Latest / The Financial Exchange Show / Did the CPI report almost guarantee a rate cut in December?

Transcript

Did the CPI report almost guarantee a rate cut in December? · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:03
is hosted by employees of the Armstrong Advisory Group, a
0:05
registered investment advisor. All opinions expressed are solely those of
0:08
the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
or anyone else. Investments can lose money. This program does
0:14
not offer any specific financial or investment advice. Please consult
0:17
your own financial, tax, and estate planning advisors before making
0:20
any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
this program do not endorse each other or their services.
0:26
Armstrong and Money Matters Radio do not compensate each other
0:28
for referrals and are not affiliated. This is the Financial
0:34
Exchange with Paul Lane and Mark vand Eddie, your exclusive
0:39
look at business and financial news affecting your day, your city,
0:42
your world. Stay informed and up to date about economic
0:46
and market trends plus breaking business news every day. The
0:50
Financial Exchange is a pround partner of the Disabled American
0:53
Veterans Department of Massachusetts. Help us support our great American
0:57
heroes by visiting DAV five k dot com and making
1:00
a donation today. The DAV five K Boston is presented
1:04
by Veterans Development Corporation. Face is The Financial Exchange with
1:09
Paul Lane and Mark Fandetti.
1:13
Speaker 2: Welcome to this Wednesday edition of The Financial Exchange. Paul Lane,
1:16
Mark Fndetti, and Tucker Silva here with you today and
1:20
this morning we kick off our show with a inflation
1:24
report that came out for the month of October. Certainly,
1:27
there has been a tremendous rally in the US markets
1:30
over the course of the last week or so, a
1:32
lot of news around President Trump and his potential economic policies.
1:37
But we'll kick off today's show with a little bit
1:39
of talk on some recent reports that came out on
1:42
the USCPI front. What we saw from the eight thirty
1:45
a m. Release this morning is US Consumer Price Index
1:49
data on month over month inflation increased point two percent.
1:53
That is now running at a year over year number
1:56
of two point six percent. So these were relatively in
1:59
line with expectations. If you look at a different metric
2:04
that was posted in this report, which is called core
2:06
CPI consumer Price Index data. When we use that CPI acronym,
2:10
that strips out the impacts of food and energy, those
2:13
numbers came in at point three percent month over month
2:17
in terms of the increase there and on a year
2:20
over year basis, the core CPI, again stripping out the
2:23
impacts of energy and food, came in at three point
2:26
three percent. So largely parsing through this data that we
2:30
received this morning, relatively in line with what economists had expected.
2:35
There are some points that we can hone in on,
2:38
such as energy that was relatively flat over the month
2:42
of October. Shelter continues to be an area of an
2:45
inflationary pressure. The costs for housing increased point four percent
2:51
month over month, and that's running about five percent on
2:54
an annual basis year over year. In terms of the
2:57
most immediate impacts on the interest rates side of things,
3:01
heading into this morning, there was about a sixty percent
3:06
likelihood if looking at the CME futures, which price out
3:09
whether or not the Federal Reserve will cut interest rates
3:12
at their next meeting on December eighteenth, sixty percent ahead
3:16
of this morning's data. That now sits at about eighty
3:19
percent in terms of the likelihood of a cut in
3:22
the next Fed meeting, and that will be the last
3:24
one for twenty twenty four, and as I speak at
3:27
the moment, that percentage is increased to eighty two percent,
3:30
So a pretty high likelihood in response to this inflation report,
3:34
that we will see another cut here in December. Mark
3:38
any of your major takeaways from the report. I kind
3:41
of highlighted some of the bigger numbers and the impact
3:44
on the Federal Reserve and potential interest rate cuts, but
3:46
anything that you glean from this October CPI report?
3:50
Speaker 3: So what are we trying to get at here? Where
3:53
where is the FED trying to get the economy to
3:55
You pointed out that core inflation, which is what I'll
3:58
use for the part of our conversation, Core increased three
4:03
and a half percent over the last year, and if
4:05
you annualize, as Mike Armstrong likes to do the last
4:08
few months, because that's better indicative perhaps of the of
4:13
the trend and inflation more indicative of recent experience, you
4:16
get something closer to three point seven percent. The Fed's
4:19
goal is two. The Fed follows a different The Fed's
4:23
Choice Index is different than the Consumer Price Index, the CPI,
4:27
as you explained that we're talking about today, but the
4:30
two move in tandem, though there is a structural difference
4:34
between the two that we don't have to get into.
4:36
So the bottom line is measures of the trend and inflation.
4:40
Forget about headline for a moment. The all Items index,
4:44
measures of the trend and inflation are running well above
4:47
the fed's goal. That shouldn't surprise us, is one takeaway.
