25:32
Speaker 4: I see there is no negative Why because one, I
25:36
Speaker 4: want it not going outright to the kids, because then
25:39
Speaker 4: all bets are off as to what happens to it.
25:41
Speaker 4: I want it getting into the trust. Is there? And
25:44
Speaker 4: I think what you're driving at, Chuck, is is there
25:46
Speaker 4: a tax problem doing that?
25:49
Speaker 1: Uh?
25:50
Speaker 4: And as long as the trust is designed to hold
25:53
Speaker 4: the IRA asset, which it should be. The required minimum distributions,
25:59
Speaker 4: as we talk about and what we care about from
26:01
Speaker 4: an income tax perspective, these required minimum distributions. If I
26:05
Speaker 4: name the children outright, it is ten years. Generally speaking,
26:10
Speaker 4: there's some exceptions. If I name the trust the beneficiary
26:15
Speaker 4: and the kids are beneficiaries. Inside the trust, it still
26:21
Speaker 4: comes out over ten years, but it doesn't come out
26:24
Speaker 4: to the kid. That's the difference. Sure, the required minimum
26:27
Speaker 4: distribution is still reaching into the IRA, pulling it out,
26:31
Speaker 4: subjecting that withdrawal to income taxes, but it goes to
26:35
Speaker 4: the trust. Now, I guess there could be a tax
26:38
Speaker 4: difference if the amount that goes to the trust remains
26:42
Speaker 4: in the trust and doesn't come out to the kids.
26:45
Speaker 4: It could be taxed at the trust level, which would
26:48
Speaker 4: be a higher rate than kids or human levels. Let's
26:52
Speaker 4: put it that way. So but again, if I'm trying
26:55
Speaker 4: to protect it, I still want to make that distribution,
26:57
Speaker 4: because every year I can decide whether I make a
27:00
Speaker 4: distribution or not. If someone's going through a divorce, we're
27:03
Speaker 4: gonna let it build up inside the trust. But if
27:06
Speaker 4: if I don't have a problem, allow the distribution to
27:09
Speaker 4: come out and let the kid pay the tax.
27:11
Speaker 2: Talking with Todd Lutsky. If you've got estate planning questions,
27:14
Speaker 2: this is your chance to ask them to Todd live
27:17
Speaker 2: on air right now. Phone number is eight eight eight
27:20
Speaker 2: to zero five two two sixty three. That number again
27:24
Speaker 2: is eight eight eight to zero five two two six three.
27:28
Speaker 2: We're gonna take a quick break here, but when we
27:30
Speaker 2: return we're gonna get right to your questions with Todd.
27:33
Speaker 2: That phone number eight eight eight to zero five two
27:37
Speaker 2: two sixty three. One last time eight eight eight to
27:40
Speaker 2: zero five two two six y three.
27:44
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:47
Speaker 1: only here on the Financial Exchange Radio Network. Todd Letsky
27:53
Speaker 1: answers your questions about a state and elder life planning
27:56
Speaker 1: every Wednesday at ten thirty right here on the Financial
27:59
Speaker 1: Lix James Radio Network.
28:12
Speaker 2: Talking with Todd Aletski from Kushigan Dolan. If you've got
28:14
Speaker 2: a question to ask Todd, still room on the phone
28:17
Speaker 2: lines eight eight eight two zero five two two six three.
28:21
Speaker 2: That number again is eight eight eight two zero five
28:25
Speaker 2: two two six three.
28:27
Speaker 4: Todd.
28:27
Speaker 2: When we talk about beneficiaries, and how you know families
28:31
Speaker 2: might might think about them when it comes to revocable
28:35
Speaker 2: versus irrevocable trusts, any difference there in terms of how
28:38
Speaker 2: beneficiaries may or may not be treated, or is it
28:41
Speaker 2: pretty much the exact same?
