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Is Powell leaving the door open for more rate cuts this year? · The Financial Exchange Show

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Speaker 1: and Mark Fandetti.
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Speaker 2: Chuck, Mark and Tucker with you, and we kick things
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Speaker 2: off today with a little bit of a j. Powell discussion.
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Speaker 2: Last week, the Federal Reserve got together and Jay talked
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Speaker 2: to the gang and said, Hey, what do we want
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Speaker 2: to do about interest rates? And they all said, yeah,
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Speaker 2: we're going to cut them, and so the Fed cut
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Speaker 2: the Fed funds rate by a quarter percent last week. Yesterday,
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Speaker 2: Powell was in Providence in Rhode Island. Actually always great
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Speaker 2: to see him up in the New England area. I
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Speaker 2: didn't get a chance to personally stop by and say, hey,
1:41
Speaker 2: purple tie, looks good, but I got to, you know,
1:44
Speaker 2: see his remarks you know on the streaming thing Internet.
1:51
Speaker 2: That's the one on the on the internet, on the streamer.
1:55
Speaker 2: And here's what I find kind of interesting right now.
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Speaker 2: Powell to me yesterday came off very much as hey,
2:06
Speaker 2: you guys kind of missed the point that I was
2:08
Speaker 2: trying to make last week, didn't you? In that I
2:12
Speaker 2: think really what he was trying to say was, hey,
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Speaker 2: we're going to be cutting interest rates. We think that
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Speaker 2: there are going to be more cuts coming, but there's
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Speaker 2: no free lunch there. That probably means we're going to
2:23
Speaker 2: lose a little bit on the price stability side of things.
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Speaker 2: And you guys got to understand that just because we're
2:30
Speaker 2: prioritizing unemployment doesn't mean we're out of the woods elsewhere.
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Speaker 2: Is that a fair read to you of what he
2:36
Speaker 2: said yesterday?
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Speaker 3: I think he was putting into plain English, what is
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Speaker 3: embedded in all economic models, no matter what you conclude
2:45
Speaker 3: based on them, certainly the models that the FED uses
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Speaker 3: and that the private sector uses to forecast what the
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Speaker 3: FED is going to do, which is that in the
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Speaker 3: short term, money is not neutral. When the FED prints money,
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Speaker 3: it has an effect on the economy. That effect can
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Speaker 3: result in upper pressure on wages and therefore prices, and
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Speaker 3: thank god money's not so called. Thank god money has
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Speaker 3: an effect on the economy. Otherwise the FED wouldn't be
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Speaker 3: able to do anything to help us during recessionary periods.
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Speaker 3: But Powell was pointing out that there is in the
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Speaker 3: short term a trade off between the pressures that push
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Speaker 3: wages and inflation up and the forces that can act
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Speaker 3: After a period of time, nobody knows exactly how long
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Speaker 3: to put the brakes on economic expansion. You cannot stimulate
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Speaker 3: the economy without risking pushing inflation up.
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Speaker 2: You just can't.
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Speaker 3: Sometimes it's so low or there's so much slack that
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Speaker 3: you have room to run. But unless there's a lot
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Speaker 3: more slack than traditional measures of labor market tightness suggest vacancies,
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Speaker 3: the unemployment rate, and some variations on those, then as
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Speaker 3: Powell said, we're probably going to result Their actions will
3:53
Speaker 3: probably result in upward pressure on inflation, and inflation is
3:57
Speaker 3: already uncomfortably high. RELAI tip to the FEDS goal.
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Speaker 2: The piece that I think is really challenging right now
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Speaker 2: is that the more data that I see out there,
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Speaker 2: particularly on the housing side of things, we're really in
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Speaker 2: not a great spot with the housing sector, which tends
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Speaker 2: to be the marginal driver of economic activity in the
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Speaker 2: United States. I mean, when you think about, you know,
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Speaker 2: the difference between recession or not, I think people have
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Speaker 2: it in their heads sometimes that wow, you know, when
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Speaker 2: the economy goes into recession, it's, you know, this huge
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Speaker 2: drop in GDP and you know, everything just falls apart.
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Speaker 2: And normally it's a very modest dip in GDP. In
4:44
Speaker 2: a lot of times, nominal GDP might not even go negative.
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Speaker 3: Yeah, it's very rare, you know, it's happened in the
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Speaker 3: modern era when you add inflation.
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Speaker 2: Yeah, I think it happened in two thousand and eight.
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Speaker 3: Oh, like I said, it happened.
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Speaker 2: In I think it did, but I don't remember. I
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Speaker 2: could be wrong. I think just because things got so
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Speaker 2: bad there. But it's usually just that, hey, you know,
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Speaker 2: because you know, inflation is typically running two to three percent.
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Speaker 2: You know, hey, if nominal GDP dips to one, then
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Speaker 2: real GDP goes negative, and that's kind of the recession
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Speaker 2: that you tend to get in a lot of cases.
