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Who will blink first, US or China? · The Financial Exchange Show

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Speaker 2: Chuck Mark Tucker with you here on a Wedness day
1:16
Speaker 2: and to get you up to speed on what's going
1:19
Speaker 2: on from a tariff perspective. At midnight yesterday or today?
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Speaker 2: Is it mid sees today, twelve oh one today, We'll say,
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Speaker 2: because that's easy to say. The reciprocal tariffs from the
1:32
Speaker 2: United States went into effect on I believe it was
1:36
Speaker 2: fifty seven additional countries beyond the ten percent blanket tariff
1:40
Speaker 2: that went into effect on Saturday. Those tariff rates were
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Speaker 2: announced last week but adjusted subsequently with the new rate
1:50
Speaker 2: of duty imposed on Chinese imports now at one hundred
1:54
Speaker 2: and four percent. That confirmed by the White House yesterday
1:58
Speaker 2: both in a press conference and in writing. China responded
2:01
Speaker 2: this morning with a retaliate retaliatory tariff of eighty four
2:06
Speaker 2: percent on US goods. And so it puts US as
2:12
Speaker 2: clearly as you can be in a trade war. However
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Speaker 2: you want to define it is not really important. The
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Speaker 2: important thing is, hey, what does it actually mean for
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Speaker 2: the broader US economy and for individuals. Let's talk first
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Speaker 2: Mark about the broader US economy, and then we'll get
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Speaker 2: to kind of what it means for people. So here's
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Speaker 2: I'm gonna do an anecdote first and then some data
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Speaker 2: if that's okay, Mark, I realized I haven't let you
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Speaker 2: speak at all since we started. Hi, Mark, Hello, Okay.
2:43
Speaker 1: You can.
2:43
Speaker 3: I don't want to interrupt.
2:44
Speaker 2: You're on a roll. Go, so I'm writing things down.
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Speaker 2: I have a couple buddies of mine who run businesses
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Speaker 2: where they import products from China. One is a board
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Speaker 2: game manufacturer about twenty employees. I've I've talked about this
2:58
Speaker 2: before in the last week or two. The other is
3:00
Speaker 2: a sole proprietor that imports collectible figurines and stuff like
3:05
Speaker 2: that little toy soldier things like the little ones like
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Speaker 2: for people to like wargame on tables and stuff like, okay.
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Speaker 3: Cool stuff, not like little ballerinas.
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Speaker 2: No, no, no, it's like little tin soldiers and stuff like
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Speaker 2: that manly stuff. Yeah, I'm sure, no, No, I get
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Speaker 2: where you're going with it. Anyways. The one I want
3:23
Speaker 2: to talk about is the board game manufacturer, because yesterday
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Speaker 2: was chatting with him and I'm like, what's the what's
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Speaker 2: the deal now? Given you know kind of where things
3:32
Speaker 2: are going in that there's no resolution, And he said
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Speaker 2: I just paused seven hundred and fifty thousand dollars in
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Speaker 2: shipments that are coming from China. I told them to
3:40
Speaker 2: hold them in China for thirty days. And I said, why,
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Speaker 2: what's what's the deal? He goes two things. Either A,
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Speaker 2: there's going to be some kind of negotiation that happens,
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Speaker 2: and I'm going to be able to pay a lower
3:52
Speaker 2: rate on tariffs than I could otherwise, you know, as
3:55
Speaker 2: opposed to paying one hundred and four percent if these
3:57
Speaker 2: come across today, Hey, maybe I can pay less and
4:01
Speaker 2: figure out how to pass that through. Or if there
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Speaker 2: is no negotiation that goes through, great, I'll eat the
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Speaker 2: loss on that and just, you know whatever, it stays
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Speaker 2: there and I'll pay for it and just not bring
4:12
Speaker 2: it over because it's not worth paying the tariff once
4:14
Speaker 2: it comes over in order to you know, effectively bring
4:19
Speaker 2: something into the country that he can't sell at that
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Speaker 2: price anyways. And I said, well, what else are you doing?
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Speaker 2: He goes of my other you know they call him
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Speaker 2: skews SKUs, of my other products that I have to sell,
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Speaker 2: all of the lower selling ones. I'm basically canceling all
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Speaker 2: future orders and I'm reducing future orders of my most
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Speaker 2: popular ones, because I don't want to have this same
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Speaker 2: issue in the future, because I don't know what the
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Speaker 2: tariff picture is going to look like. So that's the
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Speaker 2: anecdote from my buddy. The data from a company called
4:49
Speaker 2: freight Waves, who they got big during the pandemic when
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Speaker 2: everyone was looking at supply chains and stuff like that.
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Speaker 2: And they have a product called Sonar that basically helps
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Speaker 2: to tell you how different different levels of not trade,
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Speaker 2: but different levels of shipping and trucking and stuff like
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Speaker 2: that activity are. And one of their indices that they
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Speaker 2: have it's a China to US Ocean booking volume index,
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Speaker 2: so how much stuff is being booked coming over from
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Speaker 2: China to the United States. And I'm going to quote here.
