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The most important thing the Fed can do this month · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mark Fandetti.
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Speaker 2: Chuck, Mark and Tucker with you here today on a
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Speaker 2: FED day, the Federal Reserve is going to announce the
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Speaker 2: outcome of their Open Market Committee meeting at two PM today.
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Speaker 2: Jay Powell is gonna pop on the purple tie and
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Speaker 2: tell us all a whole bunch of nothing at two
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Speaker 2: thirty because I don't really expect any bombshells from nothing,
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Speaker 2: you know, particularly exciting or interesting, and so I think,
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Speaker 2: by and large, this to me is one of the
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Speaker 2: correctly so least anticipated FED meetings that I can recall.
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Speaker 2: Uh And if you don't want to pay attention to
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Speaker 2: it this afternoon, go out cut yourselfs tulips, make sure
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Speaker 2: the long looks good. You don't need to watch Jay
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Speaker 2: your thoughts.
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Speaker 3: Mark, I'm interested in how he addresses rising inflation expectations
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Speaker 3: because there's such an important part of the inflation process.
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Speaker 3: That was the primary lesson and innovation to the way
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Speaker 3: economists think about inflation coming out of the nineteen seventies.
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Speaker 3: The FED views it as its job to keep expectations
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Speaker 3: in check as a result of that experience. One way
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Speaker 3: to do it is to talk to the public. We
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Speaker 3: often talk about the FED talking too much to the
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Speaker 3: public to the point where where inundated with contrasting viewpoints,
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Speaker 3: it gets confusing. But this is one instance where the
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Speaker 3: FED may feel compelled based on the jump in survey
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Speaker 3: based expectations, and to a lesser degree, some financial market
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Speaker 3: based expectations have increased in the past several weeks. It
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Speaker 3: is their job to tamp those down, and it makes
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Speaker 3: their longer term job easier if they can do it effectively.
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Speaker 2: Can you talk a little bit what are the mechanics
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Speaker 2: by which higher or lower? What are the mechanics by
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Speaker 2: which inflation expectations feed into actual inflationary like what do
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Speaker 2: people think they are? Because none of this is physics.
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Speaker 3: Right, so it is a little bit mysterious, and I'm
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Speaker 3: always a little uncomfortable when I repeat the conventional economic wisdom.
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Speaker 3: Because the mechanism is well, people will demand higher wages,
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Speaker 3: and if unemployments low enough, they'll be able to get them. Firms,
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Speaker 3: there are separate surveys of firms expectations versus people. We
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Speaker 3: usually talk about people, but there are firm surveys as well.
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Speaker 3: Those have gone up, though not by as much as people.
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Speaker 3: Normal regular excuse me, people's expectations. The theory is, well,
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Speaker 3: if firms expect higher input prices, they'll start raising prices
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Speaker 3: in anticipation of that to maintain their margins. So that's
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Speaker 3: more or less the channel through which expectations make their
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Speaker 3: way into actual inflation. Pretty straight forward, pretty much exactly
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Speaker 3: what you would think.
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Speaker 2: When let me ask this, because in terms of you
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Speaker 2: you mentioned it's kind of like after the nineteen seventies
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Speaker 2: is when inflation expectations became a thing that economists paid
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Speaker 2: attention to and built into their models of inflation. Are
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Speaker 2: we kind of dealing with the sample size of one? Then?
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Speaker 2: I guess what I'm asking is how big of the
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Speaker 2: variations in inflation expectations been since then?
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Speaker 3: Yeah?
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Speaker 2: And is there anything that proves, okay, this is something
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Speaker 2: that should be, you know, really followed closely, or is
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Speaker 2: it something where hey, they went up in the seventies
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Speaker 2: and so did inflation, so now we've built it into
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Speaker 2: our model, but maybe it's not that important.
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Speaker 4: I'm yeah, I don't have any dog.
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Speaker 2: In this fight.
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Speaker 3: You know, it's a great point, neither do I. We
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Speaker 3: should follow the evidence, and if the evidence at some
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Speaker 3: point suggests that expectations when you take them out of
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Speaker 3: your little model. For those of us that fool around
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Speaker 3: with these types of things, and some people do it
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Speaker 3: much more seriously than I do. If you take them
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Speaker 3: out of your model, and your model does an equally
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Speaker 3: good job of explaining past inflation and predicting inflation out
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Speaker 3: of sample, then you don't need expectations. That's one way
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Speaker 3: to answer that question. To this point, expectations have helped
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Speaker 3: models do a better job of predicting inflation out of sample,
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Speaker 3: which is what you want. Another point I'll make is
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Speaker 3: the observation was made before the experience of the seventies
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Speaker 3: was actually Milton Friedman. I dropped the name because a
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Speaker 3: lot of people have heard of him. Sure, he popularized
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Speaker 3: a lot of ideas, and many of us oh are
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Speaker 3: understanding at a very basic level of economics to the
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Speaker 3: way he taught it to us on his PBS specials
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Speaker 3: and he wrote for Newsweek and other channels other other
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Speaker 3: forms of media. He made the observation in the nineteen
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Speaker 3: sixties that you can't fool all the people all the time.
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Speaker 3: It was prevalent, believe it or not, in the sixties
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Speaker 3: to think that you just had to pick an inflation
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Speaker 3: on employment point in the relationship between the two. It
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Speaker 3: was thought of. It was literally called a menu. No,
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Speaker 3: we could go with five percent inflation if that gets
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Speaker 3: us to three point five percent unemployment, let's pick that
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Speaker 3: point on the menu. That was the prevailing wisdom.
