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What should the tariffs rates be? · The Financial Exchange Show

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Speaker 1: Chuck Zada and Paul.
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Speaker 2: Lane, Chuck, Paul and Tucker with you, and our top
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Speaker 2: story today is the announcement came around eight thirty maybe
1:18
Speaker 2: nine pm last night that the United States and China
1:24
Speaker 2: have a framework for a trade deal to be finalized
1:29
Speaker 2: at some point in the future. The basic tenets of
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Speaker 2: it are that Japanese, what did I say? You said, China?
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Speaker 2: Whatever pairs? You know that was in your ear? By
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Speaker 2: the way, it's fine. Why didn't you just do it over?
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Speaker 2: You know now it sounds like I'm talking to myself. Sorry,
1:50
Speaker 2: appreciate that. Let's just start the show over. Can you keep?
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Speaker 2: The music is gone? No, it's gone, it's gone. Anyways,
1:56
Speaker 2: the United States and Japan reaching the framework for a
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Speaker 2: trade agreement, and so what we have here is going
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Speaker 2: to be a fifteen percent tariff levied on Japanese imports.
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Speaker 2: This does, according to a Japanese official, include cars and
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Speaker 2: trucks that will be imported from Japan at the lower
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Speaker 2: rate of fifteen percent versus twenty five percent as the
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Speaker 2: baseline auto import rate currently states, you know, basically for
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Speaker 2: everywhere else in the world. And it's unclear if there
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Speaker 2: are any exceptions to this. So we don't have again,
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Speaker 2: all of the details yet. In return, Japan is reportedly
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Speaker 2: going to be investing five hundred and fifty billion dollars
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Speaker 2: into the United States. We don't know the timeframe or
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Speaker 2: any of the specifics on that, and apparently, in something
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Speaker 2: that I haven't seen exactly how this will work, the
2:56
Speaker 2: United States is reportedly going to receive ninety percent of
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Speaker 2: the profits from the investments. I don't know if that's
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Speaker 2: the US government, I don't know if it's US companies.
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Speaker 2: Like again, we don't have the details and specifics yet,
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Speaker 2: And basically that appears to be the deal. In addition
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Speaker 2: to that, a couple other items of note, Japan and
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Speaker 2: the US appear to be making some progress on finalizing
3:23
Speaker 2: a deal for a joint venture related to loqualified natural
3:26
Speaker 2: gas exports from Alaska that will power some additional energy
3:31
Speaker 2: purchases that Japan will be making, and some purchases of
3:35
Speaker 2: Boeing planes in the order of about one hundred planes
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Speaker 2: is what I've seen as well. But what you have
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Speaker 2: today on the back of this is Japanese stocks, in
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Speaker 2: particular Japanese automakers absolutely ripping higher, simply because to this
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Speaker 2: point that twenty five percent auto tariff had basically been
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Speaker 2: aligned in the sand. We saw that with the UK
4:00
Speaker 2: Hey deal, where the UK did not get a break
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Speaker 2: on that auto tariff but Japan does here and so
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Speaker 2: you've got Japanese stocks again mostly automakers, but across the
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Speaker 2: board ripping higher in response to this UH and so
4:15
Speaker 2: that is the big news of the day.
4:17
Speaker 3: Yeah, I saw that Toyota was up sixteen percent or so,
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Speaker 3: So yeah, like you mentioned, really significant increases there in
4:24
Speaker 3: terms of what this means for Japan. This is really
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Speaker 3: significant in the fact that auto exports to the US
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Speaker 3: are a huge bulk of their exports in general. In
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Speaker 3: twenty twenty four, those exports to the US have auto's
4:38
Speaker 3: made up about twenty eight percent of all their shipments,
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Speaker 3: and they had seen obviously tremendous volume drop. Auto exports
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Speaker 3: had fallen twenty six percent in June after a twenty
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Speaker 3: four percent plunge in May. Because the auto sector is
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Speaker 3: so critical to Japan being able to have a lower
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Speaker 3: level of tariff at that twenty five percent, like you mentioned, sorry,
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Speaker 3: from fifteen percent, like you mentioned, checked was significant again
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Speaker 3: on the investment side of things, and what Japan is
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Speaker 3: going to be doing with that five hundred and fifty
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Speaker 3: billion not entirely clear. The US is the Japan's second
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Speaker 3: larst trading partner, so it is significant and that's why
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Speaker 3: you're seeing stock Japanese stocks perform well. This perhaps adds
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Speaker 3: some optimism that what we'll talk about in a moment,
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Speaker 3: that now the US could pivot and strike a deal
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Speaker 3: with the EU. But certainly positive news for Japan here
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Speaker 3: and positive for markets. It seemed like to get another
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Speaker 3: deal under the belt here.