28:43
Speaker 4: So I think it's probably the same. Let's let's run
28:46
Speaker 4: through it, though, it's always better to sort of understand
28:49
Speaker 4: how that works. So if I've got a revocable trust
28:53
Speaker 4: and I want to put stuff in it, my first
28:55
Speaker 4: comment is I'm going to probably put everything in except
28:58
Speaker 4: I raise, of course always we already talked about iras.
29:00
Speaker 4: They don't go in. So I would change on a
29:04
Speaker 4: investment account, a brokerage account, a bank account, a CD.
29:09
Speaker 4: I don't care what it is. I don't see why
29:11
Speaker 4: I wouldn't just put it all in there. When I
29:14
Speaker 4: say put it in there, I mean change the owner.
29:18
Speaker 4: I don't need to change the beneficiary anymore. And the
29:21
Speaker 4: reason I don't is because once it's in the trust,
29:23
Speaker 4: the trust will dictate where everything goes when you die,
29:27
Speaker 4: and that's great, that's what I want to have happen,
29:30
Speaker 4: and I don't have to worry. And this is why
29:32
Speaker 4: sometimes people say, well, I'll just put one kid on
29:34
Speaker 4: one account, one kid on another account, and you know,
29:36
Speaker 4: but you don't know which account's going to grow faster
29:38
Speaker 4: than another, and you don't know if that's going to
29:40
Speaker 4: end up an unequal treatment. I don't want that. Plus
29:42
Speaker 4: I want to control it. I can't really control it
29:44
Speaker 4: by naming beneficiaries, So I would retitle it, changing the
29:48
Speaker 4: owner on those accounts to the name of the revocable trust. Now, similarly,
29:54
Speaker 4: with an irrevocable trust, if I wanted to fund it,
29:59
Speaker 4: I would do the same thing. I would change the
30:01
Speaker 4: owner on these items to the irrevocable trust. The difference
30:08
Speaker 4: is what I put in before. With they're revocable, I'm
30:12
Speaker 4: likely to put everything in. With an irrevocable I'm probably
30:16
Speaker 4: not going to do that. I always want to leave
30:18
Speaker 4: some stuff out, some access, you know, direct access to
30:21
Speaker 4: assets outside of these irrevocable Medicaid trusts, or leave some
30:25
Speaker 4: stuff out. And the other reason I leave some stuff
30:29
Speaker 4: out is especially especially my bank account that receives my
30:35
Speaker 4: direct deposits social security or pension. Because remember, when I'm
30:39
Speaker 4: talking about medicaid trusts, I'm talking about people that are
30:43
Speaker 4: probably retired.
30:44
Speaker 2: Sure you're not talking about thirty year olds generally going
30:47
Speaker 2: that route, right, there's no need to be thinking about it, right.
30:50
Speaker 4: So these are generally folks that are either retiring, close
30:53
Speaker 4: to retirement, et cetera, and more on a fixed income.
30:57
Speaker 4: So you never want to put in that that main
31:00
Speaker 4: operating bank account into a Medicaid irrevocable trust like you
31:04
Speaker 4: would with a revocable because you get these checks every month,
31:08
Speaker 4: whether it's pension, soci security, if it was owned by
31:12
Speaker 4: the irrevocable Medicaid trust, every single time it goes in there,
31:17
Speaker 4: it's a new five year waiting period for Medicaid because
31:20
Speaker 4: you added new money. People don't think about that, but
31:23
Speaker 4: I actually had someone who came to me. We didn't
31:26
Speaker 4: do the planning, but they were going on trying to
31:28
Speaker 4: apply for Medicaid and they came in and I saw
31:31
Speaker 4: this when we were going through the application process. I'm like,
31:34
Speaker 4: what are all these deposits? And they said, oh, it's
31:37
Speaker 4: our it's our social security and pension. I'm like, oh,
31:40
Speaker 4: you're gonna have a big problem here. So for years
31:42
Speaker 4: we had to go back and count everything that went
31:44
Speaker 4: in there to figure out what the amount of the
31:47
Speaker 4: deposits were, to get them out to basically cure the problem.
