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Has Nike run out of time? · The Financial Exchange Show

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presented by Veterans Development Corporation. This is the Financial Exchange
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with Chuck Zutta and Paul Lane.
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Speaker 2: Chuck, Paul and Tucker with you. And we've got markets
1:15
continuing to be a little bit dodgy as we head
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through the first week of October trading. Here obviously a
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few different situations that are out there that markets are
1:26
paying attention to. You've got a port strike that's happening
1:29
in the United States. You've got the situation that is
1:34
escalating between Israel and Iran now, and so markets trying
1:41
to sort out, hey, what does this all mean for
1:45
the economy and for the companies that are represented in
1:48
the various different indices. And yesterday the message was pretty clear.
1:54
If you are anything other than energy, you get hit
2:00
pretty hard. You know that. That was kind of what
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we saw with markets yesterday. I had a few exceptions
2:06
here and there, but by and large, that was the
2:09
story today. Pretty similar in terms of what we're seeing
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with energy largely carrying some gains through early trading. You've
2:18
got some other areas that have a little bit of
2:20
green showing up, but otherwise it's fairly negative out there
2:24
as markets are trying to again sort through what the
2:27
overall outcome of this looks like and so you're continuing
2:32
to see a developing situation in the Middle East coupled
2:35
with this port shutdown in the East coast of the US,
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and overall it's made for a pretty ugly start to October. Though, Paul,
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did you see how September finished up two on the month. Yeah,
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that's right. It was not the bad September that I
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was told it was going to be on October on
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September ninth by the Wall Street Journal.
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Speaker 3: Very true.
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Speaker 2: Same could buy for October. You know, here's the thing
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you never know, like seasonality, it's something where you it's
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an average of you know, seventy eighty years in markets,
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but again, it doesn't tell you what's going to actually happen.
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October historically has been a really good month in markets,
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largely because, hey, you have one bad month, that's rare
3:17
that you string a couple back to back like that,
3:19
and so you've typically seen a number of big bounce
3:22
backs happen in October. I'm not saying that the situation
3:25
is going to be reversed here, but hey, we have
3:28
to be aware of the fact that markets are reacting
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to what's going on now, not what happened eighty years
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ago in markets that's just not relevant to what's actually
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going on today. So you've got these concerns that are
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out there. On top of that, we continue to get
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more economic data that is messy, not really indicating much
3:47
of anything in either direction. There's still plenty of concerns
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to grab onto if you're bearish. There are still plenty
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of things that you know, look like green shoots if
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you are bullish. So it's kind of this mess of
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data that we're seeing right now that's gonna have to
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resolve itself over the next few months. But we could
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get some chop heading into the end of the year,
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just because every week we wake up and it's like, hey,
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this looks completely different from last week.
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Speaker 3: Yeah, I used the word yesterday, Chuck with Mike Murphy,
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because some data points like you mentioned, I could point
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to and make a compelling case that GDP I believe
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is running close to three percent in terms of economic growth,
4:26
depending on what quarter you're looking at. I think the
4:29
final estimates for two came in at three percent for
4:32
quarter two. And then you can also look at the
4:35
labor market, where we've seen some weakening. You know, I'd
4:39
be interested your thoughts. We weren't on the air yesterday
4:41
talking about the Jolts report, where we saw an uptick
4:45
in the amount of jobs out there over that eight
4:48
million threshold, but certainly the hirings rate had pared down
4:52
a little bit, so that could be sort of the
4:54
more pessimistic side of things. The labor market is not
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as strong as it once was over the course of
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the last year or so. On the economic front, GDP
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and consumer spending, our areas I could point to that
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would dispute that saying that, hey, there is still relative
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strength from the US economy, but trying to figure out
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what direction it's trending into. That's what we'll focus on
5:16
the next couple months. If it's truly the labor market
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that is an area of concern that you know, causes
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a slowdown or is there going to be some resiliency
5:25
over the next couple months here.
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Speaker 2: So when we talk about what is going on in
5:30
energy markets, the impetus for what we're seeing is very clear.
5:34
Yesterday you had Iran launch a missile attack on a
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number of areas in Israel, predominantly targeting Israeli military bases.
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Though there were some you know, scattered missiles that didn't
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you know, hit those exact targets. Ultimately, Israel said, hey, look,
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no one was hurt by any of these, even the
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ones that did you know, make impact, did not cause
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any casuales. There was I believe there were a couple
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of injuries caused by falling debris from missiles, but again
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nothing major there. But the question is, hey, what is
6:11
the Israeli response going to be given that they've indicated
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a willingness to retaliate with strikes on Iran, potentially targeting
6:21
Iran's oil and or nuclear infrastructure. And so this has
6:26
pushed oil up pretty significantly over the last couple of days.