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Speaker 2: I don't want to be like the guy who's poop
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Speaker 2: pooing everything because no one likes that guy. And if
5:45
Speaker 2: no one likes me, that's that's fine. Like, well, it's
5:47
Speaker 2: not fine. I'd like someone to like me. But ultimately,
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Speaker 2: like it is what it is. Here's what I'm trying
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Speaker 2: to understand. And I guess where I'm my head is
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Speaker 2: at on this because I saw this and I'm looking
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Speaker 2: at it and I go okay. So, Japanese auto exports
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Speaker 2: to the US last year were around fifty billion dollars,
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Speaker 2: which is not an insignificant sum of money. It's a
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Speaker 2: sizable chunk. And so the tariff rate on that this
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Speaker 2: year is now being reduced from twenty five percent down
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Speaker 2: to fifteen on everything else that we import from Japan
6:22
Speaker 2: again unless there's like something else in terms of exceptions,
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Speaker 2: which we haven't seen anything there yet. But on everything
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Speaker 2: else that we import from Japan, which is an additional
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Speaker 2: ninety billion dollars, the vast majority of it is heavy machinery,
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Speaker 2: electronic equipment, optical, phototechnical and medical apparatus, pharmaceutical products, plastics, rubbers,
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Speaker 2: things along those lines, everything else. So that other ninety
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Speaker 2: billion dollars and imports is going from a ten percent
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Speaker 2: tariff that's been in place since April ninth up to
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Speaker 2: a fifteen So it's coming in higher. And I guess
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Speaker 2: where my head is at on this is Paul's. It's
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Speaker 2: safe to say that Japan is probably one of the
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Speaker 2: five or six countries in the world that we have,
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Speaker 2: you know, the closest relationship with. Sure, yeah, you put
7:19
Speaker 2: the UK in the UK, Canada, Mexico. Who else can
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Speaker 2: you throw in that mix? Germany, Israel from a military perspective,
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Speaker 2: not as close on an economic but Japan's in that
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Speaker 2: that short list of you know, countries that you have
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Speaker 2: the closest relations with. And so I guess I look
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Speaker 2: at this and I say, okay, So if Japan is
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Speaker 2: getting fifteen, remember the UK got basically a blanket ten, right,
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Speaker 2: And I think you can make the case that the
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Speaker 2: UK is, you know, number one in terms of, you know,
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Speaker 2: closest relationships the EU. Who the Trump administration for a
7:50
Speaker 2: number of reasons, number of which I agree with. They
7:52
Speaker 2: don't really like the EU because of you know, a
7:55
Speaker 2: whole host of different issues. Okay, is fifteen the floor
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Speaker 2: for them? Is that kind of where we think that
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Speaker 2: the EU comes into like fifteen, seventeen, eighteen twenty, like
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Speaker 2: somewhere in fifteen to twenty. Sure feels like where that's
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Speaker 2: gonna settle. And so I guess what I'm getting at
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Speaker 2: here is for all other goods that are being imported,
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Speaker 2: we had a ten percent tariff that was put in
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Speaker 2: place in early April that we're starting to see the
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Speaker 2: effects of in the June CPI eight and it's starting
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Speaker 2: to come through. And to me, it seems increasingly likely
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Speaker 2: that that tariff rate for most countries is going to
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Speaker 2: be going from ten to probably somewhere between fifteen and
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Speaker 2: twenty five in the coming weeks. Doesn't that seem to
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Speaker 2: be problematic to anyone? Else like for the US economy potentially.
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Speaker 2: And I know that there's talk of, you know, the
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Speaker 2: investment that will be made by these countries and this
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Speaker 2: and that, and I get that I'm not poop pooing that,
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Speaker 2: but I guess I'm just looking from a cost perspective.
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Speaker 2: We're starting to see this stuff showing up in different
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Speaker 2: costs in different places, and now we're potentially raising those
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Speaker 2: rates right as those first rounds of costs are starting
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Speaker 2: to show up. I guess it doesn't feel great to me,
9:08
Speaker 2: but maybe I'm just off base on this.
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Speaker 3: The average effective teriff rate has sat in around twenty
9:15
Speaker 3: percent or so across.
9:17
Speaker 2: All of the levels of tariffs. So I believe the
9:21
Speaker 2: collected rate for the last month that we have data
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Speaker 2: for is May, and the collected rate maybe it's June.
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Speaker 2: The average effective collected rate was only up to about
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Speaker 2: eight and a half to nine percent, according to most sources,
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Speaker 2: just because it wasn't actually collected on, just because of
9:38
Speaker 2: how things were effectively moved around and so forth. The
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Speaker 2: estimates that I've seen from places like Goldman are that
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Speaker 2: the next month of data will probably reflect around to
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Speaker 2: twelve to thirteen percent, then around fifty like basically most
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Speaker 2: projections that will be up to around a fifteen percent
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Speaker 2: average collection by the fall, but it takes time to
9:58
Speaker 2: ramp up because of how company delayed imports and move
10:01
Speaker 2: things around and this and that. So I guess, like
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Speaker 2: what I'm getting at is we're just getting to the
10:09
Speaker 2: point now where we're starting to see the impact of
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Speaker 2: that ten percent blanket rate on stuff other than you know, steel, aluminum,
10:16
Speaker 2: the copper tariffs have yet to go into effect. So
10:18
Speaker 2: I guess I'm looking at it. I see this, this
10:20
Speaker 2: next wave of potential price increases coming, and I don't
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Speaker 2: get the warm and fuzzies necessarily just because it's it's done.
10:29
Speaker 2: I guess is where I'm going.
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Speaker 3: So when the budget lab at Yale quotes the average
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Speaker 3: effective tarif right at seventeen or eighteen percent, that I'm
10:37
Speaker 3: looking at here that differs from.
10:40
Speaker 2: The collection rate.