4:53
Because GDP growth grows domestic product the only measure. There
4:57
are others like GDI, which measures the incomes out of
4:59
the equation. So I'm going to oversimplify a little bit here,
5:02
but GDP our primary measure of economic health. It's the
5:06
measures of the economy's heartbeat. It's not perfect, but it's
5:09
all we've got. GDP, we know in the last quarter
5:13
grew about two and a half percent. I'm rounding down
5:16
a little year over year, and at an annualized rate.
5:20
If instead you want to look ahead at about the
5:22
same clip, that's much faster than most economists think the
5:26
economy should grow given what I'll call structural forces, productivity,
5:32
labor force growth, the things that contribute to economic growth
5:35
in the long term. What I'm trying to say is
5:36
the economy is running faster than what most economists think
5:40
is it's speed limit. Speed limits not the best analogy.
5:44
Your tachometer might be a better analogy. We're in the
5:46
red zone on the tachometer, if you want to think about.
5:49
Speaker 1: It that way.
5:50
Speaker 3: So it's not surprising that inflation remains a little bit
5:53
elevated because it's not a function of what I'm going
5:56
to be a little bit flip here. It's not a
5:58
function of what energy price do month over month, even
6:01
though we know it is. I'm going to make a
6:02
broader point. It's not a function of whether shelter jumped
6:05
month over month, as it did, only in the immediate sense,
6:09
only in an accounting sense, is at a function of
6:11
those things. Inflation really happens when the FED puts too
6:15
much money into the economy, stoking too much demand given
6:19
the level of supply, and that pushes up prices, and
6:24
to me, core inflation. Will get other reads on the
6:28
trend in inflation today, like media, and we should get
6:30
that during the show. If I think of it, we'll
6:32
let you know what it is. They suggest that the
6:34
economy continues to run a little hot. I think that
6:37
the FED might. I'm not a monetary economist. I'm just
6:39
a generalist, and everybody's got an opinion on this stuff.
6:43
But I don't think it's disputable that the economy is
6:46
running a little bit above its speed limit, Paul.
6:48
Speaker 2: So I posit it to you Mark based on your
6:50
synopsis there. It seems to me, and I don't want
6:53
to put words in your mouth that you're you have
6:55
maybe a higher level of concern on where inflation stands
6:59
relative to where the Federal Reserve is, because for all
7:01
intentsive purposes, the Federal Reserve has more or less said
7:05
with their policy action and some of the sentiments made
7:08
by Chairman Drome Powell that they are no longer concerned
7:11
about inflation spiking up dramatically and that they feel as
7:15
if they have it relative under control, and their actions
7:17
echo that. We just talked about some of the rate
7:19
cuts that we've seen. We've seen seventy five basis points
7:22
of rate cuts so far, fifty the first time, another
7:25
quarter basis point in the early November meeting, and like
7:28
I just said, we're now sitting at an eighty two
7:30
percent likelihood of perhaps seeing another one come. Prior to
7:35
the year end meeting, the focus, largely from financial rhetoric
7:39
has been the labor market. So I do ask you
7:41
that question, do you feel as if it's something that
7:44
is being underlooked or under scrutinized during this period of time.
7:50
I don't know.
7:51
Speaker 3: I mean, they've got reams of PhD economists who do
7:55
nothing but augment and enhance these elaborate models of the economy.
8:02
And we may snicker when we hear models of the economy,
8:05
but it's a very complex phenomenon and you try to
8:07
approximate it with models. They're not perfect, obviously, but they're
8:12
the best we've got if you're in the business of
8:14
making monetary policy. So I'm not going to presume the
8:16
second guest the more claim to know better. My only
8:20
claim is that it should not be surprising that underlying
8:22
inflation remains elevated, given that the economy continues to operate
8:26
above potential. And I think it's useful to keep And
8:29
this is, by the way, I'm taking this from standard
8:31
macro economic theory. You'll find it in every textbook taught
8:36
in every virtually every university. So nothing about what I'm
8:39
saying is unique to me or original in any way.
8:44
The FED knows what I'm saying. Obviously, they're economists have
8:47
read the same books that I have, so presumably, Paul,
8:51
to your point, they know something that the rest of us,
8:53
don't they are more concerned about slackening in labor market
8:58
measures that you alluded to, then maybe a superficial look
9:03
that I give the data would suggest. So I'm willing
9:06
to admit that those folks should know better.
9:09
Speaker 2: But we all know that. No wonder that two percent
9:11
number is arbitrary in a sense right there? The Fed's
9:14
goal of two percent inflation is it? Is it really
9:17
problematic if it runs? If we see these numbers continue
9:21
to run at three percent over the course of twenty
9:23
twenty five, and the consumer remains resilient, which has been
9:26
really sure the largest folkrum for continued economic.
9:30
Speaker 3: Growth, Yeah, it's not inherently problematic to your point, though
9:33
they picked a target.
9:35
Speaker 2: Yep, the target's not that old.
9:37
Speaker 3: They only started articulating a target publicly in twenty twelve.
9:43
They always had one. Green Spans was somewhere in the threes.