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Speaker 2: That seems bad.
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Speaker 3: Yet well, eventually people caught on. That's why people figured out, well,
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Speaker 3: wait a minute, you're just gonna goose the money supply
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Speaker 3: and I'm gonna be worse off. My real wages go
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Speaker 3: down when inflation goes up.
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Speaker 4: So I'm going to get ahead of that.
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Speaker 3: Freedman and others, but mainly Freedman because he was the
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Speaker 3: most powerful proponent of the idea. But I'll mention Edmun
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Speaker 3: Phelps too, who also won a Nobel Prize for similar insights.
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Speaker 3: Among other things, they recognize that you can't fool all
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Speaker 3: the people all the time, and they predicted the inflation
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Speaker 3: of the seventies before it happened. That's where that's when
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Speaker 3: Milton Friedman really became a household name, and that's why
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Speaker 3: so many of us who don't otherwise care to know
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Speaker 3: much about economics know his name.
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Speaker 2: So when you look at this FED meeting, it would
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Speaker 2: seem to me that again, I don't think there's any
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Speaker 2: anything that's going to be notable in the broad FED statement.
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Speaker 2: There's certainly not certainly because nothing's certain. But right now
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Speaker 2: the CMEME FED funds futures market, it's pressing in a
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Speaker 2: ninety nine point zero percent chance that the Fed does
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Speaker 2: not change interest rates at this meeting. So like, clearly
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Speaker 2: it's really unlikely that you see anything out of the
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Speaker 2: actual meeting. It's gonna be much more. What's the tone
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Speaker 2: of J. Powell's talk? Is it neutral? Is it duvish,
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Speaker 2: is it hawkish? Like what? And through there I think
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Speaker 2: you can then infer what is the FED most concerned
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Speaker 2: about at this point? Is it rising inflation expectations? But
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Speaker 2: and now what we're seeing in terms of you know,
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Speaker 2: rising costs. As an example, we got used car prices
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Speaker 2: for last month that just came in up two point
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Speaker 2: seven percent month over month, which is a big jump
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Speaker 2: and obviously not sustainable. But I think the question here
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Speaker 2: is does the FED see, you know, some of those
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Speaker 2: rising prices and inflation expectations and say this is where
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Speaker 2: we're going to be concerned. Do they see the soft
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Speaker 2: data surveys about future hiring and you know, the job
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Speaker 2: market and future orders and things like that, and say, hey,
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Speaker 2: we're going to be more concerned about that or what's
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Speaker 2: probably the most likely path. We view these risks as
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Speaker 2: balanced right now and will respond appropriately when the time
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Speaker 2: comes based on how the data evolves.
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Speaker 3: I think that has to be your opening statement.
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Speaker 4: Yeap.
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Speaker 3: I think you also have to address what we have
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Speaker 3: seen in the data, which is we've already talked about
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Speaker 3: is spiking expectations, and you just brought up an excellent
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Speaker 3: data point about used car prices.
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Speaker 2: I hope Howell.
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Speaker 3: Doesn't speak to anything except for what we've already seen printed.
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Speaker 3: And we've already seen some interesting stuff printed. That should
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Speaker 3: make for some good press conference fodder.
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Speaker 2: Yep. Yeah, that data, by the way, that is y'all
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Speaker 2: remember back in twenty twenty one and twenty two, the
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Speaker 2: Mannheim used Vehicle Value Index. It's back, ladies and gentlemen,
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Speaker 2: that's what we're we're talking about here. So that came
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Speaker 2: out this morning and the April print came in at
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Speaker 2: a reading of two hundred eight point two, up from
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Speaker 2: two two two point six. Basically, all you do is
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Speaker 2: you divide the you know, ladder into the former and say, okay,
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Speaker 2: what's the change two point seven percent month over month.
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Speaker 2: That is a big, big move up. Typically, pre twenty twenty,
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Speaker 2: what we saw in any given year was normally a
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Speaker 2: one to one and a half percent fluctuation over the
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Speaker 2: entire course of the year. A big year would be
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Speaker 2: a year like twenty seventeen, where used car prices went
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Speaker 2: up almost sorry, about a little more than three percent
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Speaker 2: for the entire year. But that was not the norm.
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Speaker 2: The norm for most of the twenty tens was a
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Speaker 2: one to two percent fluctuation in either direction. By the way,
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Speaker 2: the index was sitting at a reading of one twenty
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Speaker 2: three point six at uh, I'm sorry, I was just
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Speaker 2: sitting at a reading of one thirty one point nine
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Speaker 2: at the end of two thousand and nine. At the
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Speaker 2: start of twenty seventeen it was one thirty six point two.
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Speaker 2: So used cars generally didn't see a huge shift in
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Speaker 2: their pricing over the twenty tens. You can blame a
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Speaker 2: week economy, you can blame too many cars being produced,
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Speaker 2: whatever you want to say, but you didn't really see
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Speaker 2: a whole lot of movement. It's only really in the
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Speaker 2: last five or six years that it's become a thing
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Speaker 2: where used vehicle prices have been moving around significantly, more
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Speaker 2: so a two point seven percent move in a month. Look,
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Speaker 2: it is a data point the federal pay attention to
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Speaker 2: because there is a direct pass through. Whether it's going
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Speaker 2: to show it up in the April data or the
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Speaker 2: May one, there's a direct pass through into CPI and PCE.
