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How the US can resolve its trade deficits · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
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Speaker 1: and Mark fan Detti, Chuck.
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Speaker 2: Mark and Ben with you today, and you're gonna kick
1:14
Speaker 2: things off with this piece from the Bloomy Burg. There
1:19
Speaker 2: was a late night post by President Trump on truth
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Speaker 2: social I'll quote it here. I like President G of China,
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Speaker 2: always have and always will. But he is very tough
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Speaker 2: and extremely hard to make a deal with. That was
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Speaker 2: a two seventeen this morning. And so the obvious question
1:38
Speaker 2: is what does one do with this? And the answer
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Speaker 2: is probably nothing, because I don't know that there's anything
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Speaker 2: in here that really tells you much other than the
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Speaker 2: President wanted to. You know, note that G was a
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Speaker 2: tough trade negotiator.
2:00
Speaker 3: That he possibly has an enlarged prostate. It says that, no,
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Speaker 3: if you're up at two fifteen am, I assume it's
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Speaker 3: a trip to.
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Speaker 2: The bathroom, don't President of the United States? Normally I
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Speaker 2: could I could see, you know, I could see one
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Speaker 2: being up, you know, at night, with you know, a
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Speaker 2: myriad number of concerns about you know, the general world
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Speaker 2: as a whole. So I think that as you know,
2:27
Speaker 2: markets obviously look at this and they're trying to digest
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Speaker 2: what this means. There are multiple different interpretations that you
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Speaker 2: could potentially go down. We'll discuss a couple of them,
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Speaker 2: but honestly, I don't know how long I want to
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Speaker 2: dig into this, just because I don't know how much
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Speaker 2: meat there is. One interpretation is, hey, things aren't going
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Speaker 2: well with trade negotiations with China, and there could be
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Speaker 2: a couple different reasons for that. I'll, you know, note
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Speaker 2: this piece from the New York Times that gets at
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Speaker 2: the fact that China has basically halted did exports of
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Speaker 2: rare earth materials to rare earth minerals to the United States.
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Speaker 2: And it could be that The very simple reason is
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Speaker 2: he's sitting there and his negotiating position is, if you
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Speaker 2: want us to resume these shipments, you have to get
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Speaker 2: rid of all tariffs. Like that. That's the first place
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Speaker 2: that I go is, Hey, like China is saying they
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Speaker 2: do not want to play ball in this fashion, and
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Speaker 2: here's the deal. You want us to ship you the
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Speaker 2: rare earths, fine, get rid of all the tariffs. It's
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Speaker 2: one possible way to read it. Another possible way to
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Speaker 2: read it is, Hey, if you want to tell everyone
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Speaker 2: that you've made the best deal possible, the first thing
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Speaker 2: that you do is talk about how hard it is
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Speaker 2: to negotiate it. So it could be that negotiations are
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Speaker 2: actually going fine, and maybe you're on you some kind
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Speaker 2: of path and this is just you know, kind of
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Speaker 2: playing up. Hey, this was so difficult to do. I
3:58
Speaker 2: could see that as a possibility as well. It could
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Speaker 2: also be something where maybe the US actually has the
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Speaker 2: upper hand in negotiations and this is just you know,
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Speaker 2: the President trying to talk up G so that G
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Speaker 2: has something to go back to his people with domestically
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Speaker 2: and say, yeah, see, I know they know I'm tough,
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Speaker 2: like I got the best deal I could. So there
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Speaker 2: are a bunch of different interpretations. I don't know that
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Speaker 2: it really does any of us any good to speculate
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Speaker 2: on exactly which one this is. But more as we've
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Speaker 2: been doing for the last couple of months, Hey, acknowledge
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Speaker 2: you know all the different possibilities, so that you're not
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Speaker 2: caught too off guard depending on how things progress.
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Speaker 3: Yeah, Unfortunately, no matter how savvy we are in negotiating
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Speaker 3: a deal with China, and no matter how well the
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Speaker 3: ultimate deal, how favorable the ultimate deal is for us,
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Speaker 3: unless we fix the root of the trade deficit, I
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Speaker 3: don't mean to con see that it's a problem. But
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Speaker 3: I'll use the phrase trade deficit problem, which is inadequate savings.
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Speaker 3: That's not very intuitive, but you.
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Speaker 2: Talk about why that is the root cause of the problem.
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Speaker 2: Because you say that, and I know a lot of
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Speaker 2: our listeners are probably like, no, like, these countries are
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Speaker 2: ripping us off. Why is inadequate savings the root cause
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Speaker 2: of the problem.
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Speaker 3: I could give you an example. In twenty ten, about
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Speaker 3: three hundred and fifty billion of our four hundred and
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Speaker 3: fifty billion dollar trade deficit was oil. By twenty twenty
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Speaker 3: that went away because we were producing as much as
5:29
Speaker 3: we consumed, Yet the trade deficit was still about four
5:32
Speaker 3: hundred and fifty billion dollars. It went elsewhere is one
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Speaker 3: way to think about it. The reason is that the
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Speaker 3: trade deficit, as you all know, is just the difference
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Speaker 3: between imports and exports. When we import more than we export,
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Speaker 3: we send dollars abroad. Say we buy a German car,
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Speaker 3: the say we buy it from Mercedes. What does Mercedes
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Speaker 3: do with those dollars, Well, they might invest them in
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Speaker 3: a plant here or in treasury bonds. So our current account,
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Speaker 3: which is the financial accounting name for the trade deficit,
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Speaker 3: our current account deficit is offset by a capital account surplus.