9:46
But he wants Greenspan wants actually threatened. I wasn't there
9:49
to see it. This is written in a book by
9:51
a guy named Alan Blinder, who was vice chair at
9:53
the time. Green Span threatened the committee. You don't let
9:55
our goal get out because once it does, people anchor
9:58
to it and it reduces our maneuverability. So green Span
10:01
knew that you should keep your goal secret. The point
10:04
was to keep inflation low and stable. You don't have
10:06
to definitively state a target because then you're handcuffed potentially.
10:13
And yeah, Paul, I think only because they've articulate we'd
10:16
all be fine with three percent inflation. Yeah, Zada likes
10:19
to point out that was the rate in the nineties,
10:21
a little bit less than that. It was a little
10:23
bit more than that in the eighties. It was it
10:25
was not a nuisance. And that's where you want inflation
10:28
to the point where it's operating in the background, no.
10:31
Speaker 2: One's talking about it, and that's where it was really
10:33
for the last decade prior. That's actually shows like us
10:37
don't talk about it. That's really what you're aiming for
10:40
and what the Federal Reserves goal is to have that
10:42
price stability and so that people amongst just the regular
10:47
Americans stop talking about it on a daily basis, that
10:49
you're not saying, oh, gee, my grocery prices are so
10:51
much higher. The more time eclipses without seeing inflation tip
10:55
up than the more likely we are to see that
10:57
we're going to take a quick break here on the
11:00
Financial Exchange. But when we come back, we're going to
11:02
be talking about Donald Trump's win and what that means
11:04
for inflation. We just covered the October CPI report that
11:07
we had. What does Trump's win mean for inflation going forward?
11:11
When he takes office in January. We'll be covering that
11:13
right after this break.
11:15
Speaker 1: This is your home for the most comprehensive coverage of
11:18
the economy and the trends on Wall Street. This is
11:21
the Financial Exchange Radio Network. If you missed any of
11:25
today's show, catch up whenever you want on our YouTube page.
11:28
Find daily show segments and full shows. Just go to
11:31
YouTube dot com and search for the Financial Exchange. This
11:34
is your home for breaking business and financial news. This
11:38
is the Financial Exchange Radio Network.
11:43
Speaker 4: The segment of the Financial Change is brought to you
11:45
part by the US Virgin Islands Department of Tourism. The
11:48
US Virgin Islands are Saint Croix, Saint Thomas, and Saint John.
11:52
With fall in full swing, now's the time to start
11:55
looking at a fabulous holiday vacation. And there's no better
11:58
place than the US Virgin Islands. Enjoy perfect weather, world
12:02
class dining, incredible beaches, and a vibrant nightlife. No passport
12:05
is needed and there's no money to exchange. Take your
12:08
next vacation in America's Caribbean paradise the United States Virgin Islands.
12:12
Go to visit USVII dot com to book your trip.
12:16
That's visit USVII dot com.
12:19
Speaker 2: So Mark I talked about this with Mike and yesterday's show,
12:23
But many listeners know that I was out the last
12:25
week or so as we welcome my wife and I
12:28
our daughter, Lilah, my third child. So I was buried
12:31
in diapers and bottles. But I did hear during my
12:34
time out that there was an election and that President
12:37
Trump will be taken over. I wasn't too plugged into
12:40
to everything, but I certainly heard about that. And so
12:42
one of the things that we've been really focused on
12:44
now as ever turned back to the office. I'm sure
12:46
you guys spent a ton of time talking about it
12:48
last week is his potential policies and the impact on
12:52
inflation in the economy in general. And the word that's
12:56
been at the forefront of most financial publications has been
13:00
tariffs and the impact that that could have on the
13:03
US economy. And so there is a piece here done
13:05
by Time that is titled what Donald Trump's win means
13:09
for inflation and curious mark your thoughts on tariffs and
13:14
their potential impacts. Certainly, I do have concern that this
13:19
could lead to inflationary pressure if they were widespread. I
13:22
don't know, and no one seems to know really, if
13:25
this is gonna be a negotiating tactick that Tump Trump
13:28
employs like he did in his first term where it
13:30
was more to ruffle feathers to try and get other
13:32
countries to acquiesce to our pressure, or if it's going
13:36
to be something that is truly widespread. So curious your
13:38
thoughts because you and I haven't spoken on the show
13:40
about it.
13:41
Speaker 3: Yeah, the textbook answer to your question is, Yeah, tariffs
13:44
are inflation. Are their taxes They push up prices full stop.
13:47
Speaker 2: Yep.
13:48
Speaker 3: Whether the inflation persists, though, depends on how the Fed responds.