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Speaker 2: This is from a tweet, a post from John Paul Hampstead,
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Speaker 2: who is the head of strategy at freight Waves, and
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Speaker 2: I'm going to quote him exactly. According to Sonar's Container Atlas,
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Speaker 2: daily ocean container bookings from China to the US are
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Speaker 2: now down twenty five percent year over year. It's unknown
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Speaker 2: how much of this is importer's temporarily pausing shipments while
5:48
Speaker 2: they suss things out, versus semi permanent economic damage and
5:52
Speaker 2: I think this is an important context where he's saying, look,
5:55
Speaker 2: these volumes are dropping because a lot of people are
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Speaker 2: doing what my buddy is doing and just saying, hey,
6:00
Speaker 2: don't send this over right now. And it might be
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Speaker 2: just because they want to see how things go. It
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Speaker 2: might be because they're never gonna bring the stuff over
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Speaker 2: they're not sure. But the data is showing this. And
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Speaker 2: this was again before this was through yesterday, and so
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Speaker 2: it doesn't reflect the higher rate of tariff that was
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Speaker 2: subsequently announced and now is in effect as of today.
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Speaker 2: So the long and short of this is that a
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Speaker 2: tariff of one hundred and four percent on Chinese goods,
6:30
Speaker 2: and remember there's separate ones also where if there's a
6:34
Speaker 2: if it's you know, steel or aluminum, those get added
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Speaker 2: on top. There's this whole layering of tariffs that happens
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Speaker 2: as well. But here's the long and short of this
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Speaker 2: is that at a tariff rate of one hundred and
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Speaker 2: four percent, it's not that prices go up dramatically. It's
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Speaker 2: that a lot of products from China just won't be
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Speaker 2: shipped because they can't be sold in the United States
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Speaker 2: at the prices that they would need to be sold
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Speaker 2: at in order to be profitable your thoughts.
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Speaker 3: Prices are signals in a market economy. Prices tell people
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Speaker 3: whether to consume today or save, whether to consume things
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Speaker 3: they really need versus some things that they might just want.
7:12
Speaker 3: They tell firms how much to produce and when. To
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Speaker 3: the extent that tariffs interfere with prices, it distorts productions,
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Speaker 3: so it makes economic outcomes less efficient. This is really
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Speaker 3: really high level, but this is the broad, long term
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Speaker 3: implication of these policies, and it's not just the policies,
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Speaker 3: it's the way with which they're being implemented. High tariffs
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Speaker 3: would be bad enough, but businesses could adjust and consumers
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Speaker 3: could adjust. You've got new prices, new signals, you modify
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Speaker 3: your behavior. But imagine if to put this in a
7:45
Speaker 3: slightly different context, or to use a lot of context example,
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Speaker 3: imagine if you didn't know six days out till April
7:51
Speaker 3: fifteenth what your taxes were going to be, what rate
7:54
Speaker 3: you were going to owe, and when you were going
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Speaker 3: to owe them. What would that do to your consumption
7:57
Speaker 3: to what you buy? Put more relatably, so with that dude
8:01
Speaker 3: to businesses investment decisions. Imagine if up until midnight on
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Speaker 3: April fourteenth, we didn't know what our tax rate was
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Speaker 3: or when it was going to be due, you'd freeze up.
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Speaker 3: This is what businesses are faced with right now, and
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Speaker 3: to the extent that this is going to be the
8:13
Speaker 3: way policy is going to be made for at least
8:14
Speaker 3: the next four years, it's going to hurt investment. It's
8:18
Speaker 3: going to hurt growth. This is why stocks are reacting
8:21
Speaker 3: the way that they are.
8:22
Speaker 2: If you think about why either individuals or businesses take
8:25
Speaker 2: on leverage, and leverage is any kind of borrowing. So
8:29
Speaker 2: think about you buying a house, think about as a
8:32
Speaker 2: business person opening up a new location for your restaurant
8:37
Speaker 2: or opening up a new factory. The reason that people
8:40
Speaker 2: take on leverage in order to expand and buy something
8:44
Speaker 2: bigger is because they feel comfortable in their ability to
8:48
Speaker 2: pay off that leverage. And so the question that is
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Speaker 2: raised on all of this is, hey, if I don't
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Speaker 2: know what the landscape is going to look like, if
8:57
Speaker 2: the rules of the road are not yet settled, I'm
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Speaker 2: going to pause on taking on that additional leverage until
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Speaker 2: I can see what things are going to look like.
9:06
Speaker 2: It's it's not something this is not two thousand and
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Speaker 2: eight where people can't pay their mortgages and the housing
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Speaker 2: market is blowing up. But it's very much businesses and
9:14
Speaker 2: households are going to simply say we're gonna step back
9:18
Speaker 2: for a second before we decide how we're gonna proceed.
9:20
Speaker 2: If you want another example of this delta, the airline
9:24
Speaker 2: reported earnings before the bell and they pulled their full
9:29
Speaker 2: year guidance for where their earnings are going to be.
9:33
Speaker 2: So we don't know, but what they did give us
9:35
Speaker 2: we're some really interesting pieces of information. The first was
9:39
Speaker 2: in Q four of last year. We already knew this.
9:41
Speaker 2: Their corporate bookings were up ten percent year over year.
9:45
Speaker 2: The February March period of Q one, their corporate bookings
9:50
Speaker 2: were flat year over year. And so this was before
9:54
Speaker 2: the April second announcement. But even prior to that, companies
9:57
Speaker 2: were saying, hey, we're not going to in crease our
10:00
Speaker 2: travel budget the same way that we were just a
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Speaker 2: few months ago. And it's very possible the companies say, hey,
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Speaker 2: we're actually gonna reduce our travel budget and see those
10:12
Speaker 2: you know, things coming in further over the coming quarters.