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Speaker 3: That's the way it works out. It's called the balance
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Speaker 3: of payments. And as they love to tell you in
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Speaker 3: international economics classes, it must balance.
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Speaker 2: It has to balance.
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Speaker 3: Balance of payments must balance. So every dollar we send
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Speaker 3: abroad has to come back in the form of an investment. Now,
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Speaker 3: I suppose we saved more. Saving more would reduce our
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Speaker 3: dependence on foreign investment number one, and it would also
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Speaker 3: result in US consuming less exports. So the current account
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Speaker 3: deficit is really at root a savings problem that is
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Speaker 3: not intuitive. If you're scratching your head. I did too
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Speaker 3: the first time I heard it, and I still have
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Speaker 3: to think about it. But in an accounting sense, it's
6:50
Speaker 3: absolutely true.
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Speaker 2: So again I want to work on this just because
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Speaker 2: we hear people say this, and let's try it out.
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Speaker 2: So we buy a bunch of stuff here in the
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Speaker 2: United States, and let's use Mercedes just as the example.
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Speaker 2: Someone buys a Mercedes in the United States, Mercedes in
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Speaker 2: Germany receives a bunch of money for making that car.
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Speaker 2: And you're saying that right now. What they do is
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Speaker 2: they say, Okay, we're going to yes, we're gonna hold
7:17
Speaker 2: you know, us treasury bonds, or build another factory. I
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Speaker 2: think they have one in Alabama. I think is where
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Speaker 2: they have a Mercedes factory. We're gonna expand that plant,
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Speaker 2: or we're gonna build one in South Carolina. And that's
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Speaker 2: capital flowing back to the US, but not buying US
7:31
Speaker 2: goods inherently in order for that savings glut to be balanced.
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Speaker 2: I think what you're saying is, hey, when that money
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Speaker 2: flows to Germany as opposed to them taking it and
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Speaker 2: investing it in the United States, if they went out
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Speaker 2: and bought more stuff with the dollars that they received,
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Speaker 2: that would help to equalize the savings glut buying more
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Speaker 2: product instead.
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Speaker 3: That would address the bilateral deficit we have with Germany.
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Speaker 2: In your example, that's all. We're just working on one peace.
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Speaker 3: So we might be able to reduce the bilateral deficit
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Speaker 3: with China if a favorable deal is successfully negotiated. But
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Speaker 3: because our federal government go ahead, no, no, no, I want
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Speaker 3: to make sure keep going.
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Speaker 2: I'm just thinking.
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Speaker 3: But because the federal government disssaves I e. We have
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Speaker 3: a massive budget deficit, and because our savings rate is
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Speaker 3: paltry and historical terms, we will have a trade deficit
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Speaker 3: other than during recessions when consumption goes down and savings
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Speaker 3: goes up. The best cure for the trade deficit is
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Speaker 3: one you don't want to take. It is a recession.
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Speaker 2: When you talk about savings rates, are you talking on
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Speaker 2: the personal level, corporate level, or.
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Speaker 3: Overall savings what people are getting remoted in that. I'm
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Speaker 3: thinking personal savings rate that for example, we talk about
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Speaker 3: once a month, So that's disposable income less spending savings
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Speaker 3: by the Fed government. So the budget deficit, which could
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Speaker 3: also be a surplus, though that hasn't happened for a
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Speaker 3: long time. Savings by other entities like companies, like additions
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Speaker 3: to cash and cash equivalents. Not sure off the top
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Speaker 3: of my head if that counts. Let's assume that it does.
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Speaker 3: But it's going to be small and irrelative since the
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Speaker 3: big culprits. If you look at the ballooning budget deficit
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Speaker 3: starting in the nineteen eighties and the trade deficit, they
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Speaker 3: moved in tandem. Indeed, one an economist in the early eighties,
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Speaker 3: his name is Paul Krugman. He won the Nobel Prize,
9:30
Speaker 3: famous international economist researcher. I don't mean he's abroad I
9:35
Speaker 3: mean he specializes international economics.
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Speaker 2: He predicted it.
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Speaker 3: He said, if you run tray deficits this he was
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Speaker 3: part of Reagan's staff at the time. You run trade deficits,
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Speaker 3: this big budget deficits. Excuse me, you're also gonna have
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Speaker 3: a trade deficit. And indeed that's exactly what's happened. And
9:48
Speaker 3: the two series line up almost perfectly.
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Speaker 2: There's a lot there. Sorry, no, no, no, no, this is
9:56
Speaker 2: why are you apologizing? Like there's a ton there?
9:59
Speaker 1: It's around.