13:52
And that's true of any shock. It doesn't have to
13:54
be a tariff. It could be an increase in the
13:56
price of oil due to a geopolitical event. It could
14:00
be an earthquake in Japan that causes components and car
14:04
components of cars and cars to get more expensive. That
14:07
would qualify as a supply type shock. So the shock
14:10
could be of many different from many different sources. The
14:15
question is does the FED accommodate the shock and allow expectations,
14:20
which are an important part of the inflation process, to rise,
14:24
and that results in inflation getting dug in. So tariffs
14:29
as a national security tool, the merits of tariffs that
14:34
is a slightly different question. So that was a horrible sentence,
14:37
but you know what I'm getting at The national security
14:39
argument might be strong. The economic argument economists hate tariffs, right,
14:44
They distort production everybody. The producers that are now protected
14:48
raise their prices too, so profits accrue to domestic producers.
14:52
Just think of the car industry when we coddled it,
14:55
quality deteriorates because coddled producers don't face competition. If you
15:00
a Chevy Citation before the eighty five model, which I
15:04
think was more solid, but you know what I'm You
15:06
know what I'm getting at it. If you drove a
15:07
Chevy in the nineteen eighties, other than some of their trucks,
15:10
you know what I mean, weather stripping, flying off the windows,
15:13
and paint peeling unless you got the Rusty Jones treatment.
15:16
Those were not great. Those were not the golden era
15:19
for us. Cars competition helped them. We all, those of
15:22
us who lived through it, and those of us have
15:23
heard the stories, know this. So domestic producers charge more,
15:28
quality goes down. Consumers on average are worse off. I'll
15:31
say again, full stop, there's no denying it. Some are
15:34
better off. Massachusetts will be worse off, period, Michigan, Ohio,
15:39
parts of those states and will be better off. And
15:41
I think that explains the election results. Our GDP Massachuset.
15:46
I'm being Massachusetts centric here, but you could attribute this
15:49
to you could apply this to all of New England
15:51
has skyrocketed for the most part over the past thirty years.
15:54
We have been at the forefront of the information technology
15:57
and biomedical revolution. I'll say Massachusetts in particular. Our GDP
16:02
is sword while Ohio's has been. We were equal with
16:05
Ohio GDP per capita in nineteen eighty. Now we're fifty
16:07
percent higher. Interesting end of story, like now you know
16:10
why those people are disgruntled, right, So they want policies
16:13
from which they will be the winners. Many in Lordstown
16:17
and elsewhere will be We will be the losers, and
16:20
on average consumers lose from tariffs and in the short term, Paul,
16:24
to get back to the original part of your question, Yeah,
16:27
they'll push up prices. Some of you may say that's fine.
16:30
I don't want to import Chinese goods and help the
16:33
economy of what will almost surely be an adversary for
16:37
some time. That's a different argument. I'm actually very sympathetic.
16:40
But economically the verdict is clear. They're ineffective and they
16:45
generally hurt people.
16:46
Speaker 2: Yeah, I just hope that those people are willing to
16:48
pay the higher prices and put their money where their
16:50
mouse is if you're in favor of those teriffs for
16:53
on some items. To me, and Chuck always brings us
16:56
up too, it just doesn't seem like it's a national
16:59
security concern to have sketcher shoes or American eel apparel
17:03
or any type of apparel. And I thought there was
17:05
a good point made in this time piece that ninety
17:07
eight percent of your closet, you and I is likely
17:10
imported from overseas and perhaps China or many other countries
17:15
out there unless you're in the US military. So I
17:18
don't view it as a huge national security center to
17:21
have my T shirts made in China. Ultimately, we get
17:23
a better end price from it. When you're talking about
17:26
semiconductors and other types of materials that can be used
17:30
in military deployment and things like that for weapons, it's
17:33
certainly a different tone there. But again, all of this
17:37
is conjecture. I find it hard to really have a
17:40
thorough conversation about this because we don't know how these
17:42
tariffs are really going to shape take form. It's been
17:45
mentioned that there would be.
17:46
Speaker 3: A sixty go Sorry, Paul, you think you think there's
17:49
clarity on it, Yeah, but we got to have we
17:51
have to have this discuss. But I mean, I think
17:53
I think Donald Trump's dead serious about tariffs. He's been
17:55
talking I'm fifty two, He's been talking about it my
17:57
whole life, right, I think he's committed. If there's you
17:59
could say he's inconsistent in other ways, but he is.
18:03
It used to be Japan when I was a kid,
18:05
Japan was a boogeyman. They were gonna bury us. They
18:07
had the formula, and then Japan came to a stop. Basically,
18:11
growth did per capita in nineteen ninety and they've never
18:14
really it's not funny if you're Japanese. I guess they've
18:16
never really recovered. They're hardly languishing. They still have a
18:19
very high standard of living.
18:21
Speaker 2: So I think this is the one thing that in eighteen,
18:24
but in you know, sorry, twenty sixteen, wasn't this a
18:27
conversation as well? We spent so much time to secting
18:29
and and there were there were tariffs, to be clear,
18:32
but I don't know if the presidents used them. They're
18:34
as widespread as anticipated when he was.
18:36
Speaker 3: No, he's talking about tariffs on every import. Well, I
18:38
understand jd Vance, right, No, I know, I know you.