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Speaker 2: As we get more information, it's it's not companies saying
10:19
Speaker 2: we don't want to expand, or we don't want to
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Speaker 2: spend more. It's much more. Hey, we're not sure what
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Speaker 2: the landscape's gonna look like, and so we're just gonna
10:27
Speaker 2: pause that spending until we know more. Now, this is
10:31
Speaker 2: okay if it doesn't last very long. The longer this
10:37
Speaker 2: goes two, three, four or five months, the tougher it
10:42
Speaker 2: becomes to escape the problem then that the actual economic
10:47
Speaker 2: data and sales data starts to turn negative for companies.
10:50
Speaker 2: Because remember, if my company is you know, buying airline
10:54
Speaker 2: tickets on Delta, and we don't spend that money, then
10:57
Speaker 2: Delta says, okay, the sales aren't coming in. Now we're
10:59
Speaker 2: going to reduce head count. That reduce head count then
11:03
Speaker 2: further reduces sales out to other companies because there are
11:05
Speaker 2: a fewer Delta employees that are spending money. And so
11:08
Speaker 2: this is how you end up with, you know, potentially
11:10
Speaker 2: a negative cycle that leads to recessions. So what I
11:13
Speaker 2: will say the hope and and kind of the the
11:17
Speaker 2: thing that markets need to hang their hat on in
11:19
Speaker 2: the short term here is you need a positive resolution
11:22
Speaker 2: on some of these things, and you need it probably
11:26
Speaker 2: in the next you know, couple of weeks and not
11:28
Speaker 2: just hey, we're gonna be negotiating, but you need, like
11:31
Speaker 2: some some really positive steps of de escalation in a
11:34
Speaker 2: few areas. I don't think that China and the EU
11:36
Speaker 2: are necessarily going to be those places, but places that
11:39
Speaker 2: I look for are ones that have already been mentioned
11:41
Speaker 2: in a few different respects. I look for India, Japan,
11:46
Speaker 2: South Korea, Vietnam, places like that to hear some positive
11:50
Speaker 2: news because that can at least start to take the
11:52
Speaker 2: edge off as far as Okay, what does the landscape
11:56
Speaker 2: look like? And can we get a little bit of
11:57
Speaker 2: certainty on some of these other areas? Take a quick
12:00
Speaker 2: break here. When we come back, do want to talk
12:03
Speaker 2: a little bit more about US China? Because this is
12:05
Speaker 2: the media part, and this is the thing that I
12:07
Speaker 2: think is worth digging into. So we'll talk US China
12:10
Speaker 2: when we return.
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13:11
Speaker 2: So the United States and China at this point are
13:15
Speaker 2: in uh, what's effectively a game of chicken. And here
13:20
Speaker 2: here's the tough thing about chicken games as it relates
13:23
Speaker 2: to markets is there is no if if you look
13:29
Speaker 2: at this from like a game theory perspectives, there's no
13:32
Speaker 2: stable equilibrium that you arrive at where you can say
13:36
Speaker 2: this is how things are going to play out, because
13:39
Speaker 2: ultimately it's about who blinks first. And so you can't
13:43
Speaker 2: reliably say, well, this is going to be good because
13:46
Speaker 2: here's where we'll get to, or this is going to
13:48
Speaker 2: be bad because here's where we'll get to. You just
13:51
Speaker 2: don't know because it's it's basically who can take the
13:54
Speaker 2: most pain, and you don't know the answer to that.
13:59
Speaker 2: So I think that this is one of the things
14:02
Speaker 2: that from looking at how this influences markets. Anytime that
14:05
Speaker 2: you see a game of chicken being played, it's one
14:08
Speaker 2: where you have to kind of expand your possibilities as
14:11
Speaker 2: far as where things can end up, just because you
14:15
Speaker 2: can't have confidence that they're going to go any one
14:17
Speaker 2: particular way, good, bad, or neutral. You just don't know both.
14:20
Speaker 3: Decision making processes are totally opaque. China is completely authoritarian,
14:25
Speaker 3: one party system. We don't know what the polit Burero
14:28
Speaker 3: is thinking, or if it's even involved. Is it just
14:30
Speaker 3: the president? We don't know.
14:31
Speaker 2: Sure.
14:32
Speaker 3: Here the process is somewhat opaque too. Congress has decided
14:36
Speaker 3: to take itself out of the game. Inexplicably, no one
14:39
Speaker 3: else has the power to intervene. The presidents and his
14:42
Speaker 3: cabinets processes, shall we say.
14:46
Speaker 5: Fluid.
14:47
Speaker 3: We don't know what they're thinking day to day. There
14:50
Speaker 3: are no rules during the Cold War. This is a
14:52
Speaker 3: different setting, But during the Cold War, at least even
14:55
Speaker 3: when we came to the brink, there were rules. There
14:57
Speaker 3: was the Red Phone, you picked it up, you called
14:59
Speaker 3: your Actually, the red phone came after the Cold.
15:01
Speaker 2: War, after the crisis.