6:31
Now Brent crude back nearing seventy six dollars a barrel
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at the moment. If we look where it was, you know,
6:39
just a couple of days before this, it was down
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around seventy to seventy one. And you've got West Texas Intermediate,
6:45
which again just another standard for crud. Remember, there are
6:48
plenty of different benchmarks that you have out there. Brent
6:51
typically thought of as the global benchmark. West Texas Intermediate
6:54
more coastly tied to the US West Texas intermedia has
6:57
gone from you know, sixty six to sixty seven up
6:59
to around seventy two now. So you've got oil pretty
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active here in terms of the amount of concern that's
7:06
out there as it relates to further escalation. Now it's
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it's unclear exactly how this is going to play out,
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but look, there is a world in which this becomes
7:19
a larger and more regional conflict that has you know,
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a real impact on the global economy in a way
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that it has not in the last year. But we're
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gonna have to see how everyone ends up responding, just
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because that's what's going to determine how this plays out.
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I don't think there's any you know, course that's set
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in stone right now. You could have a couple more
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volleys back and forth and then it's done. You could
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have you know, Israel strike and then it's done. You
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could have this, you know, becomes something that's really problematic
7:52
and larger as well, and I don't think any of
7:54
us know exactly where it's going to go at this point.
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Speaker 3: It's incredible in the commodities market, Chuck, just how quickly
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these things changed. Just last week. It seems like we
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were covering stories about how depressed energy prices were and
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this concern that there was going to be a tremendous
8:09
glood of supply heading into twenty twenty five, and that
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still could be the case, to be clear totally. But
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when you look at potential risk over the horizon and
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what you're seeing here, a lot of it hinges on
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geopolitical actions that neither you or I, or anyone out
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there for that matter, could predict what's going to be
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done from these different countries out there. In the Middle East.
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I Ran produces three million barrels a day of oil.
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That's something that has been a cost for concern depending
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on what happens here. You do have a very strong
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strategic petroleum reserves in the United States. It's up to
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three hundred and eighty three million barrels that are at
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our disposal. If there's sanctions levied by the United States,
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perhaps you see some upwards pricing power or pricing pressure
8:54
rather on energy. But in general, whenever we're covering these
8:58
energy stories and we're talking about pricing, it's just a
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constant reminder of how quickly the dynamics in the market
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can Change's.
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Speaker 2: Take a quick break here. When we come back, we'll
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talk a little bit about Nike. They reported earnings after
9:11
the bell yesterday, and we'll tell you just why their
9:15
shares are struggling as they kick off the day today.
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Speaker 2: Paul. Nike reported earnings after the bell yesterday. I'm assuming
10:24
that the fact that they're down seven and a half
10:26
percent today so far means there was something problematic in that.
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Speaker 3: Something amiss. Yes, Nike came out with another very weak
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quarter and also withdrew their guidance for the remainder of
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this fiscal year as they're going to be going through
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a CEO transition come October fourteenth. Elliott Hill will take
10:47
over the rains and John Don Hill will step down.
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Elliott Hill had been with the company for thirty two years.
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He retired in twenty twenty, and now he's being brought
10:57
back on to try and lead a turnaround effort for Nike.
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What had happened over the course of the last couple
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of years with Nike is they had reached tremendous sales growth.
11:07
With John Donaho that he had grown their sales by
11:10
thirty percent over a couple of year period, getting them
11:14
up to fifty one billion in annual sales, largely leaning
11:17
on their most established brands. Of course, the Jordan brand,
11:20
which many of us are familiar with, that accounted for
11:23
about seven billion of those fifty billion in annual sales.
11:27
Air Force ones, Nike Dunks, and Air Jordan ones. Those
11:30
were the three shoes that they continued to lean on
11:34
the most, but unfortunately they really just put too much
11:37
supply on the market and the scarcely just wasn't there
11:40
and demand has weakened significantly. Nike's battling several different challenges
11:45
right now. You have tepid demand in China, which is
11:48
one of their largest markets outside of North America. And
11:51
you've got a relationship with wholesalers that they completely broke
11:56
off at one point, but now they are starting to
11:58
repair and a ton of innovation on their side of things,
12:02
so putting Nike stock in a very difficult position. They
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were down eighteen percent year to date after the clothes
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on Tuesday, and like Chuck mentioned, trending, I believe it
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was five or six percent down today in early trading,
12:16
yet off about seven percent.
12:18
Speaker 2: It is interesting. I mean, I again, I I'm not
12:22
a sneaker head myself. I just it's not me. I
12:28
don't get it. But there's plenty of things that I
12:30
don't get, and I'm sure there's things that I do
12:31
that other people don't get. So I don't begrudge anyone
12:34
with kind of how they spend their money. This is
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interesting to me in that look. It sounds like one
12:41
of those areas that was highly profitable for Nike were
12:44
these you know, high end collectible sneakers, and they just
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made too many of them. It's like it would be
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like if not Ferrari, because I don't think Nike's like
12:54
the Ferrari of sneakers, but it'd be like if Porsia
12:58
made too many you know, nine to eleven or something
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like that, and hey, like, you can still make a
13:04
great product that a lot of people want to buy,
13:07
but if you make too many of them, they're just
13:09
gonna sit on your dealer a lot. And Okay, that's
13:11
that's it. It sounds like that's the same thing that
13:13
ended up happening here. I'll read a quote just from
13:16
this sneaker reseller said quote, they're digging themselves a hole
13:20
because they put out too much stuff that people don't want.