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Speaker 2: And so really what we're talking about is, you know,
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Speaker 2: a difference of you know, a couple percentage points between hey,
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Speaker 2: the economy's fine and things are bad, and that couple
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Speaker 2: percentage points does result in usually, you know, a difference
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Speaker 2: in unemployment of like three to five percent. So like,
5:36
Speaker 2: there's something that happens there. But when I look at
5:40
Speaker 2: what's going on in housing right now, whether you look
5:42
Speaker 2: at the publicly traded home builders, whether you're just looking
5:46
Speaker 2: at the anecdotes that are coming out about housing, most
5:51
Speaker 2: of the country now, aside from the Midwest and the Northeast,
5:57
Speaker 2: is turning into a buyer's market pretty quickly. Now the
6:01
Speaker 2: problem is because those buyers often need to sell their
6:05
Speaker 2: property in order to buy the new one, because first
6:08
Speaker 2: time home buyers are still largely priced out of these markets.
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Speaker 2: Is that because that the housing market is so locked up,
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Speaker 2: you still aren't seeing the volume of transactions rising. It's
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Speaker 2: just kind of pitter patters your a three point nine million,
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Speaker 2: nine annywized basis four point one million back to four million.
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Speaker 2: It's we're just floating around there, and we're still running
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Speaker 2: about twenty to twenty five percent below the normal pace
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Speaker 2: of housing activity that you'd like to see. So I
6:39
Speaker 2: think ultimately where I got to this morning, and this
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Speaker 2: was kind of a scary thought for me quite honestly,
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Speaker 2: was look, the FED over the last year now has
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Speaker 2: cut the FED funds rate by one to quarter percent.
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Speaker 2: It hasn't done anything to help housing. You know, it's
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Speaker 2: it's done effectively.
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Speaker 4: I see a thing.
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Speaker 3: I see your point.
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Speaker 2: And this is for a combination of reasons, some of
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Speaker 2: which I've mentioned, but also, hey, you still have property
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Speaker 2: taxes that are rising in much of the country. You
7:11
Speaker 2: still have insurance premiums that are rising in much of
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Speaker 2: the country. You still have utility prices that are rising.
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Speaker 2: In much of the country. And so you know, the
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Speaker 2: piece that I think I look at here is Okay,
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Speaker 2: mortgage rates may have come down half a percent in
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Speaker 2: the last year, which means that a mortgage that had
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Speaker 2: you know, principal and interest payments coming in at two
7:33
Speaker 2: thousand a month is now nineteen hundred a month. Okay, great,
7:37
Speaker 2: you got a little bit more wiggle room. You know,
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Speaker 2: that's that's good. But if property taxes went up by
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Speaker 2: you know, three four hundred bucks for the year, and
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Speaker 2: your homeowner's insurance premiums went up by six seven hundred
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Speaker 2: bucks for the year, and your utility rates went up
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Speaker 2: by a few hundred bucks for the year, that savings
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Speaker 2: on the mortgage has I've been completely eaten up by
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Speaker 2: all the other stuff that just went up.
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Speaker 5: And so.
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Speaker 2: It's something where I look at and I go, look
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Speaker 2: what would it take to get housing actually moving again?
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Speaker 2: And you kind of start talking about, hey, if you're
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Speaker 2: really concerned about housing, you start to get kind of
8:20
Speaker 2: aligned then with Stephen Moran's view of yeah, you might
8:25
Speaker 2: need to get the Fed funds rate down to somewhere
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Speaker 2: in that two percent range before you finally, you know,
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Speaker 2: get things really budging The problem is, hey, what does
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Speaker 2: Fed funds at two percent? Due to the inflation side
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Speaker 2: of the equation, Because housing is not the only thing
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Speaker 2: that matters in the economy. It's the marginal driver of
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Speaker 2: economic activity, but all the other stuff you start trying
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Speaker 2: to juice demand with, you know, the FED funds rate
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Speaker 2: at two, do you end up with inflation at four?
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Speaker 3: In short order, if you think we have a demand
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Speaker 3: problem that the FED can do something about, it's easiest
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Speaker 3: to think about the Feds sort of a thermostat. It
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Speaker 3: cools demand when it's too hot. It can stoke demand
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Speaker 3: when demand is flagging and the economy is thus slowing.
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Speaker 3: So the genesis of the slowdown in demand, if you
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Speaker 3: think there is one, might be housing. And if you
9:15
Speaker 3: put a lot of weight on that proposition, housing slowing.
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Speaker 3: This is going to be bad for consumption and bad
9:20
Speaker 3: for investment. There's an investment and a consumption exponent, a
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Speaker 3: component to it. They are both. They're two big components
9:26
Speaker 3: of GDP. That's not to say they drive growth in
9:29
Speaker 3: the long run. Those are two different things. But let's
9:31
Speaker 3: keep this simple. Then, Yeah, I guess you could get
9:34
Speaker 3: to we need to do something about demand. We need
9:37
Speaker 3: to stimulate it, so you should lower the Fed funds
9:39
Speaker 3: rate more. That's a reasonable point of view. His assumptions
9:43
Speaker 3: are aggressive, and they conveniently align with the orders he
9:46
Speaker 3: almost certainly got from the administration for which he still
9:49
Speaker 3: works that put him where he is. That's what clouds
9:52
Speaker 3: this and makes it especially complicated and borney. You cannot
9:56
Speaker 3: overlook the political pressures right now. That's not to say
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Speaker 3: there might not be a good argument for cutting rates,
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Speaker 3: though I simply don't know. I do know inflation is
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Speaker 3: elevated on employment is still low, and GDP appears to
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Speaker 3: be growing at or above trend. Those facts which we
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Speaker 3: have in front of us, they're concrete, don't exactly scream
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Speaker 3: for an aggressive rate cut.