15:03
Speaker 3: Yeah, after the crisis. Yeah, I said, cold War, I
15:06
Speaker 3: met missile crisis. Yeah. But they so, they they enhanced
15:10
Speaker 3: the rules of the game for that reason. There were
15:12
Speaker 3: rules they got buttressed over the decades. My point is
15:16
Speaker 3: things could only get so far during that conflict. Not
15:20
Speaker 3: a perfect example, but an example of how a game
15:23
Speaker 3: of chick in the Cuban missile crisis, in particular, once
15:27
Speaker 3: the rules no longer replied and we were in uncharted
15:29
Speaker 3: territory with that, As you point out, it was pre
15:31
Speaker 3: Red Phone, nobody knew what to expect. We're in a
15:34
Speaker 3: similar situation.
15:35
Speaker 1: Now.
15:36
Speaker 3: Some structure might come out of this, sure, but there
15:39
Speaker 3: it will at some point. Yeah, whether under this or
15:41
Speaker 3: the next administration, it will. This administration likes the so
15:45
Speaker 3: called art of the deal, which is you don't let
15:46
Speaker 3: anybody know what you're thinking. You throw a temper tantrum,
15:49
Speaker 3: you say I hate you, I hate you, and then
15:50
Speaker 3: two minutes later, I love you, I love you. It's craziness,
15:53
Speaker 3: but this works when you're buying and selling buildings in
15:55
Speaker 3: Midtown Manhattan. Does it work in a global trading system.
15:58
Speaker 3: I don't know, well, I know, I think the answer
16:01
Speaker 3: is no. Everybody will find out soon enough, I guess.
16:03
Speaker 3: So there are no rules, Chuck, that's the problem.
16:06
Speaker 2: So that's what we've got going on. Just in terms
16:08
Speaker 2: of again, there is no there's no way that you
16:11
Speaker 2: can predict exactly how things are going to land between
16:13
Speaker 2: the US and China. Like you can't sit here and say, well,
16:16
Speaker 2: they've raised these terriffs to this point, they're going to
16:19
Speaker 2: meet in the middle of this, Like you don't really know.
16:22
Speaker 2: You don't know who's going to come to the table when,
16:25
Speaker 2: and what they're going to be able to, what they're
16:28
Speaker 2: going to be willing to give it any point in time.
16:30
Speaker 2: So it's kind of a wait and see situation.
16:33
Speaker 3: You think we could say, though, because we are a
16:36
Speaker 3: democratic system, at some point the president and members of
16:40
Speaker 3: Congress may be more pertinently have to respond to pressure
16:44
Speaker 3: from the electorate. We will be more response. Our system
16:48
Speaker 3: is more responsive to feedback than the Chinese system.
16:52
Speaker 6: It is.
16:52
Speaker 3: If I had to guess, I'd say we will flinch
16:54
Speaker 3: because feedback is quicker, more acute, and our officials are
16:58
Speaker 3: held accountable, even if not immediately.
17:02
Speaker 2: So it's possible, but you don't necessarily know that.
17:05
Speaker 3: No, No, I'm just making a guess.
17:06
Speaker 2: Of course, I don't know.
17:07
Speaker 5: It's April ninth.
17:08
Speaker 2: You know what's gonna happen again. Especially you look at
17:11
Speaker 2: you know, President Trump saying, hey, look this is I've
17:14
Speaker 2: got four years here, I'm gonna do what I like.
17:17
Speaker 2: I could very easily see him taking that path and saying,
17:20
Speaker 2: I guess I'm not going to back down from this.
17:22
Speaker 3: Congress has two elect Politicking for the next election starts
17:28
Speaker 3: like soon yesterday. My get right. So my guess is
17:32
Speaker 3: because of our system, politicians can be held accountable more quickly.
17:38
Speaker 3: If it's just about who's gonna flinch because they feel pain,
17:41
Speaker 3: my guess is we will flinch first. That's not analytical,
17:45
Speaker 3: it's just a guess based on our structure.
17:48
Speaker 2: I want to talk a little bit about what we
17:49
Speaker 2: saw last night in the US treasury market. As I
17:53
Speaker 2: was going to bed, I saw some interesting things. And
17:56
Speaker 2: by interesting, I mean they kept me up for like
17:58
Speaker 2: an hour or so being like, oh, that looks kind
18:01
Speaker 2: of dodgy. Long story short, Treasury rates were blowing out
18:04
Speaker 2: to the upside. The tenure treasury he hit four point
18:07
Speaker 2: five percent, up about almost a quarter percent from its
18:11
Speaker 2: closed the prior day, and at the same time, the
18:14
Speaker 2: US Dollar index was down about one percent. And I'm
18:17
Speaker 2: sitting there and I'm going is the US like going
18:20
Speaker 2: through a Liz Trust moment? Liz Trust, if you remember,
18:23
Speaker 2: a few years back, was the British Prime minister who
18:26
Speaker 2: proposed a budget that made no sense and British bond
18:29
Speaker 2: yields blew out to the top side and they basically
18:31
Speaker 2: had to come back and say we're not going to
18:33
Speaker 2: do this, and that administration had to resign and they
18:35
Speaker 2: moved on from them. Woke up this morning and was
18:38
Speaker 2: much more reassured. Not because treasury yields were down significantly.
18:43
Speaker 2: They were down from that peak down to about four
18:45
Speaker 2: point three to five percent from four to five, the
18:48
Speaker 2: dollar index not as weak as it had been. And
18:52
Speaker 2: the other thing that you were seeing was that bonds
18:54
Speaker 2: globally were selling off. It was not just a US
18:57
Speaker 2: focused phenomenon. This was happening in Japan, hand, in the UK,
19:01
Speaker 2: in Germany, it was across the board. So that was
19:04
Speaker 2: a little bit more reassuring. What probably happened last night,
19:07
Speaker 2: and none of us really know for sure, because again
19:10
Speaker 2: you don't know everything that goes on in these markets.