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Speaker 2: It does matter pretty meaningfully for those data sets, based
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Speaker 2: on the waiting that it gets there. Let's take a
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Speaker 2: quick break when we come back. That's enough FED talk
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Speaker 2: for you know, the least anticipated FED meeting. Ever, we
10:44
Speaker 2: don't need to do more than one segment. When we
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Speaker 2: come back, though, Let's talk a little bit about the
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Speaker 2: US and China. They're going to be getting together in
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Speaker 2: Switzerland over the weekend. We'll talk about what our expectations
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Speaker 2: are for that meeting.
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Speaker 2: All right, So, now, I think this was around maybe
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Speaker 2: six six thirty yesterday. I don't remember where the announcement
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Speaker 2: was initially made, but Treasury Secretary Scott Bessant and US
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Speaker 2: Trader Representative Jamison Greer are heading to Switzerland this weekend.
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Speaker 2: It's part of a broader set of meetings. I think
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Speaker 2: they were already heading out there, but they did say
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Speaker 2: that they were going to be meeting with Healey Fang,
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Speaker 2: who is China's vice premiere and basically kind of runs
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Speaker 2: the economy for Xijingping. They're going to be sitting down
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Speaker 2: to start meeting over the weekend. It looks like they'll
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Speaker 2: be getting there on Friday, and the meetings will be
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Speaker 2: happening mostly Saturday and Sunday, potentially into Monday as well.
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Speaker 2: So you see this news and initially, like the first
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Speaker 2: thing I do when I get you know, one of
12:49
Speaker 2: these alrits that comes through my phone is I'm like, okay, like,
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Speaker 2: what are the futures doing, you know, if they're trading
12:54
Speaker 2: at that time? And the first thing that was kind
12:58
Speaker 2: of interesting was you didn't really get much of a pop.
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Speaker 2: It was two thirds of a percent, three quarters of
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Speaker 2: a percent and just kind of hung out there. By
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Speaker 2: the time the market open this morning, it was like
13:09
Speaker 2: a quarter to a third of a percent. So I
13:10
Speaker 2: sit there and I'm like, okay, okay, let's try to
13:15
Speaker 2: make sense out of this because few different conflicting thoughts
13:18
Speaker 2: come into my head and these are just different possibilities,
13:23
Speaker 2: like none of us know what's gonna happen. First one is, okay,
13:27
Speaker 2: you don't send the Treasury Secretary and US Trade representative
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Speaker 2: to Switzerland if you don't have a pretty good idea
13:35
Speaker 2: through back channels or you know staffers that something is
13:39
Speaker 2: going to get done. It's bat like is the optics
13:43
Speaker 2: And this is how it is with any deal of
13:44
Speaker 2: any kind, not just trade, this is any kind of
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Speaker 2: international negotiation. You don't usually bring the heads of state
13:51
Speaker 2: or cabinet level people to the table until everything's hashed out,
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Speaker 2: because the general way that this works is you don't
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Speaker 2: want people at that level between countries to have animosity
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Speaker 2: between them. You want to have the staffers fight it
14:06
Speaker 2: out and be the people that are, you know, swearing
14:09
Speaker 2: and yelling at each other and throwing papers across the
14:12
Speaker 2: room and all that. You don't want to have presidents
14:15
Speaker 2: doing that stuff because it's unseemly and doesn't generally play well.
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Speaker 2: It's not really a sign of stability of the country.
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Speaker 2: So first glance, it's like, Okay, they're sending like some
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Speaker 2: pretty big important dudes over. It's the technical term, big
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Speaker 2: important dudes. They're sending those guys over because they know
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Speaker 2: there's going to be something that happens this weekend. So
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Speaker 2: the obvious thing is some kind of de escalation in
14:43
Speaker 2: tariffs to what level who knows, but you know, anywhere
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Speaker 2: between twenty five and sixty percent. Fine, Like you could
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Speaker 2: see that as being totally reasonable. Okay, they're doing that,
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Speaker 2: but the market's rallied so strongly because Besson's been hinting
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Speaker 2: at this for the last couple of weeks. Maybe it's
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Speaker 2: just all priced in. It's one possibility. Possibility number two, Hey,
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Speaker 2: markets have seen this stuff before, back in you know,
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Speaker 2: twenty seventeen, twenty eighteen. We get you know, daily updates
15:11
Speaker 2: on you know, trade deal with China and this and that,
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Speaker 2: and market knows, Okay, you're not gonna get anything big
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Speaker 2: and transformative this weekend. We're gonna be cautious and see
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Speaker 2: how things go. Another possibility. Possibility three, Market looks at
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Speaker 2: and says, hey, China has a long history of stringing
15:30
Speaker 2: countries along and negotiations regardless of getting together. They're just
15:34
Speaker 2: trying to buy time, and maybe nothing comes out of this, Okay,
15:37
Speaker 2: like legitimate possibility as well, I have no idea. I
15:41
Speaker 2: tend to lean towards you're probably gonna get something that
15:46
Speaker 2: comes out of this, because again, you just you don't
15:48
Speaker 2: send Besset and Greer over there just to have a
15:52
Speaker 2: cup of coffee with you know, their Chinese equivalent. That's
15:55
Speaker 2: that's you can call each other on the phone if
15:57
Speaker 2: you wanted to do that. So it seems to me
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Speaker 2: that something is likely to get done. The questions are
16:04
Speaker 2: going to be the magnitude of it, the actual timing,
16:08
Speaker 2: And clearly not a full trade deal or anything like that.