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Speaker 2: It's a really good topic to get into in terms of,
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Speaker 2: you know, how do you fix this? And part of
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Speaker 2: it also stems from it. Again, when we talk about
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Speaker 2: trade deficits and how they typically end up resolving, the
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Speaker 2: conventional thinking is that they can't be in place for
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Speaker 2: too long simply because if you have a trade deficit,
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Speaker 2: the relative strength of currencies tends to end up balancing
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Speaker 2: that out and the deficit resolves itself. That's what we've
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Speaker 2: seen historically in a lot of situations, and that savings
10:31
Speaker 2: rate gets basically absorbed through the changes in currencies.
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Speaker 3: I think you could run a trade deficit indefinitely in
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Speaker 3: the modern system. We just continue to pay back the
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Speaker 3: investments that are made that come from the dollars that
10:44
Speaker 3: we send abroad and get recirculated back into our economy.
10:47
Speaker 3: But go ahead, sorry.
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Speaker 2: I think the case that the Trump administration would absolutely
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Speaker 2: make is hey, because the bulk of the trade deficit
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Speaker 2: is with China, and China is not allowing its currency
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Speaker 2: to approppreciate as we buy more stuff from them. In turn,
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Speaker 2: that is not balancing, and that's also helping to contribute
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Speaker 2: to this savings glutton the overseas versus in the US.
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Speaker 2: And this is part of the reason why there's this
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Speaker 2: push for you know, hey, we want to turn China
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Speaker 2: into more of a consumption economy is to help balance that,
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Speaker 2: but the Chinese government clearly doesn't want to do so.
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Speaker 3: I think that's a fringeyview. I'm only taught. This is
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Speaker 3: not my area. I'll just tell you what the consensus
11:31
Speaker 3: among researchers is, like what you're taught, you know, when
11:35
Speaker 3: you take a class in this area, because again, not
11:37
Speaker 3: my specialty, come to think of it, I don't have
11:39
Speaker 3: a specialty. But anyway, I think that's a fringe eView.
11:43
Speaker 3: I think nine out of ninety nine out of one
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Speaker 3: hundred economists would say trade deficit is ultimately a savings problem.
11:50
Speaker 3: You increase savings reducing consumption. Those are two sides of
11:54
Speaker 3: the same coin, two phases of the same coin, or
11:57
Speaker 3: whatever the expression is. Would fix it if you think
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Speaker 3: it needs to be fixed. They would go on to say,
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Speaker 3: we don't think it needs to be fixed. It's not
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Speaker 3: inherently problematic.
12:06
Speaker 2: Let's talk a little bit more about this Rare Earth
12:08
Speaker 2: situation when we return. Quick break here and then Rare
12:12
Speaker 2: Earth's in China coming back.
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13:10
Speaker 2: So in the United States, we've already seen a number
13:14
Speaker 2: of automakers having to resort to some short term pauses
13:19
Speaker 2: in production at various facilities. They're not really saying why,
13:25
Speaker 2: but I suspect it comes back to the fact that
13:27
Speaker 2: they can't get the rare earth that they need for
13:31
Speaker 2: production of different parts of the car rare earth elements.
13:37
Speaker 2: If you're not familiar with them, you're not really alone.
13:40
Speaker 2: I mean, how often does one talk about scandium or
13:44
Speaker 2: serrium on a regular basis. Rarely as one would expect.
13:49
Speaker 2: You know, I just ran out of my yearly supply
13:52
Speaker 2: of gadolinium because gosh, we just go through that stuff
13:56
Speaker 2: left and right in our household, I'll tell you. But
13:59
Speaker 2: here's the thing. China produces about ninety percent of the
14:03
Speaker 2: world's supply of different rare earth materials, and you have
14:10
Speaker 2: these materials in a lot of cases used in strong
14:14
Speaker 2: magnets that are required for electric motors. And you might
14:18
Speaker 2: say like, okay, that's great, Like I'm not buying an
14:20
Speaker 2: EV why do I need this? And it's not just
14:24
Speaker 2: you don't have electric motors just in an EV. Yes,
14:28
Speaker 2: that is for like the drive of the car, but
14:31
Speaker 2: you have them through you know, other functions in think
14:35
Speaker 2: about your windshield wipers just as an example, as we
14:38
Speaker 2: all know, the wipers on the bus go swish, swish, swish,
14:42
Speaker 2: and the only way they swish swish swish is with
14:45
Speaker 2: an electric motor that drives them. Like you don't hook
14:48
Speaker 2: up a little gas engine to the windshield wiper and
14:50
Speaker 2: go all right, pull the cord, Jimmy, like it's time
14:53
Speaker 2: to fire up the wipers. No, there's an electric motor
14:55
Speaker 2: that that fires those and you can't have working windshield
14:59
Speaker 2: wi vipers without the electric motor to do so. So
15:04
Speaker 2: I think ultimately what you have here as automakers are
15:08
Speaker 2: now saying, okay, we've got to figure out how to
15:10
Speaker 2: do this. And one of the interesting things that they
15:12
Speaker 2: are talking about actually is potentially moving some production of
15:18
Speaker 2: these electric motors to China in order to get around
15:22
Speaker 2: the export band and then exporting the finished product instead,
15:26
Speaker 2: which would be completely the opposite of what the Trump
15:28
Speaker 2: administration wants. And again, this is not something that I
15:31
Speaker 2: think is going to happen quickly, but it's something that
15:34
Speaker 2: car companies are talking about because they can't build cars
15:38
Speaker 2: without this stuff.