31:52
Speaker 4: I said, you're never going to be eligible for medicaid
31:55
Speaker 4: because this ongoing five year waiting period is every single month,
31:59
Speaker 4: it just keeps going, Yeah, keeps extending it out right, sure,
32:02
Speaker 4: And so we had to go back and undo all
32:04
Speaker 4: that and fix it to cure all that money back
32:07
Speaker 4: into their personal name to eliminate the waiting period, and
32:12
Speaker 4: then deal with the money that's outside the trust to
32:14
Speaker 4: get them eligible for medicaid. So so I think that's
32:17
Speaker 4: the biggest difference between the two.
32:19
Speaker 2: Just digging in on that, it seems like that seems
32:21
Speaker 2: like obviously kind of a big problem in an estate plan.
32:24
Speaker 2: What other kinds of things do you see as being
32:26
Speaker 2: really common If someone comes to you and says, oh, hey,
32:29
Speaker 2: like I've done my estate plan, like I think I'm
32:31
Speaker 2: all ready to go, Do you see an issue with this?
32:33
Speaker 2: What other common ones do you typically see that cause
32:36
Speaker 2: problems for people?
32:38
Speaker 4: Oh, common questions like so an example would be not.
32:41
Speaker 2: Even not even common questions like things where someone thinks
32:44
Speaker 2: they're doing things right right, okay, and then you looking
32:46
Speaker 2: at it, you like, no, do you realize what you've
32:49
Speaker 2: done here?
32:50
Speaker 4: Yeah? I see So an example like that would be.
32:53
Speaker 4: And again partly this is where the guide comes in, right,
32:56
Speaker 4: we want to figure out what trust is right for you.
32:59
Speaker 4: I've had people come in and say say to me, Okay,
33:03
Speaker 4: you know so and so is going into the nursing home,
33:05
Speaker 4: and you know, we know all about the five year
33:08
Speaker 4: waiting period. So we're all set because my mom, you know,
33:11
Speaker 4: she did the planning years ago. And again to your point, Chuck,
33:14
Speaker 4: we think we did it right. And then I sit
33:17
Speaker 4: down and I say, great, give me a copy of
33:19
Speaker 4: the trust. That's going to be a real helpful to us,
33:22
Speaker 4: and let's start figuring out how we can apply for medicaid.
33:25
Speaker 4: And then I look at the top of the trust
33:27
Speaker 4: and I see it's the you know, the you know,
33:29
Speaker 4: Tom Smith revocable trust. Okay, you didn't do it right.
33:35
Speaker 4: You did revocable trust planning right, sure, but you didn't
33:40
Speaker 4: do nursing home planning right because the five year waiting
33:44
Speaker 4: period never begins to run on assets in a revocable trust.
33:48
Speaker 4: So that would be an example of somebody who thinks
33:51
Speaker 4: they did it right and they didn't. But folks, that's
33:54
Speaker 4: what this guide is about this month. Right, as as
33:57
Speaker 4: we approach the end of the month. This is the
33:59
Speaker 4: top seven estate planning trusts, the ones I think are
34:05
Speaker 4: used most frequently and some of them most frequently misunderstood.
34:09
Speaker 4: Like it starts with the nominee realty trust. What is that?
34:12
Speaker 4: It's not even really a trust. You'll learn when you
34:14
Speaker 4: get the guide. Revocable trusts and irrevocable trust We just
34:17
Speaker 4: talked about two with you, Chuck, about the Medicaid and
34:21
Speaker 4: revocable trust Well, there's other kinds of irrevocable trusts, life
34:25
Speaker 4: insurance trusts, first to die, second to die variety. People
34:29
Speaker 4: who have special needs children have you know, needs to
34:33
Speaker 4: figure out a special needs trust. They're in here. What
34:35
Speaker 4: about a pool trust? There's so many different trusts. These
34:39
Speaker 4: are the top seven. They explain how they work, the
34:42
Speaker 4: tax savings, the operation. If you've never done your planning,
34:46
Speaker 4: this is going to help you get started. Pick which
34:48
Speaker 4: one's right for you eight six six eight four eight
34:53
Speaker 4: five six nine to nine or Legal Exchange show dot com.