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Speaker 2: Let's take a quick break, and when we return, let's
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Speaker 2: talk a little bit about what we've been seeing in
10:20
Speaker 2: the market over the last four or five months.
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11:29
Speaker 2: The S and P five hundred has now gone one
11:31
Speaker 2: hundred and seven sessions without a two percent daily drop.
11:34
Speaker 2: That is the longest stretch since last July. There have
11:38
Speaker 2: been two longer stretches in the past decade, the other
11:41
Speaker 2: one ending in early twenty eighteen. Both of those, the
11:45
Speaker 2: last July one and the twenty eighteen one, lasted about
11:49
Speaker 2: three hundred and fifty sessions each, which is over a year.
11:51
Speaker 2: Remember there's about two hundred and fifty trading sessions in
11:54
Speaker 2: a given year, and so you're talking close to a
11:57
Speaker 2: year and a half. In both of those cases, Generally
12:01
Speaker 2: you usually see a two percent drop happen in markets. Again,
12:07
Speaker 2: there's no like hard and fast rule, but a two
12:09
Speaker 2: percent down day if you look just at the distribution,
12:12
Speaker 2: you know, you're talking about having a handful of them
12:14
Speaker 2: in a given year, anywhere from you know, three to
12:17
Speaker 2: ten is kind of the range in a normal year
12:20
Speaker 2: that you would see. So it's there are a couple
12:24
Speaker 2: of things here that this means. Obviously, the first is
12:28
Speaker 2: that with markets, you might recall back in you know,
12:32
Speaker 2: kind of that February through April time period this year.
12:37
Speaker 2: One of the things that we tended to say a
12:38
Speaker 2: lot was, look, when you have market volatility, it tends
12:41
Speaker 2: to be get more market volatility. Volatility tends to cluster
12:45
Speaker 2: in markets. Likewise, a lack of volatility tends to as well.
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Speaker 2: And some of this is a more recent phenomenon simply
12:52
Speaker 2: because of different trading strategies and different investment strategies that
12:58
Speaker 2: really focus on volatility target and things along those lines,
13:02
Speaker 2: uh and and and that focus on you know, kind
13:05
Speaker 2: of trying to have a mechanical construct for how volatility
13:09
Speaker 2: appears in a portfolio, such that, hey, if you're seeing
13:13
Speaker 2: more volatility in markets, it you know, directs the investment strategy. Okay,
13:18
Speaker 2: you need to degross and pull back because you have
13:20
Speaker 2: too much volume in your portfolio for you know, how
13:23
Speaker 2: much you know you want to take on, and so
13:25
Speaker 2: you can kind of spiral in both directions. So the
13:28
Speaker 2: question on this obviously is hey, how long can this go?
13:34
Speaker 2: Because no market has ever gone, you know, an infinite
13:39
Speaker 2: number of days without a two percent dip. And the
13:42
Speaker 2: question that is popping up in people's mind now is, hey,
13:44
Speaker 2: it's been a while and stocks are at all time
13:46
Speaker 2: his is this market getting, you know, really nervous? Is
13:50
Speaker 2: this market getting really dangerous? You then get to this
13:53
Speaker 2: piece from Barons, the S and P. Five hundred has
13:55
Speaker 2: been on a tear history says this rally is due
13:57
Speaker 2: for a pause, and to which I say, not necessarily.
14:02
Speaker 2: And I'm not sitting here telling you that stocks never
14:04
Speaker 2: go down. I'm not sitting here telling you this rally
14:06
Speaker 2: is going to go on. But as I've said a lot,
14:10
Speaker 2: with this whole AI phenomenon that's been the main driver
14:14
Speaker 2: of these moves the last few years. Look, the tech
14:18
Speaker 2: bubble had plenty of opportunities where you could have said, Okay,
14:21
Speaker 2: maybe it's time for this to take a break, but
14:23
Speaker 2: it ultimately didn't start breaking down for good until two
14:26
Speaker 2: thousand and You had a whole lot more opportunities to
14:31
Speaker 2: make money riding the bubble up than you did trying
14:34
Speaker 2: to predict exactly when it was going to pop. And
14:37
Speaker 2: I have no idea what you're going to get in
14:40
Speaker 2: this case as well, in terms of when this market
14:42
Speaker 2: actually gets along in the tooth, instead of people just
14:45
Speaker 2: writing about, well, maybe it's a long in the tooth now.
14:48
Speaker 3: Yeah, As you can imagine, very sophisticated attempts have been
14:53
Speaker 3: made to model the frequency of pickups in volatility. Knew
15:00
Speaker 3: when markets were going to become more volatile, or if
15:02
Speaker 3: you knew when markets were quote unquote do there would
15:06
Speaker 3: be a way to parlay that into making money, to
15:08
Speaker 3: turn that into an investment strategy. Similarly, people try to
15:11
Speaker 3: predict recessions for similar reasons. There is no relationship though,
15:16
Speaker 3: between the duration of an expansion and the occurrence of
15:20
Speaker 3: a recession. It doesn't become more likely. For example, people
15:23
Speaker 3: have looked at this over and over it's a natural
15:25
Speaker 3: question to ask and over and over the idea that
15:29
Speaker 3: the longer, for example, the economy expands, or the longer
15:31
Speaker 3: a market goes without having a one or two percent dip,
15:34
Speaker 3: the more likely one becomes, or the more severe the dip.