19:13
Speaker 2: Sure there could be some money flowing out of US treasuries.
19:16
Speaker 2: More likely than not, there was probably a levered hedge
19:19
Speaker 2: fund that blew up and had to liquidate a bunch
19:20
Speaker 2: of holdings. They were probably you know, long interest rates
19:23
Speaker 2: thinking they would go down, got caught off sides the
19:26
Speaker 2: last couple days, and probably had to do a huge
19:27
Speaker 2: liquidation in a thin market overnight. We'll never know, but again,
19:32
Speaker 2: things much more reassuring this morning on that front. At
19:36
Speaker 2: least quick break here when we come back, we got
19:38
Speaker 2: Wall Street Watch and asked Todd.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter at
19:45
Speaker 1: TFE show. Breaking business news is always first right here
19:49
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:54
Speaker 1: Street Watch. A complete look at what's moving markets so
19:57
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:01
Speaker 4: Well, tariff tensions between the US and China are escalating,
20:05
Speaker 4: yet markets are currently in positive territory after the US
20:09
Speaker 4: increased tariffs to more than one hundred percent on Chinese
20:12
Speaker 4: good China this morning countered in increased tariffs on US
20:16
Speaker 4: goods from thirty four percent to eighty four percent. Right now,
20:19
Speaker 4: the Dow up by half a percent are one hundred
20:22
Speaker 4: and eighty three points, SMP five hundred is up by
20:25
Speaker 4: nearly nine tenths of a percent, or forty three points,
20:28
Speaker 4: and the Nasdaq is up one point nine percent or
20:31
Speaker 4: two hundred and ninety three points. Russel two thousand pulling
20:34
Speaker 4: back a little bit by a third of a percent.
20:37
Speaker 4: Ten year TREASURYIL ten year TREASURYELD getting much attention this morning,
20:41
Speaker 4: up twelve basis points now at four point three eight percent.
20:45
Speaker 4: In crude oil plunging over four percent today, training at
20:48
Speaker 4: fifty seven dollars a barrel. Some significant news out of
20:52
Speaker 4: Delta this morning, after the airline withdrew its full year
20:56
Speaker 4: guidance due to uncertainty surrounding global trade as a result
21:00
Speaker 4: of President Trump's tariffs. Delta shares are up by eight percent. Meanwhile,
21:04
Speaker 4: Walmart reiterated its sales guidance. Despite the flurry of terraffs
21:08
Speaker 4: and weakening consumer sentiment, with a retailer still sees net
21:12
Speaker 4: sales growing between three and four percent this year. Walmart
21:17
Speaker 4: up by three percent. Apple also up by three percent
21:20
Speaker 4: after the White House said President Trump wants iPhones to
21:23
Speaker 4: be made in the US. Apple has fallen for four
21:26
Speaker 4: straight sessions, costing the tech giant about twenty five percent
21:30
Speaker 4: of its market value. Automakers, including Ford in general motors
21:34
Speaker 4: are down by about a quarter of a percent and
21:37
Speaker 4: three quarters of a percent, respectively, after terras previously went
21:41
Speaker 4: into effect. Pharmaceutical stocks including Pfizer, Merk, and Eli Lilly
21:45
Speaker 4: are all seeing losses of anywhere between two and three
21:48
Speaker 4: percent after President Trump said that he's going to announce
21:51
Speaker 4: a major tariff on pharmaceuticals, and later this afternoon at
21:55
Speaker 4: two o'clock, investors will be sifting through many meeting minute
22:00
Speaker 4: Excuse me from the Federal Reserve. I'm Tucker Silvan. That's
22:04
Speaker 4: Wall Street Watch.
22:06
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
22:10
Speaker 1: If you have an existing estate plan or in the
22:12
Speaker 1: market for one, Todd Letsky is here to answer your
22:15
Speaker 1: questions and help you plan for a later life. Ask
22:17
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:20
Speaker 1: New England for more than thirty five years, helping families
22:24
Speaker 1: with a state and tax planning, Medicaid planning, and probate law.
22:27
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:32
Speaker 2: And we are now joined by the one and only
22:34
Speaker 2: Todd Lutsky from the law firm of Cushing and Dolan
22:36
Speaker 2: here to answer your estate planning questions. If you got
22:40
Speaker 2: questions about your estate plan maybe the one you have
22:43
Speaker 2: the one that you should do. Here's your chance. Eight
22:45
Speaker 2: eight eight two zero five two two sixty three is
22:48
Speaker 2: the studio number. Last week we had five calls. We
22:51
Speaker 2: got through three of them. So you do need to
22:53
Speaker 2: call early and often in order to make sure you
22:56
Speaker 2: get in line to ask Todd your question. Eight eight
22:59
Speaker 2: eight two zero five two two sixty three is the number.
23:04
Speaker 2: One more time. That number to ask Todd your questions
23:07
Speaker 2: is eight eight eight to zero five two two six three.
23:12
Speaker 2: Mister Lutsky, how are you doing today? I am doing
23:15
Speaker 2: great and you I'm good?
23:18
Speaker 5: Yeah.