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Speaker 3: Yeah, it's another lesson in how interconnected the global economy is. Yes,
15:45
Speaker 3: how difficult it will be to decouple. And if we're
15:48
Speaker 3: gonna do it, I guess we better just commit to
15:51
Speaker 3: it and pull. It'll be more severe than pulling the
15:53
Speaker 3: band aid off. It'll be more like pulling your stitches
15:55
Speaker 3: out prematurely or something. I don't know. How committed we
15:59
Speaker 3: are too, enduring the pain necessary to decouple.
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Speaker 2: No, And and I think that it's not something that
16:07
Speaker 2: you can simply It's not something that you can project
16:11
Speaker 2: how long it'll take or how much pain there would
16:13
Speaker 2: be in doing so. Just because of stuff like this,
16:16
Speaker 2: there's no easy, quick workaround to be able to deal
16:23
Speaker 2: with this, given how we have, you know, let the
16:27
Speaker 2: production of whether you're talking about raw materials or you know,
16:31
Speaker 2: intermediate products, you know kind of fester in this economy.
16:35
Speaker 2: We've just not done anything in the last you know,
16:39
Speaker 2: thirty to forty years we've basically said, hey, we don't
16:41
Speaker 2: want this in our backyard. Let's outsourced it somewhere else
16:43
Speaker 2: because of you know, environmental concerns, or because of you know,
16:48
Speaker 2: cheapness obviously of doing it somewhere else. And the problem
16:52
Speaker 2: there is, as Mark mentioned, look, if you want to decouple,
16:56
Speaker 2: you don't really have a quick path unless you do
16:58
Speaker 2: the legwork in advance of the decoupling, by spending a
17:02
Speaker 2: bunch of money to develop this stuff before you say okay,
17:07
Speaker 2: by China.
17:08
Speaker 3: It's funny, and it's funny in a sad way. In
17:10
Speaker 3: the eighties and nineties, the prevalent thinking was the more
17:12
Speaker 3: closely coupled we become with governments that we may disagree
17:16
Speaker 3: with ideologically, the more they'll become like us. Oh ye,
17:20
Speaker 3: people will get a taste of it, they'll want to
17:22
Speaker 3: live like us. That was a little chauvinistic and naive,
17:25
Speaker 3: but that was almost universally accepted. I guess it didn't
17:31
Speaker 3: occur to anybody, certainly not me. Uh not that I
17:34
Speaker 3: was in a policy making capacity at the time. Didn't
17:36
Speaker 3: occur to anybody smart and responsible that we may have
17:40
Speaker 3: to decouple quickly if that doesn't work.
17:43
Speaker 2: Well, and the other thing is it assumed. Here's what's
17:48
Speaker 2: really interesting about this is look the US from the
17:54
Speaker 2: perspective of like cultural exports, you know, like what it's cool,
18:00
Speaker 2: what's not. The US has still kind of dominated the
18:03
Speaker 2: world stage over the last thirty years, There's no doubt
18:07
Speaker 2: about it. Just to look at you know, the apple
18:09
Speaker 2: symbol or you know, the the prevalence of you know,
18:13
Speaker 2: Marvel movies and how you know the worldwide box office
18:16
Speaker 2: and how like seventy percent of gross from those movies
18:20
Speaker 2: comes from overseas. Now like that, there's clearly something where
18:23
Speaker 2: the international community views America as cool. The problem is,
18:31
Speaker 2: especially in authoritarian regimes, it doesn't matter if the people
18:35
Speaker 2: view Marvel as cool. If G says, you know what,
18:41
Speaker 2: it's fine, you guys can view that as cool. But
18:43
Speaker 2: here's how I want to run the country, and the
18:46
Speaker 2: people don't really have a chance to contribute to the
18:50
Speaker 2: discussion of that. Yeah, it's it's it's thinking that if
18:55
Speaker 2: you change the hearts and minds of millions, you can
18:58
Speaker 2: you know, change how a governments And maybe on a
19:02
Speaker 2: long enough timeline that is true, But can you play
19:05
Speaker 2: on that timeline if there's one person at the top
19:08
Speaker 2: in certain societies who says no, it's my way or
19:11
Speaker 2: the highway, and this is how it's going to be.
19:13
Speaker 2: Let's take a quick break here. When we come back,
19:15
Speaker 2: we got Wall Street Watch, and then we're joined by
19:17
Speaker 2: Todd Lutsky from Kushingan Dolan for Ask Todd. Get your
19:21
Speaker 2: questions ready for Todd.
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19:59
Speaker 4: Oh, it's ten thirty four and markets are up right now.
20:02
Speaker 4: The Dow Jones is up ninety one points, or just
20:04
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20:06
Speaker 4: five hundreds up seventeen points, are just under three tenths
20:09
Speaker 4: of a percent, and the Nasdaq is up.
20:11
Speaker 2: Just over fifty eight.