15:37
Speaker 3: Eventually is no real reliable relationships there, And oh, who
15:42
Speaker 3: would be interested in volatility? I wanted to make a
15:44
Speaker 3: point about that too. If you're a business and you
15:48
Speaker 3: have a pension fund, it's rare, but they're still out there.
15:51
Speaker 3: You have to make contributions if your pension fund doesn't
15:54
Speaker 3: grow at the rate you and your actuaries assumed. So
15:58
Speaker 3: you're very concerned about market dips and volatility because volatility
16:02
Speaker 3: swings both ways up and down because in the event
16:05
Speaker 3: that you don't hit your assumed rate of return. As
16:08
Speaker 3: a business, for your pension fund, you have to put
16:11
Speaker 3: money into it that comes out of earnings. That affects you,
16:14
Speaker 3: it affects shareholders. So for you and I and anybody
16:18
Speaker 3: with a four oh one K, volatility is annoying. You'd
16:21
Speaker 3: rather have a nice, steady eight to ten percent a year.
16:24
Speaker 3: But that's not the way the world works. But for
16:26
Speaker 3: some investors and all use pension funds as an example here,
16:29
Speaker 3: it has real world consequences.
16:31
Speaker 2: Yeah, it's the you know, volatility. It is the price
16:35
Speaker 2: of admission to get the rates of return that you
16:37
Speaker 2: get in equity markets. You you cannot avoid it. You
16:41
Speaker 2: can transform it, but it never goes away. It just
16:45
Speaker 2: transforms and becomes you know, it shows up somewhere else
16:49
Speaker 2: if you try to get rid of it. So I
16:53
Speaker 2: think that when we look at what we're seeing in
16:55
Speaker 2: this market, yes, stock prices are elevated, Yes they have
17:00
Speaker 2: been on an absolute tear over the last five months. Yes,
17:04
Speaker 2: volatility is very low, and those are all things that
17:08
Speaker 2: can make you nervous. But the question that I think
17:12
Speaker 2: you ask is, Okay, this was all true two or
17:15
Speaker 2: three months ago and the S and P was six
17:18
Speaker 2: to seven percent. Well yeah, yeah, so if it didn't
17:21
Speaker 2: go down, then what's going to make it go down now?
17:25
Speaker 2: And I'm not saying that it will or won't, because
17:27
Speaker 2: I have no idea what the market's going to do tomorrow,
17:30
Speaker 2: the week after, the month after, the year after, Like,
17:33
Speaker 2: I have no idea, But it always bothers me to see,
17:41
Speaker 2: you know, the writing that's out there either saying well
17:44
Speaker 2: this is you know what we're seeing in these stats,
17:46
Speaker 2: and that means that this is what comes next. Nothing ever,
17:49
Speaker 2: always comes next in markets. A year ago we were
17:52
Speaker 2: talking about the Psalm rule and how well there's you know,
17:55
Speaker 2: never been a Sam rule trigger without a recession, and
17:59
Speaker 2: lo and behold we had a saw rule trigger without
18:02
Speaker 2: a recession at the end of last year. So I
18:05
Speaker 2: think that if none of this is physics, I say
18:09
Speaker 2: that a lot. But there are no you know, laws
18:12
Speaker 2: of physics to markets. There are some you know, general
18:17
Speaker 2: guidelines and things that you can pay attention to, but
18:20
Speaker 2: there's nothing that's hard and fast. There's no this is
18:23
Speaker 2: the speed of light for markets. There's no you know,
18:26
Speaker 2: this is you know, how fast gravity on Earth causes
18:29
Speaker 2: an object to fall for markets. There are some things
18:33
Speaker 2: that you can pay attention to and things worth noting,
18:36
Speaker 2: but ultimately understand that, hey, things can move in unexpected
18:40
Speaker 2: ways and for longer than you expect in a lot
18:43
Speaker 2: of cases.
18:44
Speaker 3: Yeah, the only rules you can almost take to the
18:46
Speaker 3: bank are is that nothing can grow faster than the
18:49
Speaker 3: economy forever, like our debt, for example, because eventually we
18:53
Speaker 3: wouldn't be able to repay it. It would become the whole economy,
18:56
Speaker 3: and that's true of stocks too. They can't grow faster
18:59
Speaker 3: than the get growth rate forever. But you're you're right. Relationships.
19:03
Speaker 3: The difficulty in predicting things is that past relationships change,
19:09
Speaker 3: so you can't use the same factors that would have
19:11
Speaker 3: been effective in the past to make predictions to make
19:13
Speaker 3: them in the future because people figure it out and
19:15
Speaker 3: it makes them useless.
19:16
Speaker 2: Let's take a quick break here. When we return, we're
19:20
Speaker 2: gonna do a little bit of Wall Street Watch, and
19:23
Speaker 2: then we're gonna be joined by Todd Lutsky from Cushing
19:26
Speaker 2: and Dolan here to talk a little bit of a
19:28
Speaker 2: state planning Next.
