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How does a Fed rate cut impact average Americans? · The Financial Exchange Show

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  Speaker 2: Chuck Paul Tucker with you today on the Financial Exchange.
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  Speaker 2: It's a FED day, which means, quite honestly, basically nothing
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  Speaker 2: happens until two pm and then you usually get like
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  Speaker 2: a flurry of activity for like an hour and a half,
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  Speaker 2: and then a lot of times you end up like
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  Speaker 2: not really closing anywhere different from where he started the
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  Speaker 2: day for the stock market, Yes, yes, does anything else matters?
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  Speaker 2: You know, what are we really doing here? So I
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  Speaker 2: do think just in terms of, you know, what we
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  Speaker 2: see on these days, I do think this is kind
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  Speaker 2: of interesting in that if you look at the last
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  Speaker 2: three years on FED days, the return has averaged just
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  Speaker 2: under a quarter percent for the last three years. Okay,
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  Speaker 2: the average turn on a non fed day is point
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  Speaker 2: zero five percent, So in general, FED days have been
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  Speaker 2: better than non fed days for the last three years.
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  Speaker 3: That was gonna be would have been my prediction, but
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  Speaker 3: I wouldn't have imagined it to be that small. It
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  Speaker 3: just seems like a small percentage gain to have a
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  Speaker 3: quarter percent.
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  Speaker 2: But here's the wild thing again. You're not talking about
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  Speaker 2: a huge sample size. There's eighty a year, okay, So
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  Speaker 2: you're talking about over the last three years, there's twenty
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  Speaker 2: four instances. The standard deviation of the returns is one
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  Speaker 2: point six percent, which means, yeah, most of the time
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  Speaker 2: it averages out and nothing you know, important really happens,
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  Speaker 2: like slight positive bias. But there's a wide range of
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  Speaker 2: where those actually go, and it's generally not even depending
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  Speaker 2: on what the Fed says, it's kind of okay, what
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  Speaker 2: if market's been doing leading up to it, how are
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  Speaker 2: people positioned? And that's kind of what you get. So
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  Speaker 2: I think that overall, you know, where we sit here
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  Speaker 2: the expectation for the market, and this is what I like,
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  Speaker 2: Basically everyone is saying, it's kind of where I am to.
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  Speaker 2: The expectation is for you know, what we'll call a
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  Speaker 2: hawkish cut, which is the FED cuts interest rates by
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  Speaker 2: another quarter percent and then strongly signals in the press
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  Speaker 2: conference after where J. Powell puts his purple tie on
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  Speaker 2: and says, here's what I think that the bar for
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  Speaker 2: future cuts is going to be high, and don't expect
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  Speaker 2: that you're necessarily going to get more of them. That's
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  Speaker 2: the expectation for most people.
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  Speaker 3: Right that is the case. We're sitting at ninety percent probability.
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  Speaker 3: According to CEMA futures that we see that quarterbased cut.
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  Speaker 3: So it's that's pretty much baked in really where there
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  Speaker 3: will be a lot more scrutiny and analysis and I'm
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  Speaker 3: not sure if it really moves the needle tremendously. Check
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  Speaker 3: will be on who within the party the Fed Governor's
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  Speaker 3: is dissenting, what is the drama underlying this FED rate decision,
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  Speaker 3: and what is some of the not explicit commentary because
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  Speaker 3: you won't get that of the members. But what will
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  Speaker 3: the voting stack up look like. I think that will
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  Speaker 3: probably be parsed through by economists and investors alike.
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  Speaker 2: Now, the other piece on this is remember for you know,
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  Speaker 2: for how this impacts the average individual, it's not you know,
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  Speaker 2: it's not cut and dry in terms of, oh, the
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  Speaker 2: Feds cutting and that means things are going to get
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  Speaker 2: cheaper if I need to borrow money the Federal Reserve.
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  Speaker 2: If you look back, like over the last couple of years,
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  Speaker 2: the Federal Reserve started cutting interest rates in September of
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  Speaker 2: last year. Okay, the first cut that we saw was
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  Speaker 2: in it was on September twenty fifth, I think it
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  Speaker 2: was of last year, somewhere around then, and we went
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  Speaker 2: down by half a percent. So let's go to just
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  Speaker 2: before that. On September eighteenth, the week prior, So September
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  Speaker 2: eight eighteenth of last year, and I'm pulling this data
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  Speaker 2: from Mortgage News Daily, the average thirty year fixed rate
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  Speaker 2: mortgage in the United States was six point one five percent.
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  Speaker 2: So if you wanted to go and borrow money to
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  Speaker 2: buy a house mid September last year, your rate was
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  Speaker 2: going to be, you know, on average, six point one
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  Speaker 2: five percent, and no one actually offers that rate, like
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  Speaker 2: they're all basically in like ace of an percent, So
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  Speaker 2: generally you'd say, like six and an eighth is where
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  Speaker 2: you know, you would have been six point one twenty
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  Speaker 2: five today, despite the Federal Reserve already having done one
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  Speaker 2: hundred and fifty basis points one and a half percentage
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  Speaker 2: points of cuts to the Fed funds rate and expected
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  Speaker 2: to do another quarter percent today. Paul, I'm looking at
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  Speaker 2: this and I'm I'm I'm confunneled. The thirty year fixed
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  Speaker 2: rate mortgage the average, according to Mortgage News Daily, is
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  Speaker 2: at six point three five percent, which, if my advanced
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  Speaker 2: mathematic skills are correct, is zero point two percent higher
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  Speaker 2: than just before the Fed started cutting last year. Can
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  Speaker 2: you double check my math.