18:41
He and jd Vance want to make everything here. Jd
18:44
Vance famously said not one American job is worth five
18:47
million cheap toasters, which is honestly the stupidest thing I've
18:50
ever heard anybody say on an economic matter, Like you
18:53
take the savings that we get from cheaper toasters, which
18:57
by which don't conveniently don't burn your kitchen downund it
18:59
in the econ, you use it to retrain people who
19:02
may have been displaced. That's the answer. It's not to
19:04
keep out foreign toasters. So it's this sort of primitive
19:07
economic thinking that I thought we squashed decades. I thought
19:11
this argument was settled. It's like the argument over vaccines.
19:14
Like I thought that was settled. People don't die of
19:17
de theoria anymore, thank god, But apparently we're going to
19:20
have that discussion again.
19:22
Speaker 2: Taking a look at the markets here, we're in relatively
19:24
mixed territory throughout the early action, but we're going to
19:27
take a quick break here in the Financial Exchange. When
19:29
we come back, we're going to be having a lengthy
19:31
discussion with as TODs. So get those questions ready and
19:34
Wall Street watch. That's right after this break.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
TFE show. Breaking business news is always first right here
19:48
on the Financial Exchange Radio Network. Time now for Wall
19:53
Street Watch a complete look at what's moving markets so
19:56
far today right here on the Financial Exchange Radio Network.
20:01
Speaker 4: Markets are mostly quiet and in a mixed territory as
20:03
Wall Street reacts to the Consumer Price Index unveiled this
20:06
morning for the latest gauge on inflation cam in line
20:10
with expectations, where consumer prices climb two point six percent
20:14
in October, slightly higher than two point four percent in September.
20:18
At the moment, the Dow is up by eighty points,
20:21
just under a quarter percent. SMP five hundred is edging
20:25
two points higher, and the Nasdaq is off by eighteen points.
20:29
Russell two thousand is up by two thirds of a percent.
20:32
Ten year Treasure reeled is flat at four point four
20:35
to two percent, and crude oil is down by nearly
20:39
one percent, trading its sixty seven dollars and fifty six
20:43
cents a barrel. Rivian Automotive shares jumping by eighteen percent
20:47
after the ev maker announced its joint venture with Volkswagen
20:51
in a deal worth five point eight billion dollars. The
20:55
first Volkswagen models to use Rivian software in electrical architecture
21:00
could arrive as early as twenty twenty seven. Meanwhile, Spotify
21:05
shares jumping by seven percent after the music and podcast
21:08
streaming platform posted a third straight quarterly profit as efforts
21:12
to control costs payoff. The company's fourth quarter profit forecasts
21:16
exceeded analyst estimates, and its monthly active users in the
21:20
third quarter climbed eleven percent from a year ago. Elsewhere,
21:25
fast casual Mediterranean restaurant chain Cava beat third quarter expectations
21:30
and also boosted its annual guidance. That stock up by
21:33
ten percent, and according to The Wall Street Journal, Spirit
21:37
Airlines reported that the struggling excuse me, Spirit Airlines. The
21:41
struggling airline was preparing to file for bankruptcy following the
21:46
breakdown of merger talks with Frontiers. Spirit shares are down
21:51
by fifty five percent. I'm Tucker Silva and that is
21:56
Wall Street Watch.
21:58
Speaker 1: This is ASK Time on the Financial Exchange Radio Network.
22:02
If you have an existing estate plan or in the
22:04
market for one, Todd Lutsky is here to answer your
22:06
questions and help you plan for later life. Ask Todd
22:09
is presented by Cushing and Dolan, serving Massachusetts and New
22:12
England for more than thirty five years, helping families with
22:16
a state and tax planning, Medicaid planning, and probate law.
22:19
Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:24
Speaker 2: It is now time for our weekly segment with Todd
22:27
Lutsky from Cushion Dolan. If you have any type of
22:30
a state planning question, question about taxes, gifting, anything of
22:33
that nature, give our off our studio line a call
22:36
at eight eight eight to zero, five two two sixty three.
22:40
Again any of your estate planning questions, Todd is here
22:43
to answer them. That phone number eighty eight to zero
22:46
five two to six ' three, Todd. How we doing today?
22:50
I'm never better on you doing well, Todd. We're coming
22:53
up on year end here, and what's coming soon, particularly
22:56
around my house, is the holidays and the gift season,
23:00
and decorations are already going up this weekend for Christmas
23:04
at my home. My question to you, Todd is what
23:07
are some considerations that folks should have out there in
23:10
regards to gifting assets. Perhaps they're feeling generous around the holidays.
23:14
What are some considerations that folks should have head into
23:17
your end here.
23:17
Speaker 5: Yeah, people don't think much about gifting, and it happens
23:21
sometimes easily, sometimes without much thought, but it can have
23:26
a lot of tax consequences associated with it. And we
23:31
want to encourage gifting, but it's not always needed. So
23:34
some people say, well, I got a gift to get
23:36
assets out of my estate to reduce my estate taxes.