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20:00
Speaker 6: We left to the SMP five hundred snapped a three
20:03
Speaker 6: day winning streak, and we saw a slight pullback from
20:06
Speaker 6: Nvidia yesterday.
20:07
Speaker 2: Markets are really quiet right now.
20:10
Speaker 6: The Dow is up only a tenth of a percenter
20:13
Speaker 6: forty one points higher, SMP five hundred dipping by two points,
20:17
Speaker 6: Nasdaq also dipping by merely eleven points. Russell two thousand
20:23
Speaker 6: is edging higher and not much movement there. Ten year
20:25
Speaker 6: Treasure reeled up one basis point at four point one
20:29
Speaker 6: three three percent, and crude oil is up one point
20:33
Speaker 6: six percent, trading it's sixty four dollars in forty three
20:35
Speaker 6: cents barrel and Video shares, by the way, are currently flat.
20:40
Speaker 6: Ali Baba, on the other hand, jumping over nine percent
20:43
Speaker 6: after the Chinese tech company said it will boost spending
20:46
Speaker 6: on artificial intelligence models and development to more than fifty
20:50
Speaker 6: three billion dollars. Sticking with tech in AI, where Micron
20:54
Speaker 6: reported it's revenue sword forty six percent last quarter, driven
20:58
Speaker 6: by demand for AI developers. Mic Run's outlook for the
21:01
Speaker 6: current quarter also beat expectations. However, Microun shares are down
21:06
Speaker 6: nearly two percent. Meanwhile, shares in Lithium America is surging
21:10
Speaker 6: eighty eight percent after Reuter's reported that the US is
21:13
Speaker 6: negotiating a stake as large as ten percent in the
21:17
Speaker 6: Canadian mining company. Lithium Americas is also developing a mine
21:21
Speaker 6: with General Motors, sending shares in GM up by two percent,
21:26
Speaker 6: and according to Bloomberg, Oracle is seeking to borrow fifteen
21:29
Speaker 6: billion dollars from the US investment grade bond market. Today,
21:33
Speaker 6: as the software maker ramps up it's spending to meet
21:37
Speaker 6: the needs of the AI boom, Oracle shares are down
21:41
Speaker 6: about two and a half percent. I'm Tucker Silva and
21:45
Speaker 6: that is Wall Street Watch.
21:47
Speaker 1: This is Asked Todd on the Financial Exchange Radio Network.
21:51
Speaker 1: If you have an existing estate plan or in the
21:53
Speaker 1: market for one, Tod Letsky is here to answer your
21:56
Speaker 1: questions and help you plan for later life. Ask Todd
21:59
Speaker 1: is presented by Cushing and Dolan, serving Massachusetts and New
22:02
Speaker 1: England for more than thirty five years, helping families with
22:05
Speaker 1: estate and tax planning, Medicaid planning, and probate law. Visit
22:09
Speaker 1: Cushingdolan dot com. Now here's Todd Lutsky.
22:14
Speaker 2: As promised, We're joined now by Todd Lutsky for Asked Todd.
22:19
Speaker 2: We got phone lines open so that you can ask
22:21
Speaker 2: Todd your estate planning questions. The number is eight eight
22:24
Speaker 2: eight to zero five two two six three. Get calling
22:28
Speaker 2: to make sure that you get space in line, because
22:31
Speaker 2: gollyg Wilkers, we can usually only get through two to
22:34
Speaker 2: three questions.
22:35
Speaker 4: Uh.
22:36
Speaker 2: During the segment. Again, that number is eight eight eight
22:39
Speaker 2: to zero five two two six three. One more time
22:43
Speaker 2: that number is eight eight eight to zero five two
22:47
Speaker 2: two sixty three. To ask Todd your estate planning questions,
22:50
Speaker 2: mister Lutsky, how are you doing today?
22:54
Speaker 4: I am doing great. How about yourself?
22:57
Speaker 5: Uh?
22:57
Speaker 2: Doing pretty well? I? Uh, yesterday, actually I've robbed the
23:01
Speaker 2: oversized board game store. Believe it or not. Yeah, it
23:05
Speaker 2: was a huge risk I was willing to take. Right, toy,
23:10
Speaker 2: I want to talk to you today about real estate
23:13
Speaker 2: and passing real estate on to the next generation. Is
23:17
Speaker 2: it possible to put a beneficiary on a piece of
23:20
Speaker 2: real estate generally?
23:24
Speaker 4: Well, you know the answer is yes, you you absolutely
23:27
Speaker 4: can do it. But I would never do it, and
23:29
Speaker 4: it's not really adding a beneficiary. So let me sort
23:31
Speaker 4: of say yes. But it's not really called adding a beneficiary.
23:35
Speaker 4: Right You you add a beneficiary to like an IRA,
23:40
Speaker 4: or to a you know, a four to oh one K,
23:44
Speaker 4: or or even to an investment portfolio. Right, you can
23:48
Speaker 4: add a beneficiary, but you can't really add a beneficiary
23:53
Speaker 4: to a trust, I mean, to a piece of property.