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  Speaker 3: Math is spot on. The math is right, the math
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  Speaker 3: is right on the money, and it echoes a conversation
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  Speaker 3: I was having this weekend. I was a little disappointed
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  Speaker 3: another financial advisor at the table remarking that, hey, the
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  Speaker 3: FED has cut interest rates over this period of time,
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  Speaker 3: but there's been no impact to mortgages. He should know,
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  Speaker 3: of all people, that when you're talking about interest rates,
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  Speaker 3: there's two different ends of the spectrum. There's the short term,
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  Speaker 3: the short end, which we're talking about right now with
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  Speaker 3: the Fed cutting rates, and then there's the long term,
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  Speaker 3: which the thirty year fixed mortgage is based on the
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  Speaker 3: US ten year Treasury. And while it's fair to say
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  Speaker 3: perhaps influenced slightly by what happens on the short end
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  Speaker 3: of the curve with what the Federal Reserve does, it
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  Speaker 3: is not a direct one to one correlation at all
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  Speaker 3: that the FED cuts rates and immediately you see a
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  Speaker 3: change to the thirty year fixed mortgages out there. It
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  Speaker 3: is much more influential on a lot of the more
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  Speaker 3: variable interest rate products out there, like home echuy, lines
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  Speaker 3: of credit, or those people who would credit card for
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  Speaker 3: an adjustable rate mortgage, credit cards, money markets, money markets
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  Speaker 3: big time. That's an easy one to see. That really
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  Speaker 3: is the divergence between the two. So important to note
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  Speaker 3: that whenever you're talking rates.
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  Speaker 2: Now, the other thing that I want to note on
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  Speaker 2: is you mentioned the ten year treasury. So ten year
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  Speaker 2: treasury yields have been going up over the last couple
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  Speaker 2: of weeks, and I want to talk about why that
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  Speaker 2: is the case, because again, think about it this way.
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  Speaker 2: Let's say that you are a person with a billion dollars,
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  Speaker 2: and let's say that you decide to lend money, and
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  Speaker 2: you come up with a word, and you say, I'm
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  Speaker 2: gonna call myself a bank, and I'm gonna lend money
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  Speaker 2: if I can lend the US off me here like
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  Speaker 2: this is the basic way that all banks think about this.
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  Speaker 2: If I can lend the US government money with no
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  Speaker 2: risk of them repaying me for ten years at four
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  Speaker 2: point one seven percent, then in order to lend Paul
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  Speaker 2: Lane money over an additional twenty years, and he's with
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  Speaker 2: the credit risk that he has very little with you know, club,
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  Speaker 2: with the credit risk that Paul has, they're still gonna say,
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  Speaker 2: you know what, we might need a couple percentage points
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  Speaker 2: above that, because look, weird things can happen over a
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  Speaker 2: thirty year time period, and so yeah, Paul, we're going
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  Speaker 2: to charge you six to quarter percent because they can
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  Speaker 2: go to the federal government and lend them that at
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  Speaker 2: four percent and they're they'd be happy as a clam
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  Speaker 2: doing that. So I want to talk about this move
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  Speaker 2: up in the ten year yield because when we talk
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  Speaker 2: about yields, there are two different components to them. Actually,
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  Speaker 2: that four point one seven percent, it's made up of
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  Speaker 2: two different pieces. The first is basically, hey, what's going
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  Speaker 2: going on with inflation and we can measure that through
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  Speaker 2: treasury break evens. Basically, there are certain treasuries that are
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  Speaker 2: indexed for inflation, and we can compare the yields on
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  Speaker 2: those to the yields on regular tenure treasuries and say
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  Speaker 2: how much of this is an inflation premium, and right
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  Speaker 2: now it's about two point three percent of it. The
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  Speaker 2: other component is what real rates? How much is reflected
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  Speaker 2: in terms of you know, real growth projections, and what
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  Speaker 2: we've seen over the last couple of weeks, the move
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  Speaker 2: has been in real rates. It's what we have been seeing,
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  Speaker 2: which is market saying markets right now are trying to
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  Speaker 2: call a bottom in the labor market and housing market,
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  Speaker 2: and they may be right, they may not be. But
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  Speaker 2: markets are saying, hey, we think growth is going to
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  Speaker 2: inflect higher next year. It may it may not. Markets
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  Speaker 2: are not always right, they're in fact wrong quite often.
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  Speaker 2: But when we talk about why we're seeing the moves
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  Speaker 2: that we are seeing in the treasury market, it's because
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  Speaker 2: markets are saying, yeah, I think there's a chance that
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  Speaker 2: you're going to see some higher growth next year. And
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  Speaker 2: so this gets at, you know, kind of the the
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  Speaker 2: what the Fed's trying to sort through here, which is, yeah,
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  Speaker 2: the labor market doesn't look particularly good right now, but
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  Speaker 2: the Fed also has not been able to impact the
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  Speaker 2: areas of the you know, the interest rate markets that
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  Speaker 2: that they would like to just because again normally lower
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  Speaker 2: mortgage rates are what influences housing and drives more activity.
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  Speaker 2: And so there's a very real question as to look,
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  Speaker 2: the FED might be trying to cut rates to stimulate
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  Speaker 2: the economy. It's pretty unclear that they're actually able to
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  Speaker 2: do that given the dynamic that's out there right now.
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  Speaker 2: It's just kind of it's it's kind of pushing on
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  Speaker 2: a string a little bit. So let's take a quick
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  Speaker 2: break and when we come back. Do we want to
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  Speaker 2: talk the next fed chair after this? Not really, we don't,
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  Speaker 2: and so instead look, quite honestly, like one any time.