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Speaker 2: Those things don't happen in a matter of weeks. But
16:15
Speaker 2: some kind of de escalation is what I think I
16:19
Speaker 2: would be expecting to see out of this weekend.
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Speaker 3: Your thoughts, Mark, If your objective is to reduce the
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Speaker 3: bilateral the country to country deficit with China, you're probably
16:30
Speaker 3: gonna need an enforceable agreement. We had one with them,
16:34
Speaker 3: and I think it was twenty nineteen. It might have
16:36
Speaker 3: been this latest way.
16:36
Speaker 2: We never enforced it.
16:38
Speaker 3: Yeah, I'm looking at our goods deficit with China, and
16:42
Speaker 3: it went up every It's gone up virtually every year,
16:45
Speaker 3: dipped a little bit as.
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Speaker 2: No one enforced it. The Trump administration didn't the Biden
16:49
Speaker 2: administration didn't know one enforcement.
16:52
Speaker 3: And I know I say this every time I'm on
16:54
Speaker 3: so sorry in advance, but our trade deficit is a
16:57
Speaker 3: result of us not saving enough to satisfy and esment opportunities.
17:01
Speaker 3: Here we import foreign capital. The flip side to importing
17:04
Speaker 3: foreign capital is that we send dollars abroad when we
17:07
Speaker 3: buy foreign goods. So if you took Chinau to the
17:10
Speaker 3: equation completely, other lower cost providers of things we want
17:16
Speaker 3: to buy would step into that breach and go ahead.
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Speaker 2: So all else being equal, yes, I think the place
17:23
Speaker 2: where the Trump administration would say there's an issue, and
17:25
Speaker 2: we're quite honestly I would agree is the Chinese government
17:29
Speaker 2: does an awful lot of work to prevent their currency
17:32
Speaker 2: from gaciating, which in turn helps to encourage that overspending
17:37
Speaker 2: and undersaving by US investors. In a US house, it
17:40
Speaker 2: makes it easier for us to do that in a
17:42
Speaker 2: way where, hey, if the currency were more freely floating,
17:46
Speaker 2: you might not have the same level of deficit.
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Speaker 3: I still think because of our chronic undersaving, both as
17:52
Speaker 3: people and in the federal government level, that it wouldn't
17:56
Speaker 3: make much of a dent in the overall trade deficit.
17:58
Speaker 3: Bilaterally you might be able to fix this will be
18:00
Speaker 3: as China is an Olympic trading cheater the whole world degrees,
18:06
Speaker 3: and on top of that there are probably national security
18:08
Speaker 3: reasons to clamp down on trade very much so with China.
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Speaker 3: I'm by no means in favor of the current regime.
18:15
Speaker 3: The current constellation of factors that result in the balance
18:19
Speaker 3: of trade with China that we have, though I don't
18:21
Speaker 3: it doesn't keep me up at night either. What I'm
18:23
Speaker 3: getting at is if you're mad at the trade deficit, overall,
18:27
Speaker 3: it's a savings problem. That's That's the only point I
18:31
Speaker 3: wanted to make.
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Speaker 2: So I'm very curious to see what we get out
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Speaker 2: of this weekend, just because again, even if I even
18:39
Speaker 2: if I sit here and say, hey, there's probably gonna
18:41
Speaker 2: be some kind of de escalation, I might assign that
18:45
Speaker 2: like a fifty five to sixty percent probability, and like
18:50
Speaker 2: a like a thirty percent chance, Hey, we had a
18:53
Speaker 2: productive talk, but we're not changing anything, and maybe a
18:55
Speaker 2: ten percent chance, hey, things went really badly, like we're
18:59
Speaker 2: buckling down, like like we're not like you know that
19:03
Speaker 2: that kind of talk that So I don't know exactly
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Speaker 2: what's going to come out of it. I think the
19:09
Speaker 2: most likely thing is some kind of de escalation. But
19:13
Speaker 2: is it to you know, fifty percent tariffs each way?
19:16
Speaker 2: Is it to twenty five? Is it effective Monday? Is
19:19
Speaker 2: it effective a month from now? Is it effective retroactively?
19:22
Speaker 2: And all those tariffs are going to be you know, rebated,
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Speaker 2: Like who the heck knows, we'll have to see quick
19:29
Speaker 2: break here when we come back. Wall Street Watch and
19:32
Speaker 2: Todd Lensky joins us for ask Ta Da Da Da
19:35
Speaker 2: Da Da Da.