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Speaker 3: And the reason I'm making this point is, Okay, perhaps
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Speaker 3: the market is acting positively because this would be lower
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Speaker 3: than current thresholds, but it's so hard to if it's
10:53
Speaker 3: the collective rate is lower than what this average effective
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Speaker 3: terifrate's being quota back, then I understand your point. If
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Speaker 3: it's the other way, then maybe it's a little bit
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Speaker 3: lessening once all these trade deals are in place.
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Speaker 2: So the effective rate that Yale is saying is, hey,
11:08
Speaker 2: here's where we project project this will be. Okay, there's
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Speaker 2: other analysis that I've seen done. I'll pull it during
11:15
Speaker 2: the break just because we do have to head to break.
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Speaker 2: But the other analysis that I've seen done is, hey,
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Speaker 2: here's what actually was collected during the month relative to imports,
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Speaker 2: and that has been lower, just because I'll get the
11:28
Speaker 2: details on exactly why. But let's take a break and
11:30
Speaker 2: then let's dig into that, because I think it's a
11:32
Speaker 2: good conversation.
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12:34
Speaker 2: All right, So talking about terifrates a couple different things.
12:37
Speaker 2: So Ernie Tadesky, who works at the Budget Lab at
12:42
Speaker 2: Yale and basically has been, you know, working on the
12:47
Speaker 2: research about, hey, what are effective terif rates going to
12:50
Speaker 2: look like? Pretty much what he says, and this is
12:54
Speaker 2: on an ex post from May twenty six, so from
12:58
Speaker 2: a couple months ago. Basically what he says is, look,
13:01
Speaker 2: at the time that he wrote this, the fully phased
13:05
Speaker 2: in tariff policy would equate to an average effective tariff
13:09
Speaker 2: rate of eighteen percent. But based on the actual duties
13:15
Speaker 2: collected on imports during the month of May, based on
13:19
Speaker 2: when you know, different ships came in and how things
13:22
Speaker 2: were being tariffed at any particular given time, his estimate
13:26
Speaker 2: was that for May, the average effective tariffrate had risen
13:29
Speaker 2: to six and a half percent. Goldman Sacks about on
13:34
Speaker 2: July tenth, had a piece that estimated in May the
13:38
Speaker 2: average effective tariff rate had risen to seven percent, so
13:42
Speaker 2: still not that fully phased in amount. They had thought
13:45
Speaker 2: it would be closer to like eight or nine by then. Again,
13:48
Speaker 2: it's just based on when you know, ships come into
13:50
Speaker 2: port in this and that, and the mix of different
13:52
Speaker 2: stuff that comes through at any particular point in time.
13:57
Speaker 2: But I guess the point that I was trying to
13:59
Speaker 2: make last segment was, look, you've got this even before
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Speaker 2: these newer rates were announced. This average effective tariff rate
14:08
Speaker 2: somewhere in the range. Once fully phased in, it's going
14:13
Speaker 2: to be somewhere in the range of like eighteen to
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Speaker 2: twenty percent, And we're really that the May data suggests
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Speaker 2: we're only feeling about a third of that to this point.
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Speaker 2: And now we're potentially ratcheting up that baseline rate on
14:26
Speaker 2: a number of countries from fifteen from ten up to
14:29
Speaker 2: fifteen or twenty or somewhere in between. And I guess
14:32
Speaker 2: where I'm going with this is, Gosh, we haven't even
14:36
Speaker 2: really seen the full effect of what's been imposed yet, right,
14:40
Speaker 2: I don't know if I want to be layering on
14:42
Speaker 2: additional stuff here and what that can mean for the economy.
14:45
Speaker 2: Maybe I'm being overly nervous. Occasionally it happens, but I
14:49
Speaker 2: just I don't know that I feel as great about
14:53
Speaker 2: that given the fact that we're just now starting to
14:57
Speaker 2: see this stuff showing up, you know, and things like
15:00
Speaker 2: the June CPI day that we got last week.
15:02
Speaker 3: Yeah, it comes back to the conversation you and I
15:04
Speaker 3: were having last week, where ultimately it is incredibly critical
15:08
Speaker 3: the next three to four months what we're going to
15:10
Speaker 3: get from economic data. It's basically going to prove out
15:12
Speaker 3: whether your nerves are justified or not. You know, if
15:16
Speaker 3: we sit here at the end of the year and
15:18
Speaker 3: inflation remains subdued, maybe two and a half to two seven,
15:24
Speaker 3: if it's sat around those levels, I feel like that
15:26
Speaker 3: would be fine. But if we were to see persistent
15:31
Speaker 3: increases on that side of things, then that's where you
15:34
Speaker 3: would get concerned on the inflationary front. And I think
15:37
Speaker 3: you had mentioned so the collector rate for June. I know,
15:39
Speaker 3: these are estimates that was in around twelve percent, the
15:43
Speaker 3: collected rate of ten.
15:44
Speaker 2: The estimates that I've seen are somewhere in like the
15:47
Speaker 2: ten to twelve, but we don't know yet.
15:49
Speaker 3: Yeah, so we haven't fully so that could tie into
15:52
Speaker 3: the CPI data that we saw a little bit. Hey,
15:54
Speaker 3: we covered that report saying, okay, there were some indicators
15:58
Speaker 3: in areas that are heavily exported by the units are
16:02
Speaker 3: rather imported by the United States, kids, toys, apparel, other
16:07
Speaker 3: items out there that we saw those month over month
16:09
Speaker 3: increases on the backs of a higher collective tariff freight.