23:56
Speaker 4: But what people do, which is actually worse, is they
24:00
Speaker 4: tend to put someone's name on it, right. I've actually
24:03
Speaker 4: had people who would say, oh, in fact, I'm dealing
24:06
Speaker 4: with one right now. It was strange. The siblings came
24:10
Speaker 4: in and they said, we believe that one sibling is
24:15
Speaker 4: now moved in with us. They have unfortunately some cognitive
24:17
Speaker 4: issues and they need some help, and we just want
24:22
Speaker 4: to make sure we can start doing some planning before
24:24
Speaker 4: it gets too bad and protect this house. But we're
24:27
Speaker 4: fairly certain that this house was meant to be given
24:30
Speaker 4: to all four of us. Sure enough, I checked the deed.
24:34
Speaker 4: It went all to the one sibling who's starting to
24:38
Speaker 4: have the cognitive disability, into a trust by that person,
24:42
Speaker 4: so that person owns it one hundred percent because it
24:44
Speaker 4: was it did have more than one name on it,
24:46
Speaker 4: and then they gave it to her. She then put
24:49
Speaker 4: it into this trust, and this trust said for her
24:51
Speaker 4: life she has one hundred percent ownership, and then when
24:54
Speaker 4: she dies, it goes to these siblings. And I'm like,
24:58
Speaker 4: right now, that's how it's owned. It's really her property. Oh,
25:04
Speaker 4: we didn't mean that, But unfortunately, if she gets sick,
25:08
Speaker 4: the government doesn't care that. You didn't mean that. That's
25:11
Speaker 4: how it's owned. And if you try to transfer it
25:14
Speaker 4: now because of an oopsie a couple of years ago,
25:17
Speaker 4: we made a mistake. It's still going to look like
25:19
Speaker 4: a five year waiting period for medicaid eligibility today. So
25:23
Speaker 4: I said, here's how we have to sort of plan it.
25:25
Speaker 4: But to my point, I didn't mean to get off
25:27
Speaker 4: track on that, and I'm not sure I did. But
25:29
Speaker 4: that's that's what you run into when you start talking
25:32
Speaker 4: about real estate and naming a beneficiary, right, they don't.
25:36
Speaker 4: They actually changed the name on the deed, and so
25:40
Speaker 4: when you do that, they become an owner. So if
25:44
Speaker 4: you say I decide to put my son on as
25:47
Speaker 4: a fifty percent owner, you didn't have a beneficiary. You
25:51
Speaker 4: gave them a fifty percent ownership. And why the ownership
25:54
Speaker 4: is so different than beneficiary's designations is one, well, obviously
26:00
Speaker 4: they own it. That kid gets divorced has a financial problem,
26:05
Speaker 4: there's going to be a ramification because that asset is theirs.
26:09
Speaker 4: They get sick, go to a nursing home, it's their asset,
26:12
Speaker 4: So you can't hide that it's theirs. Perhaps you've made
26:16
Speaker 4: a completed gift when you did this as well, so
26:19
Speaker 4: you have that problem that goes with it. You've carried
26:22
Speaker 4: over the basis for tax purposes, You've got those problems
26:26
Speaker 4: because now if I bought it, but I bought it
26:29
Speaker 4: for you know, two hundred thousand, and it's worth a million,
26:32
Speaker 4: and I give it to my son half, well, his
26:36
Speaker 4: basis is one hundred thousand, half of my basis. So
26:40
Speaker 4: now I've trapped capital gains tax problems in doing this.
26:44
Speaker 4: So you know, if I want to sell it, I can't.
26:46
Speaker 4: I need two people, two different signatures, on and on
26:51
Speaker 4: with the problems. Right, So great question, I think, chuck,
26:55
Speaker 4: because people really confuse this. Let me quickly tell you
26:58
Speaker 4: what a beneficiary does. An You don't have any of
27:01
Speaker 4: those problems. Why, because they don't own it, they don't
27:05
Speaker 4: get it until you die. They're not on the account.
27:08
Speaker 4: They can't open the account, they can't take money out
27:11
Speaker 4: of the account, they can't manage the account. They're just
27:14
Speaker 4: a beneficiary when you die. So you don't have any
27:17
Speaker 4: of those tax problems or any of those control problems.
27:21
Speaker 4: So great question. I think it sometimes really needs to
27:24
Speaker 4: be explained.
27:25
Speaker 2: Talking with Todd Lotski from the law firm of Cushing
27:28
Speaker 2: and Dolan, still room on the phone lines for you
27:30
Speaker 2: to ask your estate planning questions. Eight eight eight to
27:34
Speaker 2: zero five two two sixty three. Is the number again?
27:38
Speaker 2: That is eight eight eight two zero five two two
27:42
Speaker 2: six three. Let's take a quick break right now, and
27:45
Speaker 2: when we come back, we're gonna get right to your
27:48
Speaker 2: questions with Todd. Then that phone number is eight eight
27:51
Speaker 2: eight to zero five two two six three. One more time,
27:56
Speaker 2: it's eight eight eight to zero five two two six three.
28:01
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
28:04
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
28:10
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
28:14
Speaker 1: Radio Network.
28:21
Speaker 2: Still a bit of room on the phone lines if
28:23
Speaker 2: you want to ask Todd Lutsky any estate planning questions
28:26
Speaker 2: eight eight eight to zero five two two six three.