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19:56
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20:00
Speaker 5: Well, it's FED day and markets are trading modestly higher
20:03
Speaker 5: while rates are expected to remain steady. Investors will lock
20:07
Speaker 5: in on FED shairman Jerome Pile's press conference at two
20:09
Speaker 5: point thirty, where he will speak to the Central banks
20:12
Speaker 5: insight on the economy. Right now, the Dow is up
20:15
Speaker 5: by just over half a percent, SMP five hundred up
20:19
Speaker 5: nearly half a percent or twenty six points, in the
20:21
Speaker 5: Nasdaq up by you guessed it, half a percent or
20:24
Speaker 5: ninety two points, Russell two thousands up by about a
20:27
Speaker 5: third of a percent, Tenure Treasure reeled down by two
20:30
Speaker 5: basis points now at four point two nine percent, and
20:33
Speaker 5: crude oiled down about a third of a percent, trading
20:36
Speaker 5: just below fifty nine dollars a barrel. Disney jumping by
20:41
Speaker 5: over ten percent after the media and entertainment company beat
20:44
Speaker 5: quarterly earnings and revenue expectations while also raising its full
20:48
Speaker 5: year earnings outlook. Furthermore, Disney agreed to partner with Morale
20:53
Speaker 5: to build a theme park and resort in Abu Dhabi. Meanwhile,
20:57
Speaker 5: Super Microcomputer miss quarterly expectations and offered weak guidance for
21:01
Speaker 5: the current quarter, sending shares and the server maker down
21:04
Speaker 5: by three percent, Sticking with that sector where AMD shares
21:07
Speaker 5: are edging higher after the chip maker posted better than
21:10
Speaker 5: expected first quarter earnings and guided for higher revenue this quarter. Elsewhere,
21:16
Speaker 5: at Uber down by over one percent after the ride
21:19
Speaker 5: sharing and food delivering cup company missed first quarter revenue
21:22
Speaker 5: expectations but did beat on earnings. Ev maker Rivian cut
21:27
Speaker 5: its annual forecast for deliveries and raised its capital spending guidance,
21:31
Speaker 5: citing the impact of trade policy. That stock is up
21:34
Speaker 5: by about a half a percent. Wind Resorts upgraded to
21:38
Speaker 5: buy from neutral at Bank of America, citing the company's
21:41
Speaker 5: casino project in the Middle East. Wins first quarter did
21:44
Speaker 5: reveal week results in Macau. Las Vegas revenue also saw
21:48
Speaker 5: smaller declines. Wind shares are down by about a third
21:51
Speaker 5: of a percent and Nova nordesk up by three percent
21:54
Speaker 5: after the drug maker said it sees sales of its
21:57
Speaker 5: weight loss drug we go V growing in the second
22:00
Speaker 5: and half of the year as compounded drugs are phased out.
22:04
Speaker 5: I'm Tucker Silvan. That's Wallstreet Watch.
22:08
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
22:11
Speaker 1: If you have an existing estate plan or in the
22:14
Speaker 1: market for one, Todd Lutsky is here to answer your
22:16
Speaker 1: questions and help you plan for a later life. Ask
22:19
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:22
Speaker 1: New England for more than thirty five years, helping families
22:25
Speaker 1: with a state and tax planning, Medicaid planning, and probate law.
22:29
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:35
Speaker 2: As promise, We're now joined by the one and only
22:37
Speaker 2: Todd Lutsky from the law firm of Cushing and Dolan.
22:41
Speaker 2: We call the segment Asked Todd for one reason, one
22:45
Speaker 2: reason only. It's your chance to ask Todd your estate
22:47
Speaker 2: planning questions. Phone lines are open eight eight eight two
22:51
Speaker 2: zero five two two sixty three is the number to call.
22:55
Speaker 2: Remember we only usually get through two maybe three questions,
22:59
Speaker 2: So calling early and often in order to be able
23:01
Speaker 2: to ask Todd your estate planning questions, that number is
23:05
Speaker 2: eight eight eight to zero five two two six three. Again,
23:10
Speaker 2: it is eight eight eight to zero five two two
23:14
Speaker 2: six three to be able to ask mister Lutsky your
23:16
Speaker 2: estate planning questions. Todd, how are you doing today?
23:19
Speaker 4: I am never better in you.
23:21
Speaker 2: I'm good?
23:22
Speaker 4: Yeah?
23:22
Speaker 2: I uh so. You know how in some sports after
23:26
Speaker 2: a game you toss the ball out into the stands
23:30
Speaker 2: as kind of like a souvenir for a kid or
23:31
Speaker 2: something like that.
23:32
Speaker 4: Yeah, yeah, yeah, I seen that.
23:34
Speaker 2: Apparently you're not supposed to do that in bowling.
23:36
Speaker 4: Yeah. No, definitely not earned that one the hard way.
23:40
Speaker 2: Yeah, Todd, I want to talk to you about wills,
23:46
Speaker 2: very basic estate planning document. What is the subset of
23:50
Speaker 2: the population that doesn't have any major issues using a
23:55
Speaker 2: will as their only estate plan, who can get away
23:58
Speaker 2: with not doing any more advanced planning?
24:01
Speaker 4: Wow? So I can tell you.
24:04
Speaker 6: In my thirty years plus of state planning that I
24:13
Speaker 6: don't I don't think I've ever done a will based plan.
24:16
Speaker 6: When I say a will based plan meaning no trust
24:19
Speaker 6: is involved, with doing the will. I do wills all
24:22
Speaker 6: the time, sure, but they're usually part of a bigger
24:26
Speaker 6: estate plan that includes a trust. It's and so I
24:29
Speaker 6: guess what I'm driving at is it's it's very rare.
24:33
Speaker 6: But I suppose if if you're perhaps single and and
24:40
Speaker 6: maybe have no concerns about a state taxes, so you're
24:44
Speaker 6: you know, you're under the exemption.
24:46
Speaker 4: Which is a lot for a lot of people.
24:47
Speaker 6: It's two million in mass and don't forget thirteen million federally,
24:50
Speaker 6: so that's not a big hurdle.