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  Speaker 2: We'll have plenty of time to do that. We'll also
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  Speaker 2: have plenty of time for this story. But I am
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  Speaker 2: just so juiced by this one here Warner Brothers again.
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  Speaker 2: You got this fight that's going to be happening between
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  Speaker 2: Paramount and Netflix, and I am entirely here just to
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  Speaker 2: watch a bunch of billionaires battle over media empires for
• 11:21
  Speaker 2: the next six to twelve months. It's going to be
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  Speaker 2: incredibly entertaining, more entertaining than any of the programming they
• 11:26
  Speaker 2: put out themselves. And so let's do that after this.
• 11:31
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  Speaker 2: All right, let's talk a little bit more about what's
• 13:14
  Speaker 2: going on with Warner Brothers Discovery. So late last week,
• 13:18
  Speaker 2: Netflix and Warner Brothers announced that they had agreed to
• 13:21
  Speaker 2: an acquisition where Netflix was going to buy Warner Brothers Discovery.
• 13:27
  Speaker 2: Then earlier this week on Monday, Paramounts Guidance comes out
• 13:31
  Speaker 2: and says, hey, hostile takeover, which again, it's not entirely
• 13:36
  Speaker 2: as aggressive as as it sounds. Hostile takeover simply means
• 13:40
  Speaker 2: that you are not going through the board in order
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  Speaker 2: to buy the company, but rather taking usually a tender
• 13:45
  Speaker 2: offer directly to shareholders, saying your board is not doing
• 13:49
  Speaker 2: a good job serving you. Here's a better offer. And
• 13:53
  Speaker 2: we don't really see too many of these like these
• 13:57
  Speaker 2: are not things that happened that often anymore. You might see,
• 14:03
  Speaker 2: you know, every couple of years a major one, but
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  Speaker 2: it's not something that is, you know, happening all the time.
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  Speaker 2: And look, this is going to get very, very messy
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  Speaker 2: for a number of reasons, the biggest ones being number one,
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  Speaker 2: neither of these companies, Netflix nor Warner Brothers are I'm sorry,
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  Speaker 2: Netflix nor Paramount are cash rich, meaning in Paramounts case,
• 14:34
  Speaker 2: they're going to be trying to use fifty plus billion
• 14:36
  Speaker 2: dollars worth of debt to finance this. Netflix is doing
• 14:39
  Speaker 2: a cash plus stock deal to not have to try
• 14:42
  Speaker 2: to do as much through debt markets. So there are
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  Speaker 2: some real limits as to how far you can go
• 14:47
  Speaker 2: on this. There's also a whole bunch of international intrigue
• 14:51
  Speaker 2: because Paramount's bid is backed by a you know, tens
• 14:54
  Speaker 2: of billions of dollars from Middle Eastern sovereign wealth funds,
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  Speaker 2: so you've got that attached to it as well.
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  Speaker 3: You've got political angle with anti trust.
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  Speaker 2: Political angle with anti trust. You've got all of Hollywood
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  Speaker 2: basically hating Netflix because of what they think become a
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  Speaker 2: done team industry, which, by the way, it's not really
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  Speaker 2: what Netflix has done. It's just our personal preferences are
• 15:18
  Speaker 2: being revealed that we don't want to spend the sums
• 15:21
  Speaker 2: that are required to go to movie theaters for most movies.
• 15:24
  Speaker 2: But that's neither here nor there.
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  Speaker 6: Uh.
• 15:26
  Speaker 2: And so you've got all these different angles, and this
• 15:30
  Speaker 2: is before you even get into just some of like
• 15:33
  Speaker 2: the insane stuff that you can see during these hostile takeovers.
• 15:38
  Speaker 2: In terms of what companies can try to do in
• 15:41
  Speaker 2: order to fend them off some of the maneuvering and
• 15:43
  Speaker 2: posturing that you can see here. My favorite one, of course,
• 15:49
  Speaker 2: is the pac Man defense. Tucker, can you cueue up
• 15:52
  Speaker 2: the pac Mans again? I know we had them last week.
• 15:56
  Speaker 2: So the pac Man defense, Paul, you've played pac Man
• 15:59
  Speaker 2: of course. Okay, you're chomping around, You're you're you know,
• 16:04
  Speaker 2: chopping around, and you say, uh oh, thank you for
• 16:07
  Speaker 2: firing it up. Anyways, you're going along and you eat
• 16:15
  Speaker 2: a power pill right, one of the big things, and
• 16:17
  Speaker 2: immediately you get you're on fire. You're not on fire.
• 16:21
  Speaker 2: This is an NBA jam. Well, but yeah, you can
• 16:23
  Speaker 2: just take down anything exactly. So the pac Man defense
• 16:26
  Speaker 2: is you can't eat me, I'm going to eat you.
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  Speaker 1: Right.