16:13
Speaker 3: When more data comes out and we see the numbers
16:16
Speaker 3: from July, perhaps we see more impact there. So that's
16:20
Speaker 3: really what it comes down to, is whether or not
16:23
Speaker 3: this is going to show up and we can at
16:25
Speaker 3: least finally point to a timeline because we sat here
16:29
Speaker 3: for months and just threw our hands up and there saying.
16:32
Speaker 2: Gee, why don't we see anything yet? Oh?
16:35
Speaker 3: Could it be that, you know, the retailers are absorbing them.
16:38
Speaker 3: Now to me, it's at least more clear when we're
16:41
Speaker 3: going to understand the impact of tariffs. That I can
16:45
Speaker 3: take solace in because for months prior, I'm like, I
16:47
Speaker 3: just am not seeing anything yet.
16:49
Speaker 2: Yeah, And to your point, look, if we get to
16:51
Speaker 2: the end of the year and CPI is still running
16:55
Speaker 2: under three and unemployment is under call it four and
16:58
Speaker 2: a half, you know, I'll give a little cushion. You
17:01
Speaker 2: can tucker like you want something to put a you know,
17:05
Speaker 2: bet on. You can print shirt like print financial exchange
17:09
Speaker 2: t shirts that just say chuck is a worry warp
17:12
Speaker 2: Like you can come up with something like more clever
17:16
Speaker 2: than that. But that's kind of where where we are is. Hey,
17:20
Speaker 2: if there's actually no impact by the end of the
17:22
Speaker 2: year on this stuff, you can punt it. Now are
17:25
Speaker 2: we starting to see it show up? We are so
17:28
Speaker 2: that the CPI report gave us some clues. Some of
17:31
Speaker 2: the earnings reports that we've been getting have given us
17:33
Speaker 2: clues as well. GM who reported earnings yesterday, they they said,
17:39
Speaker 2: in no uncertain terms, Look, if it weren't for tariffs,
17:41
Speaker 2: our profit would have been twenty nine percent higher. We
17:44
Speaker 2: are absorbing some of this. We're still having to pass
17:46
Speaker 2: along some of these costs, but our profits would have
17:49
Speaker 2: been almost thirty percent higher if we didn't have to
17:52
Speaker 2: account for these tariff costs. Now they're trying to do
17:55
Speaker 2: things to mitigate that, and you know, maybe that'll work
17:58
Speaker 2: and we'll start to see that that progress by year end.
18:02
Speaker 2: But it is showing up now in a few different
18:05
Speaker 2: areas where earnings are being impacted prices are moving up
18:09
Speaker 2: a little bit. Is it broad enough for us to
18:11
Speaker 2: you know, say anything definitively about you know, hey, the
18:14
Speaker 2: how you know, what is the impact going to be
18:17
Speaker 2: on inflation and on growth over the next six months.
18:20
Speaker 2: Tough to tell. But this is why when we talk
18:24
Speaker 2: about these you know, deals that are being announced. Okay,
18:27
Speaker 2: if you know Vietnam imports, which Vietnam still has not
18:30
Speaker 2: confirmed that this is the actual deal. But if Vietnam
18:33
Speaker 2: imports are going to be taxed at twenty percent instead
18:35
Speaker 2: of ten, okay, how do importers of stuff from Vietnam
18:40
Speaker 2: figure that out? And how to like what happens to
18:42
Speaker 2: prices now that we have to adjust from ten up
18:44
Speaker 2: to twenty. I don't know if there's a certain level
18:48
Speaker 2: that's like the specific breaking point. But we're still in
18:53
Speaker 2: the early innings of seeing how this is going to evolve.
18:56
Speaker 2: And I think that's the point that I'm making is
18:59
Speaker 2: we're just starting to see the impacts of tariffs that
19:02
Speaker 2: were imposed in April. I just want to be cautious
19:06
Speaker 2: about what we may see over the next three to
19:08
Speaker 2: four months and also acknowledge there's a chance that I
19:11
Speaker 2: could be completely wrong about this. And if that's right,
19:14
Speaker 2: print the t shirts January first, and let's go, because
19:18
Speaker 2: I would be happy to be wrong about my concern.
19:21
Speaker 2: If that's the case, great, it means that things are
19:24
Speaker 2: moving along fine. Just take a quick break here. When
19:27
Speaker 2: we come back, we got Wall Street Watch and ask
19:29
Speaker 2: da da da da da da da da.
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20:01
Speaker 4: Markets are in positive territory as traders react to the
20:05
Speaker 4: trade deal agreed upon between the US and Japan, which
20:08
Speaker 4: will include reciprocal tariffs at fifteen percent for the country.