20:12
Speaker 4: Points, or three tenths of a percent. Dollar Tree shares
20:17
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20:19
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20:22
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20:30
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Speaker 4: percent after posting stronger than expected earnings for the fiscal
20:36
Speaker 4: third quarter and reaffirming full year guidance. Store earned two
20:40
Speaker 4: dollars and fifty three cents per share on revenue of
20:43
Speaker 4: two point eight nine billion dollars, while analysts surveyed expected
20:47
Speaker 4: a dollar seventy nine and two point six one billion, respectively.
20:51
Speaker 4: Heuler Packer Chairs are up just under a one percent
20:53
Speaker 4: after sales and profit at the data storage and networking
20:56
Speaker 4: services provider topped analyst estimates, and it raised its off outlook,
21:01
Speaker 4: expecting to take a smaller hit from tariffs and previously expected,
21:04
Speaker 4: and saying most of its products comply with the US
21:06
Speaker 4: Mexico Canada Free trade deal. And finally now, CrowdStrike shares
21:11
Speaker 4: are down five percent after saying it expects current quarter
21:14
Speaker 4: revenue of between one point one four billion dollars and
21:17
Speaker 4: one point one five billion, missing the consensus forecast of
21:21
Speaker 4: one point one six billion from analyst poll. First quarter
21:24
Speaker 4: revenue match analyst estimates at one point one billion. I
21:28
Speaker 4: am ben Kitchen and that is Wall Street Watch.
21:32
Speaker 1: This is ask Todd on the Financial Exchange Radio Network.
21:36
Speaker 1: If you have an existing estate plan or in the
21:38
Speaker 1: market for one, Todd Lutsky is here to answer your
21:41
Speaker 1: questions and help you plan for a later life. Ask
21:43
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
21:47
Speaker 1: New England for more than thirty five years, helping families
21:50
Speaker 1: with a state and tax planning, medicaid planning, and probate law.
21:53
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
21:59
Speaker 2: As I promise for now, joined by the one and
22:01
Speaker 2: only Todd Lutsky from the law firm of Cushing and
22:04
Speaker 2: Dolan for Ask Todd. The segment is appropriately named because
22:08
Speaker 2: this is your chance to ask Todd your questions about
22:12
Speaker 2: your estate plan. Phone lines are wide open right now
22:15
Speaker 2: at eight eight eight to zero five two two six three.
22:19
Speaker 2: That is the number to call to speak with mister
22:22
Speaker 2: Lutsky live on air again eight eight eight to zero
22:26
Speaker 2: five two two six three. Last week I believe, actually
22:30
Speaker 2: it was two weeks ago. We set a record. We
22:32
Speaker 2: got through four calls. Usually we only get to two
22:34
Speaker 2: or three because of time limitation, So get calling early
22:38
Speaker 2: if you want to make sure we get to your
22:40
Speaker 2: call again. That number is eight eight eight to zero
22:44
Speaker 2: five two two six three, One more time eight eight
22:47
Speaker 2: eight to zero five two two six three. Mister Lutsky,
22:51
Speaker 2: how are you doing today?
22:53
Speaker 5: I'm never better?
22:54
Speaker 2: How are you? Uh good? I was actually I was
22:56
Speaker 2: thinking the other day about buying a coffin.
23:00
Speaker 5: A coffin, you're not feeling well?
23:02
Speaker 2: Well? Then I realized that's actually the last thing I need. Yeah,
23:06
Speaker 2: it probably is. Yeah, so I decided not to tod. I
23:09
Speaker 2: want to talk to you about these medicaid irrevocable trusts. Yes,
23:15
Speaker 2: what do they actually do? What is state planning goals?
23:20
Speaker 2: Do they accomplish?
23:21
Speaker 1: So?
23:22
Speaker 5: I think there's so much to learn about irrevocable trust.
23:26
Speaker 5: But to try to answer that question, but sort of
23:29
Speaker 5: point on point would be, you know, they avoid probate,
23:33
Speaker 5: So lots of trust do that, and I want people
23:36
Speaker 5: to know revocable and irrevocable do that. By putting assets
23:40
Speaker 5: in it, you're not going to have to go to probate. Secondly,
23:43
Speaker 5: they are designed you know many people don't think this,
23:47
Speaker 5: but they're designed also to shelter for a state tax
23:50
Speaker 5: purposes on the first death if you're married, Remember revocable trust,
23:54
Speaker 5: that's only the big, big deal for a revocable trust,
23:57
Speaker 5: they say, you know what, we're going to help you
23:58
Speaker 5: shelter a state tax. So on the first death there's
24:01
Speaker 5: none due and on the second death they'll be less
24:04
Speaker 5: do or none do, depending on the size of your
24:07
Speaker 5: estate and how much we can shelter on the first death. Well,
24:11
Speaker 5: irrevocable medicaid trusts do that as well. They have the
24:16
Speaker 5: same kind of language there when one spouse dies, with
24:20
Speaker 5: that remainder share and marital share language. So secondly and thirdly,
24:26
Speaker 5: rather they both will provide a bloodline plan, you know,
24:30
Speaker 5: to your family, and I think you know, the family
24:32
Speaker 5: behind the estate plan is always really more important sometimes
24:35
Speaker 5: than the cold irs and probate analysis or parts of
24:41
Speaker 5: the equation. So they both can you know, sort of
24:44
Speaker 5: direct how these assets get to your family, when they
24:47
Speaker 5: get there, why they get there, Are they protected from
24:49
Speaker 5: divorces et cetera. And finally the difference, the irrevocable will
24:56
Speaker 5: provide protection from the cost of long term care nursing
25:00
Speaker 5: home again takes five years, but get it in there.