28:31
Speaker 2: That number again is eight eight eight to zero five
28:35
Speaker 2: two two six three. Let's go to Mary in Buzzard's Bay. Mary,
28:38
Speaker 2: you're on with Todd Lutsky.
28:42
Speaker 7: Hi there, can you hear me? Okay?
28:45
Speaker 2: We certainly can. What's your question for Todd?
28:47
Speaker 1: Mary?
28:48
Speaker 4: Okay?
28:49
Speaker 7: So what I explained I was, you know before you
28:52
Speaker 7: go on, is uh soon we're gonna be my my
28:55
Speaker 7: mom passed away about a year ago, and we're very
28:58
Speaker 7: close to closing their property. And before her death, I've
29:04
Speaker 7: got two remaining siblings. Originally there were five of us siblings.
29:08
Speaker 7: Two passed away in twenty twenty. So the the three
29:12
Speaker 7: of us we before our mom died, we each owned
29:17
Speaker 7: twenty percent of our real estate, and the remaining forty
29:21
Speaker 7: percent from the two siblings that passed away each went
29:26
Speaker 7: back to ownership.
29:27
Speaker 5: Of my mother. So we know that we're going to
29:30
Speaker 5: have to.
29:30
Speaker 7: Pay capital gains on the twenty percent that we each
29:33
Speaker 7: you know, already owned. My question is on the forty
29:37
Speaker 7: percent that soon will be divided amongst us three remaining
29:42
Speaker 7: siblings in the family, do we have to pay capital.
29:46
Speaker 5: Gains on that?
29:48
Speaker 7: Unfortunately, you know, the house is worth a lot of money,
29:52
Speaker 7: which is good. But the bad side is my father
29:55
Speaker 7: when he gave us the twenty percent, you know, he
29:59
Speaker 7: did not do it the right way. So we know
30:01
Speaker 7: we're going to have we're going to get splammed on
30:03
Speaker 7: capital gains on the twenty percent each. But again on
30:06
Speaker 7: that the remainder of that will be divided amongst three
30:11
Speaker 7: of us. How does that work? Well, we have to
30:14
Speaker 7: pay a lot on capital gains on that or.
30:18
Speaker 4: Is it so? So stay on the phone and let
30:21
Speaker 4: me ask you a couple of follow up questions, because
30:22
Speaker 4: there was a lot of information that you just gave
30:24
Speaker 4: and it's not easy to follow. I'm not adding up
30:27
Speaker 4: the numbers correctly. So Dad gave you twenty percent, gave
30:32
Speaker 4: twenty percent to two people before he died, so forty
30:36
Speaker 4: percent was given to you and your sibling.
30:39
Speaker 7: Twenty percent each was given to my siblings and I
30:44
Speaker 7: before our mother passed away.
30:47
Speaker 4: Before your mother died, You guys got there. There was
30:50
Speaker 4: forty percent gifted.
30:51
Speaker 7: Correct, twenty percent each we owned prior to our mother's death.
30:58
Speaker 4: Well, the answer yet the answers forty. So the answer
31:01
Speaker 4: is forty percent was gifted before your mother died. Twenty
31:05
Speaker 4: to you, twenty to your sibling. That's forty percent correct.
31:10
Speaker 7: No, there's two we each got twenty percent. There's two
31:13
Speaker 7: o them.
31:14
Speaker 4: That's percent. So twenty and twenty is forty percent, right.
31:20
Speaker 4: I just can't understand the numbers. If you got twenty
31:23
Speaker 4: percent and your sister got twenty percent, that's forty percent correct.
31:29
Speaker 5: No, what it is is, you're not hearing me. I
31:31
Speaker 5: don't think well, twenty percent per person. There's two siblings
31:37
Speaker 5: in myself, there's three of us that each got twenty
31:40
Speaker 5: percent prior to our mothers percent.
31:43
Speaker 4: Okay, so that's sixty percent correct.
31:46
Speaker 5: And then what happened is my when my mom died,
31:50
Speaker 5: well before, you know, before she died, two siblings you
31:53
Speaker 5: know other two other two siblings passed away. There's still
31:57
Speaker 5: three of us. I'm the family left. So my mother inherited.
32:02
Speaker 4: I got it. I got it now, Thank you very
32:04
Speaker 4: much for that. That was very helpful. So now I
32:06
Speaker 4: understand sixty percent was given away before mom died and
32:15
Speaker 4: forty percent was not. But that forty percent is going
32:20
Speaker 4: to these other people who have already died, so it's
32:22
Speaker 4: going to probably pass down to their kids, and so
32:27
Speaker 4: that forty percent is going to get a step up
32:29
Speaker 4: in basis for capital gain tax purposes. So you're absolutely right,
32:33
Speaker 4: but I think to help limit the capital gain. Let
32:36
Speaker 4: me just ask you this, how was the property? Is
32:40
Speaker 4: your dad alive?
32:43
Speaker 5: No, he died before my mother.
32:45
Speaker 4: So when when you when your dad died, the property
32:48
Speaker 4: was owned jointly between your mom and.
32:49
Speaker 5: Your dad, right, it was joined, yes, but they had
32:54
Speaker 5: they had put it in their kids' names. So it
32:58
Speaker 5: wasn't joint all.