23:39
Maybe check is it over the federal Am I going
23:43
to be getting it out or save federal estate taxes?
23:46
Or am I getting it out of my estate only
23:48
to save state estate taxes? Big difference? Why if I'm
23:53
going to move assets out of my estate to save
23:56
a forty percent federal estate tax haircut, Well, that that
24:01
might be worth it. If I'm moving assets out of
24:04
my estate only because I want to reduce my state
24:07
death tax. Well, in Massachusetts anyway, I can't speak to
24:11
the other states, but in Massachusetts anyway, you're saving about
24:15
ten percent. Well, that that may not be enough to
24:19
do it. And why I say that is especially the
24:23
next thing you need to think about what kind of
24:25
assets might I gift if I'm going to gift. Right, Well,
24:31
if I'm going to gift, you know, cash is always
24:33
king Why because it's high basis. And why am I
24:37
talking about basis? Well, because when I make gifts, I
24:40
can consider saving on the estate tax front. But if
24:44
I give away assets that have a very low basis,
24:48
then I've got to remember I could be creating capital
24:52
gains tax problems even though I might be saving on
24:57
the estate tax front. It's doing example, perhaps let's say
25:02
you know you've got a house that you want, a
25:05
vacation home that you've had in the family, and you say,
25:07
you know what, I'm going to give that away, get
25:08
that out of my estate. It's worth a million dollars,
25:11
but you know we only paid two hundred thousand for it.
25:15
Long ago. Well, now there's an eight hundred thousand dollars
25:18
gain built into that property. So I might be moving
25:23
a million dollar asset out of my estate, and of
25:27
course how we do that as a whole conversation we
25:30
still have to have. But I might be moving that
25:32
out of my estate. So now my estate is a
25:34
million dollars lower in value. But that gain that I
25:41
gave to the kids, right, I gave them the vacation home,
25:44
I gave them my cost basis, and I gave them
25:47
that gain. So if they, after my death decide to
25:51
sell the property because they don't want to maintain it
25:53
or deal with it anymore, they're going to be paying,
25:56
you know, twenty eight point eight percent, call it thirty percent.
26:00
That's two hundred and forty thousand dollars in tax. I
26:04
just gave them a two hundred and forty thousand dollars
26:07
tax pill. Well, instead, maybe I should keep that asset
26:11
and consider other assets that I would give away, because
26:14
giving away a million dollars, if I'm only saving on
26:17
the estate tax front in this at the state level,
26:22
I saved maybe one hundred grand, but I incurred two
26:26
hundred and forty thousand in capital gains tax.
26:28
Speaker 2: Yeah, that's the kids. I'm not gonna love that.
26:30
Speaker 5: You got to think it through.
26:31
Speaker 2: We're talking here with Todd Lusky from Christian Dolan, going
26:34
over everything in the estate planning realm. If you have
26:37
any questions for Todd, give our studio line a call
26:40
at eighty eight to zero five two to sixty three.
26:44
Speaker 1: Again.
26:44
Speaker 2: That number for any of your estate planning questions is
26:47
eighty eight eight to zero five, two to six three.
26:51
We're gonna take a quick break here, but when we
26:53
come back your questions next with Todd Lutsky.
26:58
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:02
only here on the Financial Exchange Radio Network. You're listening
27:07
to Ask Todd with Todd Lunsky on the Financial Exchange
27:11
Radio Network.
27:19
Speaker 2: We are back here with Todd Lutsky from Cushion Dolan.
27:22
If you have any questions in the estate planning world,
27:25
whether it be on taxes, gifting, trust wills, anything of
27:29
that nature, give our studio line a call at eight
27:31
eight eight to zero five two to two sixty three. Again.
27:34
That phone number here eighty eight eight to zero five
27:38
two two six y three for any questions that you
27:40
have for attorney Todd Lutsky. Here, Todd, I have a
27:43
question for you. There was a piece yesterday in the
27:45
Wall Street Journal that was titled estate planning priorities for
27:49
people without children. Certainly the majority of the focus on
27:52
the estate planning side is for those who do have kids.
27:55
You want to make sure that your kids inherit the
27:57
assets that you've worked hard for. But what considers would
28:00
someone have that maybe is not in as much of
28:03
a rus to do because they do not have children.
28:05
What would be some of the considerations that they'd want
28:07
to have in building on an estate plan or maybe
28:09
some of their basic planning documents like living will, power,
28:12
attorneys and things of that nature.
28:13
Speaker 5: Well, I think there's more to consider than just that,
28:17
even just and I think the fair question might be,
28:20
just because I don't have children, does that mean I
28:22
don't do estate planning. That's kind of what I'm hearing
28:25
right from this question, And a lot of people might
28:27
think that. They might say, well, just because I don't
28:29
have children, therefore I don't need to do a state planning.