25:04
Speaker 5: The revocable trust never will, so all of you folks
25:10
Speaker 5: listening don't and I've seen it happen. They come in
25:14
Speaker 5: you know, Chuck, and they say, I've had my trust
25:18
Speaker 5: in place for five years and mom's going in the
25:20
Speaker 5: nursing home. So but we're all said, because I know
25:22
Speaker 5: all about that five year rule, and then they show
25:24
Speaker 5: me the trust and it's revocable. I gotta tell you, folks,
25:28
Speaker 5: the revocable trust will never start the clock running. So
25:33
Speaker 5: people go into the lawyers all the time. They think
25:35
Speaker 5: they want to get nursing home planning done, and they
25:37
Speaker 5: end up leaving with a revocable trust, it's not doing it.
25:41
Speaker 2: Talking with Tom Lutsky from Kushingan Dolan still Room on
25:44
Speaker 2: the phone lines at eight eight eight to zero five
25:47
Speaker 2: two two sixty three, that is the number to call
25:49
Speaker 2: to ask Todd your estate planning questions. Eight eight eight
25:54
Speaker 2: to zero five two two sixty three. Todd. When you
25:58
Speaker 2: talk about an ear of a trust, people hear that
26:01
Speaker 2: word irrevocable and immediately they kind of they cringe. They
26:04
Speaker 2: clam up, Yeah, what are what kind of control does
26:08
Speaker 2: someone have to give up in order to use one
26:11
Speaker 2: of these irrevocable trusts in their estate plan?
26:14
Speaker 5: So I'm going to say, and again, in the interest
26:16
Speaker 5: of time and radio, it would take a lot longer
26:19
Speaker 5: to explain the whole trust. But I just want people
26:21
Speaker 5: to at least conceptually understand that it's if I had
26:25
Speaker 5: to quantify it for people, I think you keep probably
26:29
Speaker 5: ninety five to ninety eight percent control, and sometimes that's
26:34
Speaker 5: that's the easiest way to help people at least get
26:36
Speaker 5: off that dime and say, oh, well, if I'm going
26:41
Speaker 5: to keep that kind of control over the assets and
26:44
Speaker 5: the trust, maybe it's worth exploring this irrevocable trust further
26:49
Speaker 5: to learn exactly how they work, you know, and get
26:52
Speaker 5: into the details of how they work. So I'm going
26:56
Speaker 5: to tell you really do keep a lot of control
26:59
Speaker 5: over the kind of irrevocable trust. But remember there are
27:02
Speaker 5: other irrevocable trusts out there that you might have had
27:05
Speaker 5: that idea of sort of cringing and saying I lose control,
27:08
Speaker 5: because there are some that are designed for you to
27:11
Speaker 5: give up a lot of control, but not this one.
27:14
Speaker 2: Talking with Todd Lotski again, if you've got questions to
27:17
Speaker 2: ask Todd about your estate plan, room on the phone
27:20
Speaker 2: lines at eight eight eight to zero five two two
27:24
Speaker 2: six three. We're going to take a quick break here,
27:26
Speaker 2: but when we come back right to your questions with Todd.
27:30
Speaker 2: That phone number is eight eight eight to zero five
27:34
Speaker 2: two two six three. One Last time eight eight eight
27:37
Speaker 2: to zero five two two sixty three.
27:41
Speaker 1: Text us at six one seven three sixty two one
27:43
Speaker 1: three eighty five with your comments and questions about today's
27:46
Speaker 1: show and let us know what you think about the
27:48
Speaker 1: stories we are covering. This is the Financial Exchange Radio Network.
27:53
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27:55
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27:59
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28:02
Speaker 1: in full shows. This is your home for the latest
28:05
Speaker 1: business and financial news in New England and around the country.
28:08
Speaker 1: This is the Financial Exchange Radio Network.
28:16
Speaker 2: Talking with Todd Lotski from the Law from A Cushing
28:18
Speaker 2: and Dolan. Again, if you've got a question for Todd,
28:20
Speaker 2: eight eight eight two zero five two two sixty three
28:24
Speaker 2: is the number. That number one more time is eight
28:27
Speaker 2: eight eight to zero five two two six three. Let's
28:31
Speaker 2: go to Lisa in Worcester. Lisa, what is your question
28:35
Speaker 2: for Todd Lootski?