20:11
Speaker 4: Second quarter corporate earning season also continues to chug along
20:16
Speaker 4: here At the moment, the dials up by about a
20:18
Speaker 4: half a percent, or two hundred and thirteen points, SMP
20:22
Speaker 4: five hundred is up by a quarter of a percent
20:24
Speaker 4: or fourteen points, and the Nasdaq is dipping four points lower,
20:28
Speaker 4: mostly flat. Russell two thousand is up by eight tenths
20:32
Speaker 4: of one percent or eighteen points. Tenure Treasure reeled up
20:35
Speaker 4: four basis points at four point three seven six percent,
20:39
Speaker 4: and crude oil is off about half a percent lower,
20:42
Speaker 4: trading just below sixty five dollars a barrel. Shares in
20:46
Speaker 4: Texas Instruments sinking nearly twelve percent after the semiconductor company
20:50
Speaker 4: posted a third quarter forecast that missed estimates. As for
20:54
Speaker 4: its second quarter, the company did beat on earnings and revenue. Meanwhile,
20:58
Speaker 4: at and T Beach street expectations for its second quarter
21:02
Speaker 4: earnings and revenue and added more wireless subscribers than anticipated,
21:06
Speaker 4: driven by discounted bundles. Eighteen T stock is flat Elsewhere,
21:11
Speaker 4: Hotel operator Hilton posted better than projected results, but its
21:16
Speaker 4: outlook for adjusted per share earnings for the current quarter disappointed.
21:20
Speaker 4: That stock is down by two percent. After seeing Meme
21:24
Speaker 4: stock movement from Open Door Technologies and retailer coals, Krispy
21:29
Speaker 4: Kreme is now seeing volatile retailer trading. Shares in the
21:33
Speaker 4: doughnut maker are currently jumping by eighteen percent. Capital One
21:38
Speaker 4: stock up by two percent after the consumer lenders earnings
21:41
Speaker 4: beat estimates, helped by a rise in interest income, and
21:45
Speaker 4: after today's closing bell, all eyes will turn to the
21:49
Speaker 4: kickoff of mag seven earnings from Google's alphabet and Tesla
21:54
Speaker 4: IBM will report earnings as well. I'm Tucker Silva and
21:58
Speaker 4: that is Wall Street Watch.
22:01
Speaker 1: This is Asked Todd on the Financial Exchange Radio network.
22:05
Speaker 1: If you have an existing estate plan or in the
22:07
Speaker 1: market for one, Todd Letsky is here to answer your
22:10
Speaker 1: questions and help you plan for a later life. Ask
22:12
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:16
Speaker 1: New England for more than thirty five years, helping families
22:19
Speaker 1: with a state and tax planning, Medicaid planning, and probate law.
22:22
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:28
Speaker 2: And we are now joined by mister Todd Lutsky for
22:33
Speaker 2: Asked Todd. Phone lines are open. Last week, I believe
22:37
Speaker 2: we may have set a new record with do we
22:39
Speaker 2: get to five calls last week? I think we might have.
22:42
Speaker 5: I think we did four.
22:43
Speaker 2: Poor home run, then it felt like five. I think
22:46
Speaker 2: it just felt like we were rocketing through them. But
22:49
Speaker 2: we do have limited room on the phone line so
22:51
Speaker 2: called eight eight eight two zero five two two six
22:54
Speaker 2: three to be able to ask Todd your state planning questions.
22:57
Speaker 2: That number again is eight to zero. Five, two, two
23:02
Speaker 2: six three. Normally we can only get to two or
23:04
Speaker 2: three of you, So again, get calling early, get calling
23:08
Speaker 2: often to get in line to ask Todd your questions.
23:11
Speaker 2: That number one more time is eight eight eight two
23:15
Speaker 2: zero five two two six three. Mister Lutsky, how are
23:19
Speaker 2: you today? I am never better and and you I'm good.
23:23
Speaker 2: I actually I had just quit my my side hustle
23:26
Speaker 2: as a mannequin in a department store.
23:29
Speaker 5: Yeah, that was a side hustle.
23:30
Speaker 2: I held that position for a while.
23:32
Speaker 5: Yeah, No, that's good.
23:33
Speaker 2: I did you got rid of it? I did, Todd.
23:35
Speaker 2: I want to talk to you a little bit about
23:38
Speaker 2: retirement accounts and long term care costs. Okay, when it
23:43
Speaker 2: comes to folks that have retirement accounts, be it a
23:46
Speaker 2: four to oh one k ira sep iray even you
23:50
Speaker 2: get to you know, tax free accounts roth irais and
23:53
Speaker 2: things like that. How does someone go about trying to
23:57
Speaker 2: protect those assets from the cost of long term care
24:00
Speaker 2: given the unique tax implications of them.
24:03
Speaker 5: And you really hit it on the head there, Chuck.
24:05
Speaker 5: It is all about the unique tax implications of these
24:08
Speaker 5: So when you're dealing with estate planning, taxes are important.
24:13
Speaker 5: When you're dealing with the state planning. Income taxes are
24:16
Speaker 5: important what you come into with these kind of plans,
24:19
Speaker 5: So you can't move them to an irrevocable trust in
24:24
Speaker 5: advance of going into a nursing home so that we
24:27
Speaker 5: can protect them. So protecting these assets in advance is difficult.
24:32
Speaker 5: Now i'd say difficult, nearly impossible, But there's a little
24:36
Speaker 5: thing we can do. What you'll explain in a minute.
24:38
Speaker 5: The reason I cannot put them into that irrevocable trust
24:42
Speaker 5: is because then they would have to come out of
24:44
Speaker 5: the entity that they're in, which is this qualified plan
24:48
Speaker 5: called an IRA or even a wroth. Right, if it
24:51
Speaker 5: comes out of the regular IRA, it's going to be taxable.