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  Speaker 2: The best example of this is back in the early
• 16:33
  Speaker 2: nineteen eighties, a company called Bendix at the time major
• 16:37
  Speaker 2: industrial manufacturer, tried to take over Martin Marietta, and Bendix
• 16:43
  Speaker 2: actually bought like over half the shares of Martin Marietta
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  Speaker 2: to try to then basically take the tender offer to
• 16:49
  Speaker 2: themselves and say yes, we want to do this. Martin
• 16:53
  Speaker 2: Marietta comes out and says no, instead, what we are
• 16:57
  Speaker 2: going to do. We're gonna sell off some of the
• 17:00
  Speaker 2: businesses that we own that aren't, you know, core to
• 17:03
  Speaker 2: our company, and with that money we've raised, we're going
• 17:07
  Speaker 2: to buy you instead. And so Bendix is now facing
• 17:10
  Speaker 2: its own hostile takeover bid, and Martin Marietta actually recruits
• 17:16
  Speaker 2: United Technologies to join the bid, And at the end
• 17:20
  Speaker 2: of this whole thing, Bendix has to get bought by
• 17:22
  Speaker 2: Allied Corporation, who comes into pretty much save them from
• 17:26
  Speaker 2: being bought by United and Martin Marietta, And eventually they
• 17:30
  Speaker 2: end up getting bought by Honeywell in this whole mess
• 17:32
  Speaker 2: that they started. So like, if you actually look, Bendix
• 17:36
  Speaker 2: is still a brand that's offered under the Honeywell umbrella today.
• 17:41
  Speaker 2: But so these are some of the things that you
• 17:43
  Speaker 2: can see as you go through this. And I gotta
• 17:45
  Speaker 2: tell you, I am entirely here to watch a bunch
• 17:50
  Speaker 2: of wealthy billionaires spend hundreds of millions of dollars in
• 17:54
  Speaker 2: legal fees just fighting over this stuff.
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  Speaker 3: The one that I've been ironically reading about recent only
• 18:00
  Speaker 3: is Dell's take private back in twenty thirteen, where a
• 18:03
  Speaker 3: Carl Icon tried to jump in and sort of highjack
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  Speaker 3: the deal and so ironically, yeah, I'm reading the play
• 18:09
  Speaker 3: Nights but Wind, which is Michael Dell's kind of I
• 18:11
  Speaker 3: wouldn't say autobiography, but it really focuses on the transaction.
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  Speaker 3: And I forgot because it was early in my career.
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  Speaker 3: How just the tensions were extremely elevated and it drags
• 18:23
  Speaker 3: on forever and ever, and you have all this public
• 18:25
  Speaker 3: posturing that goes on in terms of icon in this case,
• 18:28
  Speaker 3: his use of the media to just mention, you know,
• 18:31
  Speaker 3: just disparage Michael Dell and everything that he was doing,
• 18:34
  Speaker 3: and so just they're fascinating when they come about, particularly
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  Speaker 3: these ones of such great size and scale, like the
• 18:42
  Speaker 3: Warner Brothers. You know, there's been there's smaller examples all
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  Speaker 3: the time. Leverage, buyouts and takeovers are they're not just
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  Speaker 3: an everyday occurrence, but there are lesser ones that do occur.
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  Speaker 3: But when it gets to this big of a stage
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  Speaker 3: and where so much is at stake, I mean, we
• 18:55
  Speaker 3: hit on four or five things that you can monitor
• 18:58
  Speaker 3: with this. If you're a Hollywood fan in terms of content,
• 19:00
  Speaker 3: there's something in for you. If you want antitrust and
• 19:03
  Speaker 3: political power, there's something in for you. If you're just
• 19:05
  Speaker 3: fascinated by really rich guys throwing around billions of dollars,
• 19:08
  Speaker 3: there's something there for you. So it's a great story
• 19:11
  Speaker 3: for us from a content perspective. It's just fascinating to
• 19:14
  Speaker 3: see what's going to play out. Then you've got the
• 19:15
  Speaker 3: little known cable networks kind of on the little side
• 19:19
  Speaker 3: dish here, what's going to happen with them with CNN
• 19:21
  Speaker 3: and TNT and others, Like how they'll get spun out
• 19:24
  Speaker 3: with Paramount they want to just buy them up, but
• 19:27
  Speaker 3: Warner Brothers doesn't like the valuation. Netflix doesn't care about those,
• 19:31
  Speaker 3: so they wouldn't be purchasing them. So just a lot
• 19:34
  Speaker 3: at stake, A very fascinating story to cover.
• 19:36
  Speaker 2: So the good news on this is we're going to
• 19:39
  Speaker 2: be covering this for a while. The bad news is
• 19:41
  Speaker 2: that we're going to be covering this for a lot.
• 19:43
  Speaker 3: There could be.
• 19:44
  Speaker 2: Fatigued and like at some point you will get me
• 19:46
  Speaker 2: coming in and being like, all right, we got to
• 19:49
  Speaker 2: talk about it again, because like this happens with every story.
• 19:53
  Speaker 2: But I think that the entertainment value on this one
• 19:57
  Speaker 2: is going to be rather high. Quick Break Wall Street
• 20:01
  Speaker 2: Watch ask Todd after this get your estate planning questions ready.
• 20:11
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 20:14
  Speaker 1: TFE show. Breaking business news is always first right here
• 20:18
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
• 20:24
  Speaker 1: Watch a complete look at what's moving markets so far
• 20:27
  Speaker 1: today right here on the Financial Exchange Radio Network.
• 20:31
  Speaker 5: Red meeting days Finally, here, markets are all expecting another
• 20:34
  Speaker 5: twenty five basis point interest rate cut at the conclusion
• 20:37
  Speaker 5: of the Central Bank's final monetary policy meeting of the year.