28:32
Well maybe not. Maybe you know, it does change the dynamic,
28:36
right when I meet clients that are even if they're
28:38
married I meet clients that are married and don't have kids, right,
28:42
I go. That immediately changes the dynamic a little, but
28:44
doesn't mean we don't do planning because they still want
28:46
to take care of each other. So it could be
28:50
a single situation or a married couple with no kids.
28:53
So on a married couple with no kids, I still
28:56
want to make sure that you know, when one dies,
28:58
we make it easy for the other one. So we
29:01
still would want to avoid probate at a bare minimum.
29:03
So I would want to set up my trust simply
29:06
to do that. Now, I think if you're a married
29:09
couple with no kids, you're probably not as worried about
29:13
the nursing home. Why because there's just so many things
29:17
we can do last minute to protect assets for a spouse,
29:21
different than when you're single. But for a spouse, there's
29:24
things I can do last minute and make sure things
29:27
get over to a spouse. Now, remember, if you had kids,
29:30
just getting things to a spouse is not helpful because
29:34
then if the spouse gets sick, the kids aren't going
29:35
to get it right. But if we're not talking about
29:39
trying to preserve assets for children, then I'm thinking the
29:42
kind of trust they would do would be you know,
29:44
probably a revocable trust, so that would avoid the probate,
29:49
and that would also allow them to stay in complete
29:52
control of everything, which of course they would want. And
29:56
then you still have to ask them. Just because you
29:58
have no kids doesn't necessarily mean that you don't have
30:03
loved ones that you want to leave assets to. And
30:06
so maybe there are nieces and nephews right that if
30:10
you don't have kids, they feel like your kids, and
30:13
so I'd want to provide for them. Or maybe you
30:16
have siblings, or maybe you have cousins.
30:18
Speaker 1: I don't know.
30:19
Speaker 5: So even if you don't and you want to leave
30:21
things to charity, well then you might want to think
30:24
about how to do that. And the trust will allow
30:26
you to do all of those things, so how you
30:30
leave the assets to people can still be governed by
30:33
the trust. And again, lastly, and again, all these things
30:37
become either less important or depending on where they're where
30:41
the client's head's at. But you know, depending on how
30:45
much you're worth, why give the state even or the
30:48
federal government money tax money? If you don't have to,
30:52
you might say, well, why bother, we're taking care of
30:55
each other. We're not going to pay any taxes and
30:57
so what if the government gets it. Well, if that's
30:59
how you feel, that's asolutely right. I can't defend. I
31:02
can't try to, you know, tell you that's a bad idea,
31:04
But I can tell you. But it's up to you
31:06
whether it is or it isn't. But if you say,
31:09
you know what, I'd rather have more get to a
31:10
charity or I'd have to have more get to a
31:13
family member, well then you need to do the trust planning.
31:17
So that's the way to think about that. And you know,
31:20
gifting is something we can come back to. We can
31:23
talk about that in a minute, but that's exactly what
31:25
this guide is about. How would we gift assets? If
31:27
you're single, or if you're married, or if you have kids,
31:30
you need to really think about how you might want
31:33
to gift assets. If you're going to gift, we already
31:36
gave you the example of the type of asset to gift,
31:40
high basis assets better than low basis assets. But then
31:44
you need to think about how I might gift it.
31:47
So if I'm going to be moving a decent amount
31:49
of money out of my estate, I probably don't want
31:52
to dump it in a kid's hand. I probably want
31:55
to put it into an irrevocable gifting trust of some kind, right,
32:00
and so maybe consider using a gifting trust when you
32:03
give it to your kids. And please don't make the
32:05
mistake of just running around putting names on joint bank
32:07
accounts or and you also need to think about nursing homes.
32:11
If you make a gift, it's a five year waiting
32:13
period for Medicaid eligibility, even though you might not be
32:16
thinking about that when you want to make this gift.
32:18
So get this guide folks this month making the most
32:22
of gifting assets because there are pros and cons and
32:25
maybe most importantly do I gift at all? Maybe I
32:30
don't even gift, And there's examples in here with showing
32:33
you how the gifting works from a tax perspective, et cetera.
32:37
Get the guide eight six six eight four eight five
32:40
six nine nine or Legal Exchange Show dot com again
32:44
eight six six eight four eight five six nine nine
32:48
or Legal Exchange Show dot com.
32:51
Speaker 2: We're here with Todd Lusky from Cushion Dolan. If you
32:54
have any questions for Todd regarding anything in the estate planning,
32:58
realm taxes, gift as we come up on your end here,
33:02
feel free to give our studio I to call it
33:03
eighty eight two zero five two two six three Todd
33:08
you mentioned on the gifting front. You know, high basis
33:10
assets is the best thing to target, but there could
33:13
be scenarios where and we deal with this in planning
33:16
a little bit. If you're gifting to let's say a
33:18
grandchild who may not be earning a substantial wage and
33:22
finds themselves in a low income tax bracket where you
33:24
could have highly appreciated securities that it actually may be
33:27
to their benefit to take on that low basis asset
33:32
just because they find themselves in such a low income bracket.