28:37
Speaker 6: Hi, Todd, two parts question, okay. One is if my
28:43
Speaker 6: income from social Security and pension it's so high that
28:47
Speaker 6: I'm never going to qualify for medicaid? Is the irrevocable
28:53
Speaker 6: trust to save my house worthwhile? And secondly, I've had
28:59
Speaker 6: a couple of is in Massachusetts tell me that the
29:03
Speaker 6: irrevocable trust to save my house from the nursing home
29:06
Speaker 6: has been getting challenged by the state of Massachusetts. So
29:11
Speaker 6: they have refused to make me one because they're not
29:14
Speaker 6: trial lawyers. Wow litigators wow Wow.
29:18
Speaker 5: Sow two very wold questions there. So first and foremost,
29:24
Speaker 5: let's take the second one first, the litigation one, and
29:27
Speaker 5: then I'll take the income one. So hang on, I
29:31
Speaker 5: might have a follow up for you. So, first of all, folks,
29:34
Speaker 5: do these trusts get challenged? So I've been at it
29:36
Speaker 5: about thirty years, and the first fifteen twenty years for sure,
29:41
Speaker 5: they've been like all over them. Now, in all fairness,
29:45
Speaker 5: doesn't matter that they're all over them, knock on wood.
29:47
Speaker 5: Every one of our trusts have succeeded and have been
29:52
Speaker 5: drafted properly. And as long as they're drafted properly, they
29:56
Speaker 5: win and they protect assets from the nursing home.
29:59
Speaker 2: It's not a win.
30:00
Speaker 5: They're following the rules that are put out by the
30:02
Speaker 5: state and the federal government, and they are designed to
30:06
Speaker 5: protect the asset from the nursing home. So whether they're
30:09
Speaker 5: needing to be challenged at a fair hearing, not so
30:12
Speaker 5: much go into court so much, but fair hearings.
30:16
Speaker 2: Yeah, it's happened.
30:17
Speaker 5: I've been to a lot of them, and again it worked.
30:19
Speaker 5: So there were even back then, there would have been
30:21
Speaker 5: no reason not to do this, because remember, if you
30:24
Speaker 5: don't do it, you lose for sure. So that that's
30:27
Speaker 5: sort of the way I look at it. And the
30:29
Speaker 5: other reason is now, and I think it was twenty
30:33
Speaker 5: twenty one. I want to say maybe a little earlier,
30:37
Speaker 5: there was a Supreme Court case here in Massachusetts where
30:40
Speaker 5: they finally took one of these trusts all the way
30:42
Speaker 5: to the SJC, and the SJC confirmed what we always
30:47
Speaker 5: knew that these trusts, when drafted properly, do work. And
30:52
Speaker 5: the SJAC was somewhat adamant about it when their decision
30:56
Speaker 5: to say to mass Health, we don't want to see
30:59
Speaker 5: you back here. Stop coming back with the same argument
31:03
Speaker 5: over and over again because it doesn't work. And so
31:06
Speaker 5: that was extremely helpful. And I would say since then,
31:09
Speaker 5: twenty twenty ish, I've been to zero fair hearings. So
31:13
Speaker 5: I'm going to say that that issue is probably very
31:16
Speaker 5: inaccurate for him, and so anyone who wants these should
31:19
Speaker 5: not do them just because someone tells you they.
31:21
Speaker 2: Need to be litigated.
31:23
Speaker 5: Finally, income, question to you, what is your monthly income
31:28
Speaker 5: between you said social Security and pension.
31:30
Speaker 2: I guess yes, it's it's over.
31:35
Speaker 5: Five thousand, okay, So that's why I wanted to ask you,
31:39
Speaker 5: because over five thousand is nowhere near enough to cover
31:44
Speaker 5: the cost of a nursing home. Nursing homes on average
31:48
Speaker 5: in Massachusetts, certainly inside of four ninety five, probably fifteen
31:54
Speaker 5: to sixteen thousand dollars a month, and you have five
31:58
Speaker 5: thousand a month, so you are way short of the
32:03
Speaker 5: ability to private pay a nursing home.
32:06
Speaker 2: So please do your planning. Don't not do it. It works.
32:11
Speaker 5: Litigation is not an issue, or has been way less
32:14
Speaker 5: of an issue. Really not an issue anyway, and you're
32:17
Speaker 5: way under for income. But I can also tell you
32:20
Speaker 5: the benefit of having such a large income. By the way,
32:23
Speaker 5: that is a great retirement income. Don't feel that it's not.
32:27
Speaker 2: It is.
32:28
Speaker 5: But more importantly, when you get on Medicaid, there's a
32:33
Speaker 5: Medicaid rate and a private pay rate. So the private
32:38
Speaker 5: pay rate is about fifteen sixteen thousand a month, but
32:44
Speaker 5: the Medicaid rate is about sixty five hundred a month,
32:49
Speaker 5: give or take maybe a little more.
32:51
Speaker 2: Wow.