24:53
Speaker 4: And and you know.
24:55
Speaker 6: Maybe the people you're leaving it to, I mean, it
24:57
Speaker 6: could be kids or no kids, but you know, maybe
25:00
Speaker 6: the people you're leaving it to you just want them
25:01
Speaker 6: to have it outright, there's no reason to hold it
25:04
Speaker 6: back for any reason. And you and you don't mind
25:08
Speaker 6: probate because will goes to probate, then I guess you
25:12
Speaker 6: could get away with it. I guess you could probably
25:15
Speaker 6: avoid probate if you say, you know what I'm gonna have.
25:17
Speaker 6: I don't own any real estate and I just have,
25:21
Speaker 6: you know, I rent, and I have a bunch of
25:25
Speaker 6: investments that I could put a designated beneficiary on, like
25:28
Speaker 6: kids or nieces or nephews, what have you. Or I
25:34
Speaker 6: have my IRA which also could have a designated beneficiary,
25:38
Speaker 6: life insurance which could have a designated beneficiary. So as
25:42
Speaker 6: long as I own no real estate and I don't
25:44
Speaker 6: mind if my beneficiaries whoever they are, actually get the
25:48
Speaker 6: asset outright with no control, and I can put designated
25:52
Speaker 6: beneficiaries on everything to avoid probate, then I guess you
25:56
Speaker 6: can have a will.
25:57
Speaker 4: I say you can have a will, but guess what.
25:59
Speaker 4: The will won't be doing anything.
26:01
Speaker 6: It really won't be addressing anything because you've addressed all
26:03
Speaker 6: your assets, sure with the designated beneficiary.
26:06
Speaker 4: But I guess you could get away with a will.
26:07
Speaker 6: But if you've got a house and you and you
26:10
Speaker 6: want to avoid probate, then you're gonna go to probate
26:13
Speaker 6: because you're not gonna throw a kid's name.
26:15
Speaker 2: On a house.
26:16
Speaker 6: So kind of hard to avoid probate on the house
26:19
Speaker 6: without a trust. So I guess I've answered it in
26:22
Speaker 6: a long winded way of saying, probably very few people.
26:27
Speaker 2: Talking with Todd Watski from the law firm of Cushing
26:29
Speaker 2: and Dolan. If you've got a question that you want
26:31
Speaker 2: to ask about your estate Plan number to call is
26:34
Speaker 2: eight eight eight to zero five two two sixty three.
26:38
Speaker 2: Again eight eight eight to zero five two two six three.
26:43
Speaker 2: We're gonna take a quick break right now, but when
26:45
Speaker 2: we come back, I'm gonna get right to your questions
26:48
Speaker 2: with Todd. That phone number again is eight eight eight
26:51
Speaker 2: to zero five two two sixty three. Quick break. Your
26:55
Speaker 2: questions with Todd are next.
26:58
Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
27:02
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:07
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:11
Speaker 1: Radio Network.
27:27
Speaker 2: All right, Tod got a couple of calls lined up
27:29
Speaker 2: for you. Let's go first to Casey in andover. Casey,
27:33
Speaker 2: you're on with Todd Lutsky.
27:36
Speaker 7: Hi, Todd, I have a question that I've been listening
27:39
Speaker 7: to for a long time. And I was talking to
27:42
Speaker 7: our kids about our trusts and they asked, and I'm like,
27:46
Speaker 7: I have no clue, So I'll go to the expert.
27:50
Speaker 7: We've set up a trust funded it. What does it
27:54
Speaker 7: mean to them to avoid probate? How do they avoid probit?
27:57
Speaker 7: Do they have to do anything?
27:58
Speaker 1: So?
27:59
Speaker 4: Is the trust revalle or irrevocable.
28:01
Speaker 7: Just ca it's revocable. Sorry, revocable.
28:04
Speaker 4: It's revocable.
28:05
Speaker 6: So here's what the basic question is is what does
28:09
Speaker 6: it mean to children? And why do parents like yourselves
28:12
Speaker 6: and so many others want to avoid it. Of course,
28:15
Speaker 6: you guys will be dead, so it won't matter for you,
28:17
Speaker 6: but for the kids, probate is really a a long process, right,
28:24
Speaker 6: it's it's a year long process at a minimum. Number one,
28:29
Speaker 6: number two, it's going to be costly, right, you got
28:32
Speaker 6: to hire a lawyer. You don't have to, but mostly
28:34
Speaker 6: you're gonna hire a lawyer. And it's not the probate
28:37
Speaker 6: fees that you care about. It's the legal fees to
28:39
Speaker 6: take you through this process.
28:41
Speaker 4: So you've got that.
28:42
Speaker 6: Everything is also exposed to creditors. Anything that you any
28:46
Speaker 6: creditor that you had when you died outstanding, can file
28:51
Speaker 6: a claim against the estate, the probate estate to get
28:55
Speaker 6: those assets. So first, a probate asset is any asset
28:59
Speaker 6: that's in your own name when you die and has
29:03
Speaker 6: no designated beneficiary, So that's a probate asset. So obviously
29:06
Speaker 6: if it's in the trust, it avoids probate. All the
29:10
Speaker 6: trust assets just go according to the terms of the trust.
29:13
Speaker 6: So first you got to file the will number one.