23:18
Speaker 2: What do you call a Frenchman getting attacked by a cat?
23:22
Speaker 5: I have no idea Claude, that's good that that would
23:26
Speaker 5: be his name.
23:26
Speaker 2: I want to talk a little bit about UH beneficiaries
23:30
Speaker 2: on retirement accounts. Okay, how has the thinking evolved over
23:35
Speaker 2: the last five seven years as it relates to naming
23:39
Speaker 2: a trust as a beneficiary for a retirement accounts?
23:44
Speaker 5: Yeah, so it has evolved and that's that's the good
23:48
Speaker 5: news if there is any so one, let's start with
23:53
Speaker 5: the primary beneficiary and a contingent beneficiary, so first and foremost.
23:58
Speaker 5: Even though you can name a trust as a beneficiary
24:03
Speaker 5: on a retirement account, if you're married, from an income
24:07
Speaker 5: tax perspective, it's still probably best to name the spouse. Okay,
24:13
Speaker 5: that's still a special beneficiary who could roll it over,
24:18
Speaker 5: take it out over their life expectancy. They don't have
24:21
Speaker 5: to take it till they reach the required beginning date oftentimes,
24:26
Speaker 5: so there's some benefits to that. However, if you don't
24:31
Speaker 5: have a lot of other assets to shelter on the
24:34
Speaker 5: first death because you're heavy into an IRA, well, it's
24:39
Speaker 5: possible when you set up your trust to name your
24:42
Speaker 5: trust as the primary beneficiary even though you have a spouse,
24:46
Speaker 5: so that it can flow into the trust into what
24:50
Speaker 5: we would call the probably the marital share, could be
24:53
Speaker 5: the remainder share, but it's just going to be a
24:55
Speaker 5: function of how many assets you have, and then those
24:58
Speaker 5: assets can be held for the benefit of the spouse
25:01
Speaker 5: and still get it to come out over the spouse's
25:04
Speaker 5: life expectancy. But the benefit of that so there's no
25:09
Speaker 5: income tax problem, right, But the real benefit is it's
25:12
Speaker 5: also now sheltered for future estate tax savings, whereas if
25:17
Speaker 5: you just name the spouse, then those dollars just flow
25:22
Speaker 5: over to the spouse and then they're subject to a
25:25
Speaker 5: state tax when the spouse dies. So if you need
25:28
Speaker 5: a state tax planning, that would be one reason to
25:30
Speaker 5: name it first. But generally primary is the spouse. However,
25:35
Speaker 5: the contingent beneficiary more often than not, but depending on
25:42
Speaker 5: what your trust says. Meaning if your trust simply says,
25:49
Speaker 5: divide everything and distribute it out equally to my kids,
25:54
Speaker 5: well then you don't really need to name the trust
25:56
Speaker 5: as the beneficiary because why run it through the trusts
26:00
Speaker 5: out to the kids when you could just name the
26:02
Speaker 5: kids as the beneficiary. Sure, but if your trust is
26:07
Speaker 5: designed to provide creditor protection, future divorce protection for the kids,
26:12
Speaker 5: maybe even generation skipping tax benefits to the grandkids, and
26:16
Speaker 5: there's a reason to hold things in trust, well then yeah,
26:20
Speaker 5: if you've got a large IRA, you don't want that
26:22
Speaker 5: going directly to the kids when it can be sheltered
26:26
Speaker 5: for them through the trust, so you would want to
26:29
Speaker 5: name the trust as the designated beneficiary.
26:32
Speaker 2: In that point, talking with Todd Lenski from the law
26:34
Speaker 2: firm of Cushing and Dolan. Still got room at the
26:38
Speaker 2: U on the phone lines at eight eight eight to
26:41
Speaker 2: zero five two two sixty three. That is the number
26:43
Speaker 2: to call to ask Todd your estate planning questions live
26:47
Speaker 2: on air right now. That number again is eight eight
26:50
Speaker 2: eight two zero five two two sixty three. Again, we've
26:54
Speaker 2: got limited room there, so make sure that you're calling
26:56
Speaker 2: early in order to get your question asked. We are
26:58
Speaker 2: going to take a quick break now, but when we
27:00
Speaker 2: come back, it's gonna be right to your questions with Todd.
27:03
Speaker 2: That phone number is eight eight eight to zero five
27:07
Speaker 2: two two six three. One more time. Eight eight eight
27:11
Speaker 2: to zero five two two sixty three.
27:15
Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
27:18
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:24
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:27
Speaker 1: Radio Network.
27:37
Speaker 2: Still better room on the phone lines if you've got
27:39
Speaker 2: a question for Todd Lutsky. Eight eight eight to zero
27:42
Speaker 2: five two two six three is the number again, eight
27:47
Speaker 2: eight eight to zero five two two six three. Let's
27:51
Speaker 2: go to Tara on the Cape. Tara what's your question for?
27:55
Speaker 2: Todd Lutsky?
27:57
Speaker 6: Good morning, Thank you. I have a question regard darting
28:00
Speaker 6: three adult children and leaving a home and one of
28:06
Speaker 6: them is on Social Security disability and would not have
28:10
Speaker 6: the judgment to manage a third of the household. Is
28:16
Speaker 6: there a way without putting the pressure on the other
28:19
Speaker 6: two siblings to manage this through either an executor or
28:25
Speaker 6: how do you set up a trust when one really
28:29
Speaker 6: doesn't have the capacity.