• 20:41
  Speaker 5: All eyes will shift to FED Chairman Jerome Powell at
• 20:44
  Speaker 5: two thirty this afternoon. Right now, the Dow is up
• 20:49
  Speaker 5: two tenths of one percent, or ninety five points higher,
• 20:52
  Speaker 5: SMP five hundred is dipping only three points, Nasdaq is
• 20:56
  Speaker 5: down over a quarter percent or sixty seven points. Russell
• 21:00
  Speaker 5: two thousand is up a tenth of a percent. Tenure
• 21:02
  Speaker 5: Treasure reeled is down one basis points at one basis
• 21:06
  Speaker 5: point at four point one six eight percent, and crude
• 21:09
  Speaker 5: oil down about seven cents of one percent, trading just
• 21:12
  Speaker 5: below fifty eight dollars a barrel. Game stock falling five
• 21:16
  Speaker 5: percent after the video game retailer's quarterly revenue fell short
• 21:20
  Speaker 5: of forecasts. As hardware assessories and software sales declined. Meanwhile,
• 21:25
  Speaker 5: ge Vernova's stock is rallying over eleven percent after the
• 21:29
  Speaker 5: energy giant said its twenty twenty five revenue was trending
• 21:32
  Speaker 5: higher toward the higher end of its guidance. The company
• 21:35
  Speaker 5: also doubled its quarterly dividend to fifty cents per share.
• 21:39
  Speaker 5: Elsewhere shares and Cracker Barrel falling over one percent after
• 21:42
  Speaker 5: the restaurant changed. Quarterly revenue missed expectations. However, the company
• 21:47
  Speaker 5: cut its annual outlook as controversy surrounding its new logo
• 21:51
  Speaker 5: impacted sales. Online pet food retailer Chewy is mostly flat
• 21:57
  Speaker 5: at the moment after posting its quarterly results, and after
• 21:59
  Speaker 5: two today's closing bell, we'll see noteworthy tech earnings from
• 22:04
  Speaker 5: Oracle and Adobe.
• 22:07
  Speaker 1: I'm Tucker Silvan. That is Wall Street Watch. This is
• 22:11
  Speaker 1: Ask Todd on the Financial Exchange Radio Network. If you
• 22:15
  Speaker 1: have an existing estate plan or in the market for one,
• 22:17
  Speaker 1: Todd Letsky is here to answer your questions and help
• 22:20
  Speaker 1: you plan for a later life. Ask Todd is presented
• 22:23
  Speaker 1: by Cushing and Dolan, serving Massachusetts and New England for
• 22:26
  Speaker 1: more than thirty five years, helping families with a state
• 22:29
  Speaker 1: and tax planning, Medicaid planning and probate law. Visit Cushingdolan
• 22:33
  Speaker 1: dot com. Now here's Todd Lutsky.
• 22:38
  Speaker 2: Todd Lotsky does now join us for ask Todd. It's
• 22:43
  Speaker 2: your chance to ask Todd your estate planning questions live
• 22:46
  Speaker 2: on air right now. Studio line is open at eight
• 22:51
  Speaker 2: eight eight two zero five two two six three. So
• 22:54
  Speaker 2: get calng so you can get in line to ask
• 22:56
  Speaker 2: Todd your estate planning questions. Usually we can get through
• 23:00
  Speaker 2: two to three of them, so make sure you call
• 23:02
  Speaker 2: early so we can get to you again. That number
• 23:05
  Speaker 2: is eight eight eight to zero five two two six three.
• 23:09
  Speaker 2: And this again is your chance to ask Todd your
• 23:11
  Speaker 2: state planning questions right now, live on air. That number
• 23:16
  Speaker 2: again is eight eight eight to zero five two two
• 23:20
  Speaker 2: six three. Mister Lutsky, how are you doing?
• 23:23
  Speaker 7: I am doing okay, I've been better. You don't sound great,
• 23:27
  Speaker 7: that's the problem. I mean, like you worse than normal? Yeah,
• 23:31
  Speaker 7: well that's thank you. Yeah, somehow a backdoor compliment. Yeah yeah,
• 23:34
  Speaker 7: I'm I'm feeling all right, but just not talking.
• 23:37
  Speaker 2: Well that's fine, it's just radio.
• 23:39
  Speaker 7: How are you?
• 23:40
  Speaker 3: Uh good?
• 23:41
  Speaker 2: I tried a frog flavored beer yesterday.
• 23:43
  Speaker 7: They coming out with all kind of stuff these days.
• 23:45
  Speaker 2: Yeah, you could really taste the hops. Yeah, there's good.
• 23:49
  Speaker 2: Todd want to talk to you about the evolution of
• 23:53
  Speaker 2: a state planning in the last you know, five six years,
• 23:55
  Speaker 2: there's been all kinds of tax law changes and all
• 23:58
  Speaker 2: kinds of different things. How does someone who's done in
• 24:02
  Speaker 2: a state plan know when they may need to update it?