29:16
Speaker 6: So it's've got a bunch of bank accounts in your
29:17
Speaker 6: name and the kids want to go get that money
29:19
Speaker 6: from the bank. They can't do it right. They walk
29:22
Speaker 6: into the bank to banks and say, we can't talk
29:23
Speaker 6: to you. You got to get appointed. So first you
29:25
Speaker 6: got to file the will. Then you've got to give
29:27
Speaker 6: a letter to all the heirs at law to notify
29:30
Speaker 6: them that you're applying for to be executor or a
29:33
Speaker 6: personal representative of the estate. They have thirty days to object.
29:37
Speaker 6: If they don't object, then you wait for the court
29:39
Speaker 6: to return give you a return day. Then you go
29:42
Speaker 6: to the court. Well you don't the lawyer's doing all
29:44
Speaker 6: this for you. And then you go to the court
29:46
Speaker 6: and the court finally knight you with this personal representative
29:50
Speaker 6: appointment and then they can take Finally, after sixty to
29:53
Speaker 6: ninety days, perhaps you can take that certificate of appointment
29:57
Speaker 6: and the death certificate and you can walk into the bank,
30:00
Speaker 6: financial institution, et cetera, where the assets are, and then
30:05
Speaker 6: magically they will finally talk to you and tell you
30:07
Speaker 6: what's in the account, who you know, and you can
30:10
Speaker 6: access the account and move it. So that's just the beginning.
30:14
Speaker 6: Then they have to file an inventory. An inventory is
30:18
Speaker 6: every asset that you died in the probate world, listed
30:21
Speaker 6: with the value next to it, filed at the court.
30:24
Speaker 4: Guess what.
30:25
Speaker 6: Anybody can walk down there and look at that anytime
30:27
Speaker 6: they want, neighbors, whatever. Then as time goes on, they
30:31
Speaker 6: have to open up an account in the name of
30:33
Speaker 6: the estate.
30:35
Speaker 4: They got to put all that money from the estate
30:37
Speaker 4: in there.
30:37
Speaker 6: Then you got to do an accounting at the you know,
30:39
Speaker 6: at the end of that, you got to do an
30:40
Speaker 6: accounting and then a final accounting as to what goes
30:42
Speaker 6: in what goes out of this bucket of money, so
30:47
Speaker 6: to speak. And so and of course all the creditors
30:49
Speaker 6: can file claims. I mean, it just goes on and on.
30:51
Speaker 6: I probably have said enough to say, you know what,
30:55
Speaker 6: I don't want that right, And that's just really the
30:58
Speaker 6: tip of the probate iceberg.
31:00
Speaker 4: So I would avoid it. You have a.
31:03
Speaker 6: Trust, make sure your trust is funded. If your assets
31:07
Speaker 6: are in there, then you're not gonna have any of that.
31:10
Speaker 6: They're gonna come in, they're gonna sit down, the lawyer
31:12
Speaker 6: is going to open a book and tell them right
31:13
Speaker 6: at the table, here's all your assets, and here's what
31:16
Speaker 6: we're gonna do with them. No filing, no waiting for
31:19
Speaker 6: the court, no appointment. Hopefully that's helpful, folks. The guide
31:23
Speaker 6: we're getting is really a guide for everybody this year,
31:26
Speaker 6: this month, potholes to avoid. If you've not done your planning,
31:31
Speaker 6: it's going to tell you things like Chuck asked, don't
31:33
Speaker 6: rely on a will. Don't think that I don't have
31:36
Speaker 6: enough assets to do estate planning. Oh I have no kids,
31:38
Speaker 6: I don't need to do planning. Oh I have everything
31:40
Speaker 6: in a Nominee realty trust. I'm all set, folks. Things
31:44
Speaker 6: like that are not true, right, Get the guide. Learn
31:47
Speaker 6: why you need an estate plan if you don't think
31:49
Speaker 6: you have one, or if you don't think you need one,
31:52
Speaker 6: And for folks who have it, you know what happens
31:54
Speaker 6: if I move on a relocate, What if my spouse dies?
31:57
Speaker 6: What if I haven't looked at my plan in fifteen years?
32:00
Speaker 6: What you know events that happened during life. There might
32:03
Speaker 6: be better ways to do your plan, or look them
32:06
Speaker 6: over or tweak them. So for people who haven't done
32:09
Speaker 6: their plan, who have done their planning, there's something in
32:11
Speaker 6: here for you as well. Call and get the guide
32:14
Speaker 6: Potholes to avoid in the Estate Planning World eight sixty
32:17
Speaker 6: six eight four eight five six nine nine or Legal
32:21
Speaker 6: Exchange Show dot com again eight six six eight four
32:24
Speaker 6: eight five six nine nine or Legal Exchange Show dot Com.
32:29
Speaker 2: Todd, I get another one here for you. Let's go
32:31
Speaker 2: to Bill in woods Hole. Bill, what's your question for Todd?
32:35
Speaker 2: A Lutsky.
32:37
Speaker 8: Calling on behalf of a cousin elderly person Florida resident
32:44
Speaker 8: has property there, also has substantial property of business in Salmuth?
32:52
Speaker 8: Does she need multiple trusts different states? How does that work?
32:57
Speaker 6: So a couple of things. When you say property Fowmouth,
33:00
Speaker 6: do you mean real estate in Fawmouth?
33:03
Speaker 8: Yes?
33:04
Speaker 4: Okay, So again you'd have to add up the value
33:06
Speaker 4: if she's single.