28:31
Speaker 5: So real estate in general is a tough thing to
28:37
Speaker 5: leave to three kids. So let's talk about it first
28:41
Speaker 5: as if you have three children and none of them
28:44
Speaker 5: are disabled or have any special needs issues, and then
28:49
Speaker 5: I'll mention how to do it with the special needs child.
28:53
Speaker 5: So if you have all three kids and none of
28:56
Speaker 5: them have any special needs issue at all, and you say,
29:01
Speaker 5: you know what, I want this to be held to
29:03
Speaker 5: my in trust for my three kids, Well, they might
29:06
Speaker 5: not love it the way you love it, And you
29:08
Speaker 5: never know where they're going to be, where their head's
29:11
Speaker 5: going to be at, or where they're going to be
29:12
Speaker 5: geographically when you die, which could affect their interest in
29:17
Speaker 5: the property. So that's first and foremost. So what we
29:19
Speaker 5: do is we try to put language in our trust
29:21
Speaker 5: to prevent fighting over the property. So we want them
29:24
Speaker 5: to be treated equally. That's easy. And then you say
29:28
Speaker 5: the property itself will be sold unless all three of
29:32
Speaker 5: you want it. Now, the special needs child to put
29:35
Speaker 5: that into play might not have the ability to decide,
29:38
Speaker 5: so it would only be if the other two want it.
29:41
Speaker 5: I don't know that you know that child would have
29:43
Speaker 5: the ability, don't know the cognitive impairment if any of
29:46
Speaker 5: that child, But if that child can participate in the vote,
29:49
Speaker 5: then please please do that. So so in that case,
29:54
Speaker 5: if they all don't, if they all want it, yeah,
29:58
Speaker 5: we're going to put it into three buckets and we're
30:00
Speaker 5: going to hold it in trust for these children. If
30:04
Speaker 5: anyone doesn't want it, then the ones who want it
30:07
Speaker 5: have the first right to buy out the interest of
30:10
Speaker 5: the ones who don't at fair market value. Again, so
30:13
Speaker 5: the buckets will be filled equally. No one will suffer
30:17
Speaker 5: and no kids will be fighting because they all ended
30:19
Speaker 5: up getting what they wanted, either a portion of a
30:23
Speaker 5: house or money, so at least there's no fighting. So
30:28
Speaker 5: we first get past the no fighting part by determining
30:31
Speaker 5: who really even wants the property. Now that said, let's
30:36
Speaker 5: say we get it into the three buckets. You do
30:38
Speaker 5: not have to disinherit your special needs or disabled child,
30:43
Speaker 5: because if it's held in these three buckets for the kids,
30:47
Speaker 5: then they don't own it. And so if they don't
30:50
Speaker 5: own it, then the child getting governmental benefits will not
30:54
Speaker 5: lose those governmental benefits because this won't kick them off
30:58
Speaker 5: the benefits. They don't only ask it. It doesn't disrupt
31:01
Speaker 5: any kind of an asset based benefit that they might
31:05
Speaker 5: be getting. So we've gotten past that problem. Now. The
31:09
Speaker 5: last problem again, whether we have a special a special
31:13
Speaker 5: needs child or not, is we're gonna hold it in trust. Well,
31:18
Speaker 5: if we're gonna hold it in trust, who's gonna pay
31:19
Speaker 5: for all these bills? Who's gonna pay the real estate taxes,
31:22
Speaker 5: the upkeep, the maintenance. You got to make sure those
31:25
Speaker 5: are paid. So you either have to a leave money
31:27
Speaker 5: in the trust to do that or have the kids
31:31
Speaker 5: rely on themselves to say, look, there's no money in
31:33
Speaker 5: the trust, we have to pay to maintain this property.
31:37
Speaker 5: And of course if they don't, the state will take
31:39
Speaker 5: it right. So you just got to make sure they're
31:41
Speaker 5: aware of that. If there's no money going to be
31:44
Speaker 5: left in the trust. So to answer your question, it
31:46
Speaker 5: can be done. But I think drafting the document to
31:51
Speaker 5: accommodate these concerns is gonna be a paramount. But I
31:56
Speaker 5: love the call. I love the question because that is
31:59
Speaker 5: exactly the we're giving away this month, folks. How to
32:03
Speaker 5: leave your assets to your beneficiaries. If you've done your
32:06
Speaker 5: planning in the past, get it. It's got several examples,
32:10
Speaker 5: one about special needs children, generation skipping, divorce proofing, staggered distribution.
32:16
Speaker 5: So if you've done your planning, get it. Maybe your
32:19
Speaker 5: life events have changed and you can figure out a
32:21
Speaker 5: way to leave it to your kids differently than you've
32:24
Speaker 5: already done. Or if you've never done your planning, call
32:29
Speaker 5: and get the guide and learn. Get some education before
32:32
Speaker 5: you walk into that lawyer's office to learn about what
32:35
Speaker 5: you might want to do to leave your assets a
32:37
Speaker 5: certain way. Eight six six eight four eight five six
32:42
Speaker 5: nine nine or Legal Exchange Show dot com again eight
32:46
Speaker 5: six six eight four eight five six nine nine or
32:50
Speaker 5: Legal Exchange Show dot Com.
32:52
Speaker 2: Todd got another one for you here. Let's go to
32:54
Speaker 2: Jim in Maine. Jim, what is your question for Todd Lutsky.