32:52
Speaker 5: So even if you went on Medicaid and you had
32:55
Speaker 5: to pay, and Medicaid would only be paying the difference
32:58
Speaker 5: between five and sixty five home run So even if
33:01
Speaker 5: there was never any planning done, you're the lean like
33:04
Speaker 5: on a house or something, would be smaller. This is
33:06
Speaker 5: for other people who maybe haven't done planning, inter face
33:09
Speaker 5: with last minute nursing home care. But to you, rather
33:13
Speaker 5: than worry about any leans, I do the planning litigation
33:17
Speaker 5: notwithstanding income not an issue. Hopefully that was helpful folks
33:22
Speaker 5: that said, the actual kind of planning I would propose
33:26
Speaker 5: would be an irrevocable Medicaid trust. That's exactly what the
33:31
Speaker 5: guide is, new guide for the month of June, Unlocking
33:36
Speaker 5: the power of Irrevocable Medicaid Trust. What it does in
33:39
Speaker 5: a question and answer format is explain how they work.
33:44
Speaker 5: I mean, can I live there? Can I sell my house?
33:47
Speaker 5: Can I buy another house? Is there a gift tax
33:50
Speaker 5: when I transfer my assets in? Is there an income
33:52
Speaker 5: tax problem if I put rental property in? Can I
33:55
Speaker 5: continue to collect my income off the rent. I mean,
33:58
Speaker 5: every question you can think of, or we thought of anyway,
34:02
Speaker 5: we've put in the guide. And if you've never done one,
34:06
Speaker 5: like perhaps the caller didn't do one, uh, and you've
34:10
Speaker 5: been afraid of them, I think after you read this
34:13
Speaker 5: guide you will know a whether you love them or
34:16
Speaker 5: b whether you hate them, and we'll never do them.
34:18
Speaker 5: So call and get the guide eight six six eight
34:21
Speaker 5: four eight five six nine nine or Legal Exchange show
34:26
Speaker 5: dot com again eight six six eight four eight five
34:30
Speaker 5: six nine nine or Legal Exchange Show dot com.
34:36
Speaker 4: Todd.
34:36
Speaker 2: When we talk about these irrevocable trusts, let's say that
34:41
Speaker 2: someone is through that five year look back period, okay,
34:45
Speaker 2: and they unfortunately have a long term care situation that
34:48
Speaker 2: is hitting them at that point. Okay, how do they
34:52
Speaker 2: actually use that trust then to go about qualifying for medicaid? Like?
34:57
Speaker 2: What what actually happens?
34:59
Speaker 1: Then?
34:59
Speaker 5: Yeah, it's a fair question, I mean because people always say, well,
35:02
Speaker 5: it's still my sounds like it's still my asset, right,
35:05
Speaker 5: but it's in a trust. So here's here's how it happens.
35:07
Speaker 5: First and foremost, Now you've done your planning and you're
35:10
Speaker 5: crossing that threshold of going into the nursing home. So
35:14
Speaker 5: now you should go back to the lawyer that probably
35:17
Speaker 5: did the estate plan for you and apply for medicaid.
35:21
Speaker 5: So that's a whole other process called a Medicaid application process.
35:26
Speaker 5: But during that Medicaid application process is where they start
35:32
Speaker 5: using these documents. Right, they're going to ask you for
35:35
Speaker 5: everything you could imagine financially. You know, three years of
35:38
Speaker 5: tax returns. They're going to ask you for five years
35:41
Speaker 5: worth of bank statements and IRA statements and brokerage account statements.
35:45
Speaker 5: And they're gonna want your Social Security card and Medicare
35:48
Speaker 5: card and I mean birth certificate. They don't believe you're
35:50
Speaker 5: a citizen unless you show them. So this is that
35:54
Speaker 5: the process that really drills down to find out what
35:57
Speaker 5: you own. And yes, they'll ask you, are you a
36:01
Speaker 5: beneficiary of a trust? Are you a trustee of a
36:04
Speaker 5: trust of any kind?
36:07
Speaker 1: Yes?
36:08
Speaker 5: If yes, submit the document, but you don't have to
36:12
Speaker 5: list the assets in it as countable. You can show
36:17
Speaker 5: them that you have it. You can show them that
36:19
Speaker 5: it's beyond five years. You can show them that you're
36:23
Speaker 5: probably going to be getting the income from the trust,
36:25
Speaker 5: and they're allowed to look into the trust and see
36:28
Speaker 5: what's in it, see how it works. But at the
36:32
Speaker 5: end of the day, again, coupled with this, and this
36:34
Speaker 5: goes back to the caller, coupled with this SJC ruling
36:39
Speaker 5: that we had back in twenty twenty one ish, the
36:42
Speaker 5: assets in the trust will not be countable, but you
36:46
Speaker 5: got to show it. So folks, it does work. You
36:50
Speaker 5: just have to set it up, get the assets in
36:54
Speaker 5: and then when you go to that application process it
36:57
Speaker 5: will be protected.
36:59
Speaker 2: Miss Dosi, I appreciate you taking the time to join
37:02
Speaker 2: us today.
37:03
Speaker 5: It's always a pleasure. Thank you.
37:06
Speaker 1: This has been asked Todd on the Financial Exchange Radio network.
37:09
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:12
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:15
Speaker 1: thirty years, helping families with the state and tax planning,
37:18
Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
37:20
Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
37:24
Speaker 1: The views expressed in this segment are solely those of
37:26
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:29
Speaker 1: or tax advice. Please consult with your illegal or tax
37:31
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:33
Speaker 1: each other and are not affiliated