• 24:06
  Speaker 7: So one of the things you should always look at
• 24:09
  Speaker 7: is value of your estate, right, that's things that change
• 24:13
  Speaker 7: that you know, Folks like us in the estate planning world,
• 24:16
  Speaker 7: we don't know about right. We don't know how well
• 24:20
  Speaker 7: your portfolio is doing and your real estate has grown,
• 24:25
  Speaker 7: and so to the extent you feel your assets have
• 24:28
  Speaker 7: really you know, appreciated in value might be worth you know,
• 24:32
  Speaker 7: sitting down with your estate planning attorney, assuming you've already
• 24:36
  Speaker 7: done your plan and seeing how you might want to
• 24:40
  Speaker 7: adjust it, or if you've never done your plan. I
• 24:44
  Speaker 7: think looking at value is always one of the first
• 24:47
  Speaker 7: things to think about, right because depending on how much
• 24:51
  Speaker 7: your worth will drive the type of a state plan
• 24:56
  Speaker 7: that you might need. Like, for example, if you're over
• 25:00
  Speaker 7: let's say fifteen million, which is the new federal estate
• 25:04
  Speaker 7: tax exemption come January one, twenty twenty six. Well, obviously,
• 25:11
  Speaker 7: if I'm married and I'm over fifteen million, then I
• 25:15
  Speaker 7: need to think about estate planning because by being married
• 25:19
  Speaker 7: and doing an estate plan, doing a trust, you are
• 25:22
  Speaker 7: going to be able to shelter up to thirty million
• 25:27
  Speaker 7: through the use of these trusts. In fact, I have
• 25:30
  Speaker 7: a real life story if I could share it. Absolutely,
• 25:34
  Speaker 7: had a client come in sits down. I worked about
• 25:38
  Speaker 7: thirty nine million, not married, been together, I don't know,
• 25:45
  Speaker 7: thirty years kids from separate relationships. Explain to them that
• 25:52
  Speaker 7: if you get married, we can save about twenty million
• 25:56
  Speaker 7: dollars in a state tax. Wow, I think we're going
• 26:00
  Speaker 7: to head to the courthouse right away. Sure, I mean
• 26:03
  Speaker 7: it's that important. Right By being married and using trusts,
• 26:07
  Speaker 7: you're able to you know, shelter up to you know,
• 26:12
  Speaker 7: thirty million dollars from a state taxes. But again, basic
• 26:15
  Speaker 7: a state planning would accomplish that. Now the flip side
• 26:20
  Speaker 7: is what if you're worth four million. Well, here in
• 26:23
  Speaker 7: Massachusetts the exemption is two million per person. Again, if
• 26:29
  Speaker 7: you're married and you do basic state planning through the
• 26:33
  Speaker 7: use of trusts, we talk about them all the time,
• 26:36
  Speaker 7: the marital share and the remainder share, and those are
• 26:39
  Speaker 7: the buckets that provide the shelter on the first death
• 26:43
  Speaker 7: to use up the exemption so that it's not taxed
• 26:47
  Speaker 7: on the second death. Well, again, if you're married, we
• 26:52
  Speaker 7: can eliminate four million dollars from Massachusetts of state tax
• 26:55
  Speaker 7: and eliminate your state tax. If you are married and
• 26:59
  Speaker 7: you don't do anything, the whole four million likely will
• 27:03
  Speaker 7: pass to the surviving spouse. And if the surviving spouse
• 27:06
  Speaker 7: died with say five million, because they lived a while,
• 27:09
  Speaker 7: they would be worth the tax would be about three
• 27:11
  Speaker 7: hundred thousand to mass So you kind of are wasting
• 27:16
  Speaker 7: giving money to the state by not doing some basic
• 27:20
  Speaker 7: estate planning.
• 27:21
  Speaker 2: Talking with Todd Lutsky from Cushingen Dolan, this is your
• 27:24
  Speaker 2: chance to ask Todd your estate planning questions live on
• 27:27
  Speaker 2: air right now, still room at the phone line at
• 27:31
  Speaker 2: eight eight eight to zero five two two six three.
• 27:35
  Speaker 2: Again that number is eight eight eight to zero five
• 27:38
  Speaker 2: two two sixty three, and it's your chance to ask
• 27:40
  Speaker 2: Todd your estate planning questions. We're going to take a
• 27:44
  Speaker 2: quick break now, but when we come back, we are
• 27:47
  Speaker 2: going to get to your questions. That phone number is
• 27:50
  Speaker 2: eight eight eight to zero five two two six three.
• 27:54
  Speaker 2: Again it is eight eight eight to zero five two
• 27:58
  Speaker 2: two six three.
• 28:00
  Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
• 28:03
  Speaker 1: only here on the Financial Exchange Radio Network. Todd Letsky
• 28:09
  Speaker 1: answers your questions about a state and elder life planning
• 28:12
  Speaker 1: every Wednesday at ten thirty right here on the Financial
• 28:15
  Speaker 1: Exchange Radio Network.
• 28:25
  Speaker 2: Talking with Todd Lotsky from Kushing and Dolan. We do
• 28:27
  Speaker 2: still have some room on the phone lines for your
• 28:30
  Speaker 2: questions for Todd at eight eight eight to zero five
• 28:34
  Speaker 2: two two six three. Again, it's your opportunity to ask
• 28:37
  Speaker 2: Todd your estate planning questions, and that phone number is
• 28:41
  Speaker 2: eight eight eight to zero five two two six three.
• 28:45
  Speaker 2: Let's go to Michael in Boston. Michael, what is your
• 28:48
  Speaker 2: question for Todd A.
• 28:49
  Speaker 1: Lotsky?
• 28:51
  Speaker 6: Oh, good morning, thank you. I have an irrevocable trust.
• 28:55
  Speaker 6: I'm the grantor. The trust is about eleven years old,
• 29:00
  Speaker 6: and I wondered for the beneficiary taxes. So as the
• 29:07
  Speaker 6: grantor of the trust, now I'm taking for myself any
• 29:13
  Speaker 6: dividends and interest or income that of any kind that
• 29:18
  Speaker 6: accumulate on the trust, which I understand I'm entitled to do.
• 29:23
  Speaker 6: If I'm not around anymore in the future, my beneficiary
• 29:29
  Speaker 6: will get a certain amount of money every month. What
• 29:35
  Speaker 6: is taxable to him he'll have to do I imagine
• 29:40
  Speaker 6: at ten forty one in addition to his ten forty
• 29:44
  Speaker 6: for the trust income. But if he takes out let's
• 29:49
  Speaker 6: say twenty five hundred dollars a month, if that's designated
• 29:53
  Speaker 6: by my trust, that he is able to take out
• 29:56
  Speaker 6: up to that amount, what is actually taxing on his ten.