32:59
Speaker 7: I have a home that I've lived in for forty years,
33:02
Speaker 7: so it has a considerable amount of appreciation. I am
33:06
Speaker 7: currently assisted living. Okay, if I sell the home, is
33:11
Speaker 7: my understanding you have something like five years or something
33:14
Speaker 7: to reinvest it or something in a higher priced home,
33:17
Speaker 7: which I don't expect to do. And if not, if
33:22
Speaker 7: you don't sell it, you pay a real high estate
33:25
Speaker 7: tax or something like that. Is all that correct?
33:28
Speaker 5: Well, you're onto it, but I don't think you're onto
33:31
Speaker 5: it correctly. So a couple of questions. One, how much
33:35
Speaker 5: is the house worth?
33:36
Speaker 7: All about four point fifty?
33:38
Speaker 5: And what do you think you paid for it long ago?
33:42
Speaker 7: Fifty two?
33:43
Speaker 5: Call it fifty for easy numbers because I'm not good
33:45
Speaker 5: with math. So, and let's say you've put zero dollars
33:49
Speaker 5: into it. And I'm not saying you didn't. I'm sure
33:51
Speaker 5: you put some money into it, or did you? Did
33:53
Speaker 5: you put money into it over the years, new new roof,
33:56
Speaker 5: new kitchen, new bathroom.
33:59
Speaker 7: New roof, But that about you.
34:00
Speaker 5: All right? So let's say, worst case scenario, you got
34:03
Speaker 5: fifty grand into it. So let's say everything included your
34:06
Speaker 5: basis is one hundred thousand. That's your cost basis, and
34:10
Speaker 5: you were to sell it today for four fifty your
34:13
Speaker 5: gain would be three point fifty. Okay, Now, how long
34:19
Speaker 5: have you been in the assisted.
34:20
Speaker 7: Living Two years?
34:23
Speaker 5: So here's the rule that you were kind of bumping
34:26
Speaker 5: up against. That maybe not everybody understands fully, if you
34:30
Speaker 5: were to sell your primary residence that you have owned
34:36
Speaker 5: and used as your primary residence. So owned and used
34:42
Speaker 5: as your primary residence for two of the last five years,
34:49
Speaker 5: then you get your capital gains exclusion. So it sounds
34:53
Speaker 5: to me like you have one more year. So if
34:58
Speaker 5: you want to sell this, you better hurry up, okay
35:01
Speaker 5: and sell it because right now you have owned and
35:06
Speaker 5: used this property for two of the last five years,
35:11
Speaker 5: in fact, three of the last five years, okay, because
35:13
Speaker 5: you're still in that window, so one year to go.
35:17
Speaker 5: So let's say you decide, okay, this is the year
35:21
Speaker 5: I'm selling. Okay, Well that's okay, and I would hurry.
35:26
Speaker 5: So now you have a three hundred and fifty thousand
35:28
Speaker 5: dollars gain. You do not have to buy anything, right,
35:34
Speaker 5: You do not have to reinvest this property into something else,
35:38
Speaker 5: which you might not. You're you're in an independent or
35:41
Speaker 5: assistant living of some kind and and you won't need
35:44
Speaker 5: to do that, so you will get first of all,
35:47
Speaker 5: are you single, I'm wowedea, okay, So you will get
35:53
Speaker 5: a two hundred and fifty thousand dollars capital gains exclusion. Okay,
36:00
Speaker 5: Now if you were married, folks, just for everybody else listening,
36:03
Speaker 5: if you were married, you get a five hundred thousand
36:07
Speaker 5: dollars exclusion as long as you've owned and used the
36:10
Speaker 5: property as your primary residence for two of the last
36:13
Speaker 5: five years. But in your case it's two fifty. Well,
36:16
Speaker 5: three point fifty minus two point fifty is one hundred.
36:22
Speaker 5: So now you have a one hundred thousand dollars gain
36:25
Speaker 5: that you ultimately will pay taxes on. So on a
36:28
Speaker 5: four hundred and fifty thousand dollars sale, you're going to
36:31
Speaker 5: be paying taxes of somewhere around you know, twenty eight grand,
36:34
Speaker 5: give or take. And you might not even be in
36:37
Speaker 5: that high of a bracket. It might be lower than that.
36:39
Speaker 5: So to me, not a bad deal. I'd say it's
36:42
Speaker 5: kind of a win for you if if, if you're
36:44
Speaker 5: ready to do it. I think the market, at least
36:46
Speaker 5: for the real estate world, is still pretty high, so
36:48
Speaker 5: why not give that a go. But that's a great question. Folks,
36:52
Speaker 5: and it's very important that you understand the tax dynamics
36:56
Speaker 5: when you're making decisions about selling your real estate.
37:00
Speaker 2: Todd, we appreciate you joining us today. Thank you so
37:03
Speaker 2: much for the time.
37:03
Speaker 5: It's always a pleasure. Thank you.
37:06
Speaker 1: This has been Ask Todd on the Financial Exchange Radio network.
37:10
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:12
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:15
Speaker 1: thirty years, helping families with the state and tax planning,
37:18
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:21
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:25
Speaker 1: The views expressed in this segment are solely those of
37:27
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:29
Speaker 1: or tax advice. Please consult with your illegal or tax
37:31
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:34
Speaker 1: each other and are not affiliated.