34:56
Speaker 4: You can download it right there again eight six six
34:59
Speaker 4: eight or eight five six nine nine or Legal Exchange
35:03
Speaker 4: Show dot com.
35:05
Speaker 2: Tod Do you see instances where I guess people will
35:08
Speaker 2: use a combination of different vehicles for their estate planning
35:12
Speaker 2: because of different needs. You know, maybe hey, they've got
35:15
Speaker 2: a revocable trust that eventually spits out a special needs
35:18
Speaker 2: trust for a child of theirs. Or sometimes do people
35:21
Speaker 2: ever use revocable trusts and irrevocable trusts in the same
35:25
Speaker 2: estate plan? Are those things possible or useful in situations?
35:29
Speaker 4: Yeah? I think it's it's very important that when you're
35:31
Speaker 4: doing your planning, we you know, we use we first
35:35
Speaker 4: gather like all of your assets, and it's the amount
35:38
Speaker 4: of assets you have and the type of assets that
35:41
Speaker 4: you have that will dictate what kind of trust we do.
35:45
Speaker 4: So let's say we start with your foundation and it's
35:47
Speaker 4: a revocable trust, and you're worth about four million dollars,
35:52
Speaker 4: but you have a two million dollar life insurance policy. Well, now,
35:56
Speaker 4: all of a sudden, I'm worth six million dollars, and
35:57
Speaker 4: that changes the estate tax game here in at least
36:01
Speaker 4: even though it might not affect you federally. So it
36:03
Speaker 4: changes the game here. So now what Well, maybe it
36:06
Speaker 4: makes sense to take that two million dollar life insurance
36:09
Speaker 4: policy and put it in an irrevocable medical an irrevocable
36:14
Speaker 4: life insurance trust. Right, So I would put all the
36:17
Speaker 4: other assets in my revocable trust. And by the way,
36:21
Speaker 4: many kinds of revocable trusts with an estate worth well
36:25
Speaker 4: under fifteen million dollars, I'm probably putting together a joint
36:29
Speaker 4: revocable trust for this married couple hypothetical example. But that's great.
36:35
Speaker 4: It does avoid probate and reduce my taxes, but it's
36:37
Speaker 4: not going to quite eliminate them. Why. Because I got
36:40
Speaker 4: this two million dollar policy, I move that into an
36:43
Speaker 4: irrevocable life insurance trust and as long as I live
36:46
Speaker 4: three years, the death benefit will now be estate and
36:50
Speaker 4: income tax free when I die, thereby reducing and helping
36:54
Speaker 4: to eliminate my state taxes. So a combination of the
36:57
Speaker 4: two trusts work good in that arrange. And yes, sometimes
37:01
Speaker 4: special needs trusts are built in to these revocable trusts
37:04
Speaker 4: as well.
37:05
Speaker 2: Mister Lutsky, thank you so much for joining us today.
37:07
Speaker 4: We appreciate it always pleasure. Thank you.
37:10
Speaker 1: This has been Asked Odd on the Financial Exchange Radio network.
37:14
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:16
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:19
Speaker 1: thirty years, helping families with the state and tax Planning,
37:22
Speaker 1: Medicaid Planning, and Probate Law call eight hundred three ninety
37:25
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:29
Speaker 1: The views expressed in this segment are solely those of
37:31
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:33
Speaker 1: or tax advice. Please consult with your illegal or tax
37:35
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:38
Speaker 1: each other and are not affiliated