• 30:01
  Speaker 7: Forty So let me ask you a couple of follow
• 30:04
  Speaker 7: up questions. So, first, you're the granteur of the trust.
• 30:09
  Speaker 7: Who's the trustee?
• 30:13
  Speaker 6: I have two, one of which is a beneficiary, So
• 30:19
  Speaker 6: for right.
• 30:19
  Speaker 7: Now, it's not you, and that's important.
• 30:22
  Speaker 6: Good.
• 30:23
  Speaker 7: So, so, well you're living. You're saying, the trust allows
• 30:29
  Speaker 7: you to pay income to yourself, right, interest and dividends, right,
• 30:32
  Speaker 7: so the trustee can give you the income. That's what
• 30:34
  Speaker 7: the trust says. Well, you're alive, correct.
• 30:38
  Speaker 6: I understand that. I've understood that as grantor of the trust,
• 30:41
  Speaker 6: I do take out interest and dividends when I need them.
• 30:44
  Speaker 7: Okay, so you don't. The trustee gives it to you
• 30:47
  Speaker 7: or it comes out from the trust. But yeah, we're
• 30:50
  Speaker 7: saying the same thing. So if you're getting the income,
• 30:55
  Speaker 7: and let's say the trust says just for other people's education.
• 30:58
  Speaker 7: If the trust says that the income shall be paid
• 31:01
  Speaker 7: to you, which is not uncommon, we draft our medicaid
• 31:04
  Speaker 7: irrevocable trust like this all the time, then it likely
• 31:09
  Speaker 7: is a grant to or trust and you will be
• 31:12
  Speaker 7: able to pick up the income on your personal return.
• 31:16
  Speaker 7: No problem. But the trust should still be filing a
• 31:19
  Speaker 7: ten forty one grant or trust tax return. It will
• 31:23
  Speaker 7: end up showing zero on it, and it will kick
• 31:26
  Speaker 7: out a letter to you saying whether you took the
• 31:30
  Speaker 7: income or not. Physically, it still gets picked up on
• 31:33
  Speaker 7: your tax return, so no problem, you're paying the tax.
• 31:36
  Speaker 6: At your rate.
• 31:38
  Speaker 7: Now fast forward to you dying. When you die, the
• 31:42
  Speaker 7: trust is no longer a grant tor trust because you died,
• 31:45
  Speaker 7: so therefore it's going to be a non grant tor
• 31:49
  Speaker 7: trust and a new tax ID number will be obtained,
• 31:53
  Speaker 7: likely by the trustee. At that point, the trust will
• 31:57
  Speaker 7: pay the income taxes on the income, depending on how
• 32:02
  Speaker 7: it's drafted, but likely if it says hold stuff in trust,
• 32:05
  Speaker 7: for my beneficiaries, and they can get you know, income
• 32:09
  Speaker 7: and the trustees discretion, or they can get you know,
• 32:12
  Speaker 7: twenty five hundred a month or whatever the rule is.
• 32:16
  Speaker 7: Then to the extent the income comes out of the
• 32:20
  Speaker 7: trust physically to the kids, then the trust would take
• 32:26
  Speaker 7: an income distribution deduction and not pay tax on it,
• 32:31
  Speaker 7: and the kids would pick it up on their personal return.
• 32:34
  Speaker 7: So it's just a function of how much comes out
• 32:36
  Speaker 7: at that time. So that's a little bit about how
• 32:39
  Speaker 7: taxes work with these irrevocable trusts. Folks, speaking of taxes,
• 32:45
  Speaker 7: our guide this month balancing asset protection and avoiding a
• 32:50
  Speaker 7: state taxes at the same time, explains to you what
• 32:53
  Speaker 7: we were talking about earlier, portability, the pros and cons.
• 32:57
  Speaker 7: It explains to you this marital share remainder share and
• 33:01
  Speaker 7: actually walks you through how they are designed to shelter
• 33:06
  Speaker 7: the assets from estate taxes. And it does the same
• 33:10
  Speaker 7: thing for an irrevocable trust in case you don't need
• 33:13
  Speaker 7: the revocable trust and you're more concerned about protecting assets
• 33:17
  Speaker 7: from the nursing home as well. And so it also
• 33:20
  Speaker 7: gives you all the tables as to how to calculate
• 33:23
  Speaker 7: the estate tax so you can put your own numbers in.
• 33:26
  Speaker 7: It's really a great idea to help you figure out
• 33:28
  Speaker 7: which path is right for you in estate planning. Call
• 33:31
  Speaker 7: and get the guide eight six six eight four eight
• 33:35
  Speaker 7: five six nine nine or Legal Exchange Show dot com
• 33:39
  Speaker 7: again eight sixty six eight four eight five six nine
• 33:44
  Speaker 7: nine or Legal Exchange Show dot com.
• 33:47
  Speaker 2: Todd, I got another one here four you. Let's go
• 33:49
  Speaker 2: to Tom in Charlestown. Tom, what is your question for Todd?
• 33:54
  Speaker 8: Good morning. My question has to do is I've heard
• 33:56
  Speaker 8: you mentioned that Merritson's deduction that capped. For example, if
• 34:05
  Speaker 8: you know, for federal tax purposes, you talked about fifteen
• 34:07
  Speaker 8: million for each person a wife. So if the state
• 34:11
  Speaker 8: is thirty nine for example, like let's say when the
• 34:14
  Speaker 8: husband dies, that nine million become taxable because only the
• 34:18
  Speaker 8: thirty million is entitled to the marital deduction.