33:07
Speaker 6: At this point, I don't think multiple trusts is definitely
33:10
Speaker 6: what I'd be worried about here. Again, I don't know
33:12
Speaker 6: what her overall value is. But that real question that's
33:17
Speaker 6: being begged here is that you know, we have a
33:21
Speaker 6: non resident of mass who is a who has property
33:28
Speaker 6: in Massachusetts but is a non resident, and so is
33:31
Speaker 6: Massachusetts going to even bother taxing her?
33:35
Speaker 4: Right? Again?
33:36
Speaker 6: The point of being a Florida resident is, Hey, they
33:39
Speaker 6: don't have any death tax in Florida, and so if
33:43
Speaker 6: they don't have any death tax in Florida, then I
33:46
Speaker 6: shouldn't have to worry. Well, doesn't quite work that way,
33:50
Speaker 6: so she can have one trust. I'm okay with that.
33:54
Speaker 6: But the real estate in Massachusetts. Massachusetts has the power
33:59
Speaker 6: to tax non residents on tangible property in Massachusetts real estate,
34:08
Speaker 6: and the way they do it is, let's just say
34:10
Speaker 6: for fun that the property in Foalmouth is two million,
34:14
Speaker 6: the property in Florida is two million, and the total
34:17
Speaker 6: estate is four million.
34:18
Speaker 4: What they would do is.
34:19
Speaker 6: They would actually take the two million dollar mass property
34:22
Speaker 6: as the numerator, divide by the four million dollar Mass
34:26
Speaker 6: and Florida property and get fifty percent as a ratio.
34:31
Speaker 6: And then they calculate the tax on the four million
34:33
Speaker 6: dollars in mass and they multiply it by fifty percent. Well,
34:38
Speaker 6: I don't want to do that. How can we avoid
34:41
Speaker 6: that problem? So establish your residency in Florida like she did,
34:46
Speaker 6: but then make sure the property in mass goes into
34:51
Speaker 6: an LLC. If it goes into an LLC, then you've
34:56
Speaker 6: converted the property from a real estate or a tangible
35:01
Speaker 6: asset to an intangible asset, and Massachusetts cannot tax non
35:08
Speaker 6: residents on intangible assets, and then she will completely avoid
35:13
Speaker 6: proper taxation in Massachusetts.
35:16
Speaker 4: And because she's.
35:17
Speaker 6: A Florida resident, there's no state Florida death tax. And
35:20
Speaker 6: I'm assuming she's under thirteen point nine million, so we've
35:23
Speaker 6: got no federal tax. And I think otherwise all these
35:27
Speaker 6: assets Florida and the stock in the LLC can be
35:31
Speaker 6: owned in one trust. So that's the answer, Todd.
35:36
Speaker 2: When it comes to when a state plan, we got
35:37
Speaker 2: about a minute or so left. How often should someone
35:40
Speaker 2: review that plan to see if it needs to be updated.
35:43
Speaker 4: Yeah, so that's a great question.
35:45
Speaker 6: And like we said, the guide is really about issues
35:49
Speaker 6: for people who have already done their plan as much
35:52
Speaker 6: as for people who have not done their plan. And
35:55
Speaker 6: so people who have done their plan, you know, I
35:58
Speaker 6: tell you it depends on this size of your estate,
36:01
Speaker 6: but you should look at your estate plan maybe at
36:04
Speaker 6: least for sure every ten to fifteen years at a minimum.
36:09
Speaker 6: But I would look at it not just because of
36:12
Speaker 6: the time that gone by. Now, if you are a
36:15
Speaker 6: larger estate, let's say you're over ten million, right, or
36:20
Speaker 6: fifteen million.
36:21
Speaker 4: You might want to look at it.
36:23
Speaker 6: You might want to just call your state planning attorney,
36:25
Speaker 6: even you know, once a year at the end of
36:27
Speaker 6: the year, just to say, you know, I'm checking in.
36:29
Speaker 6: Do I need you know, have the laws changed, Do
36:31
Speaker 6: I need to make any gifting ideas? You know, just
36:33
Speaker 6: to say hello and check on it. So that might
36:36
Speaker 6: be a little more often when you're a state's larger,
36:39
Speaker 6: but when it's not as large, I think that's probably
36:41
Speaker 6: a good number. And there's also other reasons to do it, folks.
36:45
Speaker 6: You could have anything that could go wrong. You could
36:47
Speaker 6: have a divorce, you could change locations. Like this client
36:50
Speaker 6: that called changing locations is a reason to look at
36:53
Speaker 6: your state plan. So for Bill or for that cousin,
36:57
Speaker 6: if you if you relocate, call your attorney and discuss
37:01
Speaker 6: your estate plan. If you've done it, that is a
37:03
Speaker 6: red flag. Mister Lutsky, thank you so much for the
37:07
Speaker 6: time today. We appreciate you joining us.
37:09
Speaker 4: Always a pleasure.
37:11
Speaker 1: This has been asked Todd on the Financial Exchange Radio
37:14
Speaker 1: network Ask Todd with Todd. Lutsky has been presented by
37:17
Speaker 1: Cushing and Dolan, serving Massachusetts and New England for more
37:19
Speaker 1: than thirty years helping families with the state and tax planning,
37:22
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:26
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:29
Speaker 1: The views expressed in this segment are solely those of
37:31
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:34
Speaker 1: or tax advice. Please consult with your legal or tax
37:36
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:38
Speaker 1: each other and are not affiliated