24:55
Speaker 5: You could lose forty percent if you pull a lot
24:57
Speaker 5: of money out and have to put it into the
24:58
Speaker 5: irrevocable trust. Now you might say, well, a lot of
25:02
Speaker 5: wroth is could pull it out and there's no income tax,
25:05
Speaker 5: and that that's absolutely right. But if you pull it
25:07
Speaker 5: out and there's no income tax, but I put it
25:09
Speaker 5: into the trust, when I invest it again in the
25:12
Speaker 5: name of the trust, it will not be in a wrath.
25:15
Speaker 5: So now it will grow income taxable. Depending on what
25:19
Speaker 5: you buy so again it's a trade off.
25:21
Speaker 1: NOE.
25:21
Speaker 5: I can protect it by putting it into the trust,
25:24
Speaker 5: but it will grow income taxable, not like a wroth.
25:28
Speaker 5: And I'll leave you with this last thought, because the
25:30
Speaker 5: one way you have a i'll say a fifty percent
25:33
Speaker 5: chance of protecting it in advance is dying and not
25:38
Speaker 5: going into the nursing home, which we all want to do.
25:41
Speaker 2: That's not our goal.
25:42
Speaker 5: And if we're married and we do planning, we set
25:45
Speaker 5: up these things called testamentary trusts, so that if you
25:49
Speaker 5: happen to die and never make it to a nursing home,
25:53
Speaker 5: but you're over age seventy three, I know a lot
25:55
Speaker 5: of rules, then the beneficiary can be this test testimentary
26:00
Speaker 5: trust which is built into your will, so that now
26:03
Speaker 5: the asset will be sheltered from future estate taxes in
26:07
Speaker 5: that will, in that testamentary trust, and available for your
26:11
Speaker 5: spouse what you want, but immediately protected from the nursing
26:16
Speaker 5: home in case your spouse got sick later. Man, Remember
26:20
Speaker 5: if you don't do that and you just leave it
26:22
Speaker 5: directly to your spouse, it's going to be available first
26:26
Speaker 5: a tax when your spouse dies, and continue to remain
26:30
Speaker 5: at risk for the nursing home when your spouse gets sick.
26:33
Speaker 5: So it's a wonderful way of providing some protection or
26:38
Speaker 5: a chance at protecting an asset that's very hard to protect.
26:42
Speaker 2: Talking with Todd Lotski from the law firm of Cushing
26:44
Speaker 2: and Dolan. Still room on the phone lines at eight
26:47
Speaker 2: eight eight two zero five two two sixty three. That
26:51
Speaker 2: is the number to call speak with Todd live on
26:54
Speaker 2: air about your estate planning questions right now again eight
26:59
Speaker 2: eight eight to zero five two two sixty three is
27:03
Speaker 2: the number. We're gonna take a quick break here, but
27:05
Speaker 2: when we come back, we are going to get to
27:07
Speaker 2: your questions with Todd. That phone number again is eight
27:11
Speaker 2: eight eight to zero five two two six three. One
27:14
Speaker 2: more time, it's eight eight eight two zero five two
27:18
Speaker 2: two sixty three.
27:20
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:24
Speaker 1: only here on the Financial Exchange Radio Network. Don't miss
27:30
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:33
Speaker 1: only here on the Financial Exchange Radio Network.
27:45
Speaker 2: Talking with Todd Lutsky from Cushing and Dolan. We do
27:48
Speaker 2: still have a little room on the phone lines, so
27:50
Speaker 2: call eight eight eight to zero five two two six
27:54
Speaker 2: three to ask Todd your questions again, that number is
27:57
Speaker 2: eight eight eight to zero five. I have two two
28:01
Speaker 2: sixty three, Tucker. I know that we have someone on
28:02
Speaker 2: the line. I didn't see anything come through. Do you
28:05
Speaker 2: have them?
28:06
Speaker 1: Sorry?
28:06
Speaker 4: That would be Rick and Chatham.
28:07
Speaker 2: There we go. We got Rick and Chatham all queued up. Rick,
28:10
Speaker 2: what's your question for Todd?
28:13
Speaker 6: Okay? First, he was discussing.
28:17
Speaker 7: The difficulties of moving like an IRA into irrevocable What
28:22
Speaker 7: if you moved your like E trade account in there,
28:26
Speaker 7: it's not enough retimement account?
28:29
Speaker 6: How does that work?
28:30
Speaker 2: Like?
28:31
Speaker 7: Can you still get your dividends out, like if you
28:33
Speaker 7: want to use it for retirement type?
28:35
Speaker 6: Yeah?
28:35
Speaker 2: Great, great, go ahead.
28:37
Speaker 6: Yeah. Then the other thing would be you talked about
28:39
Speaker 6: that trust at seventy three. Yeah, if you die with
28:43
Speaker 6: an irrevocable trust, aren't you already covered that way? That
28:47
Speaker 6: was what my spouse already be protected.
28:50
Speaker 2: Yeah?
28:51
Speaker 5: All right. So two questions one and both by the way,
28:55
Speaker 5: just for everybody else listing. Both of these questions revolve
28:57
Speaker 5: around advanced medicaid, nursing, home planning, and estate planning, and
29:01
Speaker 5: are dealing with an irrevocable medicaid trust. These are the
29:05
Speaker 5: kinds we've talked about many times on the on the show.