• 34:21
  Speaker 7: No, no, no, no, So it's a great, great question.
• 34:25
  Speaker 7: So the fifteen million is the cap right per person
• 34:29
  Speaker 7: that you can leave to someone other than a spouse,
• 34:34
  Speaker 7: but doesn't matter this person and I'll make up an example.
• 34:38
  Speaker 7: The person can be worth one hundred million. When you die,
• 34:42
  Speaker 7: you can leave one hundred million to your spouse and
• 34:45
  Speaker 7: there is zero tax to And remember while that sounds great,
• 34:51
  Speaker 7: it's not really great. Why because the survivor has one
• 34:55
  Speaker 7: hundred million, and the government's just waiting until the survivor
• 34:59
  Speaker 7: dies to get way more taxes than they would get
• 35:03
  Speaker 7: if you did planning. So under the forty million dollar example, right,
• 35:07
  Speaker 7: you know, I don't want to leave forty million have
• 35:10
  Speaker 7: them pay forty percent on the amount over fifteen million,
• 35:15
  Speaker 7: which is what would happen when the survivor dies. So
• 35:18
  Speaker 7: does that Does that help out?
• 35:20
  Speaker 8: It does very much, Thank you very much.
• 35:21
  Speaker 7: No, you're welcome. So I think a lot of people
• 35:24
  Speaker 7: are confused by these exemptions sometimes, Chuck and I think
• 35:30
  Speaker 7: it's important for them to understand that this exemption, although
• 35:34
  Speaker 7: we speak about it today, not only works the way
• 35:36
  Speaker 7: I said that's the cap. It also goes up and down,
• 35:41
  Speaker 7: so we have laws that change, Like since twenty eleven,
• 35:44
  Speaker 7: this exemption has been all over the map, and that's
• 35:47
  Speaker 7: why it's so important for people to do their planning
• 35:50
  Speaker 7: to grab whatever exemption is in place when you die.
• 35:55
  Speaker 2: Has there been any indication of kind of where that
• 35:58
  Speaker 2: exemption is going in future years? Like what is the
• 36:03
  Speaker 2: tax bill from this year? What does that specify things
• 36:05
  Speaker 2: look like over the next decade or so.
• 36:08
  Speaker 7: You know, it basically gives us the idea that the
• 36:11
  Speaker 7: fifteen million is still indexed for inflation, so it's tied
• 36:14
  Speaker 7: to some tables every year. So I think for the
• 36:17
  Speaker 7: next three years, anyway, we can kind of envision this,
• 36:22
  Speaker 7: you know, going up. I don't know exactly how high
• 36:26
  Speaker 7: it will go up, but I envision it going up
• 36:28
  Speaker 7: over the next three years. Now, the bill itself says, oh, well,
• 36:34
  Speaker 7: you know, it's permanent. But folks, you know, we don't
• 36:37
  Speaker 7: want to be lulled into a sense of security. It's
• 36:39
  Speaker 7: not permanent. It's not permanent any more than any other
• 36:42
  Speaker 7: bill that came out in the past that says it's permanent.
• 36:47
  Speaker 7: It's permanent until you have a new administration. And when
• 36:50
  Speaker 7: you have a new administration, they're allowed to change things.
• 36:53
  Speaker 7: As you see from this one, right, you can change
• 36:57
  Speaker 7: other rules, past new tax laws, past new initiatives, et cetera.
• 37:02
  Speaker 7: So I expect I just can't see it staying so high.
• 37:07
  Speaker 7: I think the government needs money, and I think ultimately,
• 37:10
  Speaker 7: you know, after we get to the next administration, that
• 37:14
  Speaker 7: we'll probably see some downward pressure on these exemptions go way.
• 37:21
  Speaker 2: A couple seconds left. Any movement at the state level
• 37:25
  Speaker 2: for either new state level of state taxes or change
• 37:28
  Speaker 2: is happening to them.
• 37:29
  Speaker 7: Interestingly enough, we know it went recently from one million
• 37:32
  Speaker 7: to two million and twenty twenty three, and that was
• 37:34
  Speaker 7: in Massachusetts, and Massachusetts took a long time, and I've
• 37:37
  Speaker 7: actually seen some new legislation on that that maybe they'll
• 37:40
  Speaker 7: change again.
• 37:41
  Speaker 2: Mister Wotski, Thanks for joining us.
• 37:42
  Speaker 7: Always a pleasure.
• 37:44
  Speaker 1: This has been asked on on the Financial Exchange Radio network.
• 37:48
  Speaker 1: Asked with Todd Luedskey has been presented by Cushing and Dolan,
• 37:51
  Speaker 1: serving Massachusetts and New England for more than thirty years,
• 37:54
  Speaker 1: helping families with the state and tax planning, Medicaid planning,
• 37:57
  Speaker 1: and probate law. Call eight hundred three nine three four
• 37:59
  Speaker 1: thousand one or visit Cushingdolan dot com. The views expressed
• 38:03
  Speaker 1: in this segment are solely those of Cushing and Dolan.
• 38:05
  Speaker 1: Armstrong Advisory does not provide any legal or tax advice.
• 38:08
  Speaker 1: Please consult with your illegal or tax advisor on such matters.
• 38:10
  Speaker 1: Cushing and Armstrong do not endorse each other and are
• 38:12
  Speaker 1: not affiliated