33:34
Do you guys run into that at all from a
33:37
gifting perspective.
33:38
Speaker 5: Well, it could, I see what you're saying. That's more
33:41
of an income tax play right right where you're saying. Listen,
33:44
if I'm going to get something out of my estate,
33:46
but I'm giving it to a grandchild, again, do I
33:48
is a grandchild old enough to even have an account?
33:51
Speaker 2: Number one got to be over eighteen?
33:52
Speaker 5: Yeah, yeah, So let's make sure they are. And then
33:54
do I want to put it, you know, in their hands,
33:56
or do I want to put it in a trust
33:58
for the benefit where I can kind of control roll
34:00
it a little. All those things need to be considered.
34:02
But yeah, I mean to an extent, I guess what
34:04
you're what you're driving at is if they're if they
34:07
end up liquidating that account, maybe to pay for college.
34:10
Let's say, if you give it to them and they
34:13
liquidate it, they might be taxed on an income tax front.
34:17
I guess it's like zero to ten percent when you're
34:19
in a low bracket, and then it creeps up to
34:22
fifteen percent and then twenty percent exactly so on the
34:24
capital gains tax front, then then there is an income
34:28
tax play to come into effect you when you make
34:32
those kind of gifts. So yeah, that could work.
34:34
Speaker 2: Have you guys after the results of the election. I
34:36
know it's unclear what the estate tax is going to
34:39
look like going forward federally. That's still all to be determined.
34:42
But any changes are things that you have been monitoring
34:45
as a firm as we got the results from the
34:47
election last week. On the estate planning side.
34:49
Speaker 5: Of course, Yeah, I mean, I think we're all going
34:51
to have to keep an eye on this a little
34:53
closer than before. I think what we're what we're talking
34:56
about here is the estate tax exemption. Yes, right, So
34:59
that is state tax exemption is sitting at thirteen point
35:03
six million and is going to go to thirteen point
35:06
nine million in change, I believe on January one, which
35:11
is just because it's tied to an index and so
35:13
it indexes for inflation each each year, and so you
35:18
know it'll be about thirteen point nine call it fourteen million.
35:22
I mean, that's twenty eight million dollars with basic estate planning.
35:25
And so that's very helpful in terms of saying, well,
35:29
do I gift to save federal estate tax Well, not
35:34
as many people might need to gift to save federal
35:37
estate taxes at that level. Think about state, but again
35:40
got to balance it with capital gains issues. But yeah,
35:44
you got to keep an eye on that because that
35:45
may not come down as it's scheduled to come down.
35:48
It's still schedules come down January one, twenty twenty six,
35:52
but we're not sure now if it will. So maybe
35:55
we'll keep an eye on that and think about how
35:57
we're going to make gifts going forward. But for higher
36:00
or with people, getting things out of your estate will
36:02
always be better. So hope that helps a little.
36:06
Speaker 2: That is very helpful again talking with Todd Lusky from
36:09
Christian Dolan go over all your state planning questions. Todd,
36:13
I'll throw one last question your way anything ahead of
36:15
year end that you would encourage your clients to consider
36:19
prior to year end, just to make sure they have
36:21
their ducks in a row.
36:23
Speaker 5: Yeah, I mean, gifting obviously is important, so look at
36:26
it again. If you've not done any of your gift
36:28
and you always have that ability to gift your present
36:30
interest exclusion, you might as well use it. It's per year,
36:32
so you can give a way up to eighteen thousand
36:34
per year per person without ever having to file a
36:37
gift tax return, report anything to the US government nothing.
36:41
So that's always a helpful thing to think about. But
36:44
at the end of the year, when it come up
36:46
to year.
36:46
Speaker 2: End, do that and.
36:49
Speaker 5: No just other than that, basically, just get your estate
36:52
plan in order because at the end of the day
36:55
and everybody passes away and you need to make sure
36:57
you have your assets going where you want them to go.
37:02
Speaker 2: A lot of great information from Todd Lutsky from Cushion Dolan. Todd,
37:05
thanks so much for taking the time to speak with
37:07
us this week. Really appreciate it.
37:08
Speaker 5: Always a pleasure.
37:10
Speaker 1: This has been asked Todd on the Financial Exchange Radio network,
37:14
Ask Todd with Todd. Lutsky has been presented by Cushing
37:17
and Dolan, serving Massachusetts and New England for more than
37:19
thirty years, helping families with the state and tax planning,
37:22
Medicaid planning, and probate law. Call eight hundred three nine
37:25
three four thousand and one or visit Cushingdolan dot com.
37:29
The views expressed in this segment are solely those of
37:31
Cushing and Dolan. Armstrong Advisory does not provide any legal
37:34
or tax advice. Please consult with your illegal or tax
37:36
advisor on such matters. Cushing and Armstrong do not endorse
37:38
each other and are not affiliated