29:08
Speaker 5: So excuse me, how do we fund the irrevocable trust?
29:13
Speaker 5: As as was pointed out by Rick and me a
29:16
Speaker 5: minute ago, we cannot put the IRA directly into that
29:19
Speaker 5: trust because of the big income tax hit. However, I've
29:22
Speaker 5: got my Fidelity accounts of the world. I've got my
29:25
Speaker 5: Schwab accounts of the world. I've got you know e
29:27
Speaker 5: trade whatever whatever it is you're using to invest your portfolio.
29:32
Speaker 5: As long as it's a non qualified portfolio, So a
29:36
Speaker 5: regular investment account like this one, can you retitle it?
29:40
Speaker 5: Absolutely simple paperwork. You change you get you go to
29:45
Speaker 5: your your brokerage house and you get change of name forms.
29:51
Speaker 5: They have them, download them and you'll put you know,
29:55
Speaker 5: new name on the account will be and it like
29:57
Speaker 5: if it's my trust, it might be the todd Let's
30:00
Speaker 5: Family irrevocable Trust. Okay, that will be the name, and
30:03
Speaker 5: then it'll have a place for the trustee name put it.
30:07
Speaker 5: And then there'll be a place for an ID number
30:09
Speaker 5: for the trust. Generally, if you're working with us anyway,
30:12
Speaker 5: we will have already obtained that ID number for you
30:16
Speaker 5: from the irs, and that will be listed there. So
30:19
Speaker 5: put those three items on that form, turn it in,
30:24
Speaker 5: and the brokerage house will retitle the account. Now very
30:28
Speaker 5: important when I say retitle, notice I didn't say resell
30:33
Speaker 5: the account, because there will be no selling, no capital
30:37
Speaker 5: gains tax, no taxable event whatsoever for retitling. It's just
30:42
Speaker 5: an in kind transfer, so easy for that, and yes,
30:47
Speaker 5: I'd recommend it. Then once it's in there, this question is,
30:50
Speaker 5: well what can I do with it? Well, sure that language,
30:53
Speaker 5: and our trusts say all the income interest dividends, just
30:58
Speaker 5: like Rick indicated that being generated by the items in
31:03
Speaker 5: the trust, by that investment portfolio belong directly to Rick
31:08
Speaker 5: or me if it's my trust, or you if it's
31:09
Speaker 5: your trust, So it will say you could just tell
31:12
Speaker 5: you your broker to or your financial advisor to simply
31:17
Speaker 5: set up the account so that it automatically distributes that
31:20
Speaker 5: income directly to your personal bank account. And I know
31:24
Speaker 5: you didn't ask this question, but at the end of
31:27
Speaker 5: the year, yes, you will continue to pick up that
31:29
Speaker 5: income on your individual income tax return, so you're not
31:33
Speaker 5: going to have an adverse income tax liability. The trust
31:37
Speaker 5: will file a Form ten forty one but it will
31:40
Speaker 5: pay no tax. It's a grand tour trust if it's
31:43
Speaker 5: drafted right, So make sure you find the lawyer that
31:45
Speaker 5: understands how to draft these. Then you just continue to
31:48
Speaker 5: pick up all the income on your tax return even
31:52
Speaker 5: if you don't take it.
31:53
Speaker 2: So wonderful there. And lastly, this IRA thing, Yeah, it's
31:58
Speaker 2: relatively new.
32:00
Speaker 5: It's dealing with the Secure Act that came out I
32:02
Speaker 5: guess effectively is the second version in twenty twenty two.
32:06
Speaker 5: And if you have reached the RBD required beginning date
32:11
Speaker 5: of seventy three, then you name the estate, not the
32:15
Speaker 5: ir not your irrevocable trust rick that I just described
32:18
Speaker 5: to you, not that trust, a separate trust built into
32:23
Speaker 5: your will, And so you have to name the estate
32:26
Speaker 5: of like if it's mine, it would be the estate
32:28
Speaker 5: of Todd Lutsky, not my wife as the designated beneficiary.
32:32
Speaker 5: And so what that will do is, yes, that one
32:35
Speaker 5: item is going to have to go to probate, but
32:36
Speaker 5: I don't care because the benefits far exceed the probate issue.
32:42
Speaker 5: So now it will sit in trust for the benefit
32:45
Speaker 5: of my wife.
32:46
Speaker 2: She can use it.
32:47
Speaker 5: It's sheltered for future estate taxes, and it's immediately protected
32:51
Speaker 5: from the nursing home for the family in the event
32:53
Speaker 5: my wife gets sick, even if it's the next day,
32:57
Speaker 5: doesn't matter. No five year waiting period. So hope that
33:01
Speaker 5: was helpful. Great question on that, and folks, that's how
33:04
Speaker 5: you do advance planning. However, lots of times people are
33:08
Speaker 5: faced with nursing home admission and have to deal with
33:11
Speaker 5: what we call last minute Medicaid eligibility planning. In that regard,
33:16
Speaker 5: I've put together a guide called just that last minute
33:19
Speaker 5: Medicaid Eligibility, and it describes to you, for married people
33:23
Speaker 5: and single people treated differently, how you have certain assets
33:28
Speaker 5: when you're applying for Medicaid that are accountable, and certain
33:31
Speaker 5: assets that are not countable, like a primary residence or
33:35
Speaker 5: a rental property, they're treated differently. What about a four
33:39
Speaker 5: oh one K or an ira? What about jointly held
33:42
Speaker 5: investment accounts versus investment accounts held singly in your own name.