32:59
Speaker 4: Right, So then it wasn't joint. I was just trying
33:01
Speaker 4: to get a step up in basis when Dad died.
33:04
Speaker 4: But it sounds like it wasn't jointly owned by mom
33:08
Speaker 4: and dad one hundred percent when Dad died, correct.
33:11
Speaker 5: I'm not sure that I do know that all of
33:15
Speaker 5: us siblings. There were originally five siblings in the family,
33:18
Speaker 5: and we all owned twenty percent each, so our parents
33:21
Speaker 5: were actually off of it. So the five year looked
33:24
Speaker 5: back and then what happened is unexpectedly two siblings passed away.
33:31
Speaker 5: So then my mother got back ownership of two twenty
33:35
Speaker 5: percent ownerships from two siblings who passed away.
33:39
Speaker 4: Oh, so it actually went back up a generation rather
33:42
Speaker 4: than down. So it sounds like you guys gave it
33:44
Speaker 4: all away. Mom and Dad gave it away, reserved a
33:47
Speaker 4: life estate, and then one of the kids died. Two
33:51
Speaker 4: of the kids died, and so a portion went back
33:54
Speaker 4: up to mom, and that's why Mom ended up with
33:58
Speaker 4: forty percent on her death, which actually turned out to
34:01
Speaker 4: be tax beneficial. I'm not happy about two siblings dying,
34:06
Speaker 4: but from a tax perspective, that forty percent will be
34:09
Speaker 4: a step up. In basis, so it's going to help
34:12
Speaker 4: you a little there, But you are right. This is
34:15
Speaker 4: why we don't give things away, folks. This is exact
34:18
Speaker 4: she you answer, almost answered your own question. But ultimately
34:22
Speaker 4: we don't want to give things away during life because
34:25
Speaker 4: you have this basis problem, right, and life estates give
34:29
Speaker 4: you so little control while you're alive in terms of
34:32
Speaker 4: selling it and moving and creditor issues. I don't love it,
34:37
Speaker 4: but for here, it actually created a tax problem. So
34:40
Speaker 4: you're right. When you go to sell this, sixty percent
34:43
Speaker 4: will be capital gains at a higher rate whatever the
34:47
Speaker 4: carryover basis was when you guys got the property from
34:51
Speaker 4: your parents, and forty percent will get the fair market
34:54
Speaker 4: value date of death as a basis. So interestingly enough,
34:59
Speaker 4: the people who are inheriting that forty percent will have
35:04
Speaker 4: probably zero capital gains tax and you guys will have
35:08
Speaker 4: to pay capital gains tax. So it's unfortunate, but that's
35:11
Speaker 4: how the pro rating will work out. So yeah, folks,
35:15
Speaker 4: this is why great question, for sure, A great question
35:19
Speaker 4: from Chuck. Real Estate's complicated, folks. In fact, estate planning
35:25
Speaker 4: can be complicated, and that's why this guy this is
35:28
Speaker 4: just for real estate. The thing we're looking at here
35:31
Speaker 4: is iras and life insurance also extremely hard to deal
35:38
Speaker 4: with with a state planning who do we name as
35:40
Speaker 4: the beneficiary? They're complicated because they have an income tax
35:43
Speaker 4: hit and an estate tax hit, so you've got to
35:46
Speaker 4: plan for both. So in this case, you can name
35:50
Speaker 4: the if you're in. If you're you know, over seventy three,
35:53
Speaker 4: that's a requirement. But it's possible to name the estate
35:57
Speaker 4: the beneficiary of an ir and shelter it for estate
36:02
Speaker 4: taxes while at the same time protecting it from the
36:06
Speaker 4: cost of long term care in the event you die
36:08
Speaker 4: and just never go to a nursing home, so it
36:11
Speaker 4: can be saved for the surviving spouse and can be
36:15
Speaker 4: done without any adverse income tax consequences. Call and get
36:19
Speaker 4: the guide, folks. That's what it's all about.
36:21
Speaker 8: Naming your estate and IRA beneficiary eight six six eight
36:26
Speaker 8: four eight five six nine nine or Legal Exchange Show
36:30
Speaker 8: dot com. Learn how to do it and how to
36:32
Speaker 8: do it with IRA or with life insurance eight six
36:36
Speaker 8: six eight four eight five six ninety nine or Legal
36:40
Speaker 8: Exchange Show dot com.
36:43
Speaker 2: Mister Letsky, I appreciate you joining us today. Thank you
36:46
Speaker 2: so much for the time.
36:48
Speaker 4: Always a pleasure. Thank you for having me.
36:51
Speaker 1: This has been asked on on the Financial Exchange Radio network,
36:54
Speaker 1: asked on with Todd Letskey. Has been presented by Cushing
36:57
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:00
Speaker 1: in thirty years, helping families with the state and tax planning,
37:03
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:06
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:09
Speaker 1: The views expressed in this segment are solely those of
37:11
Speaker 1: Cushing and Dolan Armstrong Advisory. He does not provide any
37:14
Speaker 1: legal or tax advice. Please consult with your illegal or
37:16
Speaker 1: tax advisor on such matters. Cushing and Armstrong do not
37:18
Speaker 1: endorse each other and are not affiliated