33:46
Speaker 2: So there you go.
33:48
Speaker 5: Lots of differences, and it even has a few ideas
33:51
Speaker 5: about how to transfer assets to avoid the five year
33:54
Speaker 5: waiting period last minute. My point is there's something in
33:58
Speaker 5: here for everybody, whether you've planned or you've not planned.
34:00
Speaker 5: If you're faced with going into the nursing home last minute,
34:03
Speaker 5: don't write the check, get the guide, learn what you
34:06
Speaker 5: can do last minute eight six six eight four eight
34:10
Speaker 5: five six nine nine or Legal Exchange show dot com
34:14
Speaker 5: again eight six six eight four eight five six nine
34:18
Speaker 5: nine or Legal Exchange Show dot com.
34:21
Speaker 2: Tud you reference there talking about you know, last minute
34:25
Speaker 2: planning and things like that. But let's let's go you know,
34:27
Speaker 2: kind of forward back in time, Okay, which is the
34:33
Speaker 2: best way to phrase it. Okay, Let's say that you
34:36
Speaker 2: are not facing an urgent medicaid situation. I often see
34:42
Speaker 2: people trying to figure out, Hey, what's the best tool
34:45
Speaker 2: for me to deal with a potential long term care situation?
34:49
Speaker 2: Is it trust planning or is it long term care insurance?
34:54
Speaker 2: Is it really a binary decision? Or can the two
34:56
Speaker 2: complement each other in certain situations as well?
35:00
Speaker 5: I'm going to go with they can compliment each other
35:04
Speaker 5: in certain situations. But let me explore it a little.
35:06
Speaker 5: So the one thing you want to stay away from
35:10
Speaker 5: is the idea that probably all I need is long
35:12
Speaker 5: term care insurance. Again, assuming you're not self insured, if
35:15
Speaker 5: you have enough assets, let's start there. If you have
35:16
Speaker 5: enough assets. Folks generating enough income, yourself insured, you don't
35:20
Speaker 5: even need to go down the Medicaid eligibility road. But
35:24
Speaker 5: if you're in that area where you might probably the
35:27
Speaker 5: long term care insurance.
35:28
Speaker 2: It works.
35:29
Speaker 5: It can be costly, but if you get it, it's
35:31
Speaker 5: a wonderful thing to have, if you get it early enough,
35:34
Speaker 5: and it might provide some help.
35:36
Speaker 2: But I don't think it's the end all be all.
35:39
Speaker 5: Whereas on the flip side of it, if you did
35:41
Speaker 5: nursing home planning and you didn't have long term care insurance,
35:44
Speaker 5: or maybe you couldn't get it too old, too expensive, whatever,
35:49
Speaker 5: I think you can actually use the irrevocable trust to
35:53
Speaker 5: completely protect assets, Whereas I think it's a little tougher
35:56
Speaker 5: just with long term care insurance. So I think probably
36:00
Speaker 5: a complementary is good for both. But yes, putting the
36:03
Speaker 5: assets in the trust can get you there all along.
36:07
Speaker 2: And if someone is looking to avoid a last minute
36:10
Speaker 2: type of planning scenario, what's kind of the sweet spot
36:15
Speaker 2: for starting to do planning that reflects the possibility of
36:18
Speaker 2: a long term care situation.
36:20
Speaker 5: A couple of things. I would say, age you know
36:24
Speaker 5: sixty sixty five and up. If you're starting to do
36:26
Speaker 5: your planning, you might want to think about whether I'm
36:30
Speaker 5: going to go down the irrevocable trust road or I'm
36:33
Speaker 5: going to go down the revocable trust road.
36:36
Speaker 2: That's a great age.
36:37
Speaker 5: Secondly, I would say, you know, asset level. Now you
36:42
Speaker 5: got to start thinking about the asset level. Not just
36:44
Speaker 5: the asset level, but what kind of assets. Do I
36:46
Speaker 5: have a lot of liquid money or do I have
36:48
Speaker 5: a lot of real estate? Somewhere in that four million
36:51
Speaker 5: dollars in below range. I know it sounds high, but
36:54
Speaker 5: I would say somewhere in that range, you might want
36:56
Speaker 5: to also consider it. You start getting up there in
36:57
Speaker 5: the five six, seven million, you know you can pretty
37:00
Speaker 5: much be self insured most of the time.
37:03
Speaker 2: Todd Lusky, thank you so much for joining us today.
37:05
Speaker 2: We appreciate it.
37:06
Speaker 5: It's always a pleasure.
37:07
Speaker 2: Thank you.
37:09
Speaker 1: This has been asked Odd on the Financial Exchange Radio Network.
37:12
Speaker 1: Ask Todd with Todd Lutsky has been presented by Cushing
37:15
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:18
Speaker 1: thirty years, helping families with the state and tax planning,
37:21
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:24
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:27
Speaker 1: The views expressed in this segment are solely those of
37:29
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:32
Speaker 1: or tax advice. Please consult with your illegal or tax
37:34
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:36
Speaker 1: each other and are not affiliated