13:22
They're not gauging demand correctly, and it's causing more releases
13:25
to sit. So it doesn't sound like they have no
13:29
demand for their products, but hey, your margins get hit
13:32
when you have to resort to discounts because stuff's been
13:35
sitting on shelves for a while. And that's what it
13:37
sounds like has been happening with Nike is hey, they
13:41
just made too much stuff. And part of this is Look,
13:44
during twenty twenty one twenty two, this whole collectibles thing
13:50
kind of got a little bit nutty, and I mean
13:54
people were buying up do you guys remember the it's
13:57
funny thinking back about some of the dumbness that went on.
14:00
Then do you guys remember the uh, what the heck's
14:05
the really heavy metal that people were buying? The cubes? No, no, no,
14:11
it's hang on. It was give me just a second
14:16
and I'll pull it up. Tungsten. Okay, people were buying
14:19
these tungsten cubes because they literally had like money that
14:23
was sitting around and the like a one inch tungsten
14:27
cube weighs like seven pounds or something like that, and
14:30
so just like you pick it up, you're like, oh,
14:32
this is so weird. But this was something with sneakers
14:37
that was happening then as well. Hey, there was this
14:39
huge collectible trend. I mean, like Pokemon cards were going
14:42
through the roof and like everything that people owned in
14:45
like the nineties, you know, baseball cards, POGs, all this
14:49
stuff was seeing a collectible resurgence, and I'm wondering if
14:53
what happened to Nike here was they said, Hey, this
14:55
is the new normal where people want to, you know,
14:58
buy all this stuff, and they I just thought it
15:00
was gonna go on longer than it did, and they
15:02
got caught off guard when demand started to slip. Another
15:06
area that you've seen something similar. We covered a story
15:09
on it, I think a few weeks ago. Watches, same thing,
15:13
like resale watch prices were going through the roof back
15:16
in twenty twenty one and twenty two, and they've been
15:19
pummeting now. So it kind of feels like there's this
15:22
trend where producers of stuff that can be considered collectible
15:26
or limited edition didn't adjust their supply plans for twenty
15:32
twenty four the way they should have, and Nike, I think,
15:35
is a pretty clear example of that.
15:36
Speaker 3: That's definitely part of it. In the Wall State Journal here,
15:39
I think they oversimplify a little bit, leaning probably pretty
15:42
heavily on this part. This This is part of it,
15:45
but that's not the only facet that's causing Nike to struggle.
15:49
Really what should be mentioned alongside the collectible's piece or
15:53
these these sneakers is the wholesaler channel and that disruption
15:57
and their real strong effort to try and develop their
16:01
digital side of things. Nike, which is another thing that
16:03
is a post pandemic effect where they saw a tremendous
16:06
amount of growth on their e commerce side during COVID
16:09
because no one could go out and buy sneakers physically,
16:13
there was an assumption that they could just absolutely cut
16:16
out the middleman wholesalers, the foot lockers, the dsws, and
16:19
really what they've found recently as trends have changed and
16:22
people have gone back into physical stores, that they perhaps
16:26
over committed to getting rid of those relationships. So it's
16:30
repairing that it's the idea of putting too much inventory
16:34
glut on those rare sneakers, and then you just have
16:37
an economy in general that perhaps could be at the
16:40
late stages of a growth cycle and you're seeing a
16:44
slowdown as a result.
16:44
Speaker 2: There Chinese stocks, even though the mainland Chinese markets are
16:49
closed due to the Golden Week holiday, Hong Kong markets
16:54
are open, and the Hanksen China Enterprises Index was up
16:57
as much as eight and a half percent before closing
17:00
up seven point one percent, the thirteenth straight day of gains.
17:04
It's been basically the only you know, meaningful week for
17:08
Chinese stocks in the last couple of years in the
17:10
upward direction. Other than that, it's just kind of been
17:12
like a steady bludgeoning with occasional you know, respites from it.
17:16
But the question on this will continue to be, Hey,
17:21
does this thing have legs beyond you know, a few
17:23
weeks of excitement on the latest stimulus, And it's all
17:28
gonna come down to does the Chinese government want to
17:30
follow through on this and are they making an active
17:33
push to try to support the stock market and the economy.
17:36
If they do, then the answers yes. If they don't,
17:39
the answers no, because the Chinese economy as it stands
17:41
today still kind of sucks, really sucks.
17:44
Speaker 5: Yeah.
17:45
Speaker 3: I'm not gonna be the first to tell you that
17:47
I'm the foremost you know, authority on the Chinese stock
17:51
market by any means, But when I see these gains, chuck.
17:54
While I'm aware of some of the policies that they've
17:57
made as steamless measures, none of those to me read
18:00
as a tremendous boost immediately to consumer confidence. And I
18:04
think that's the main thing that you have to think
18:06
about there when you look at the market.
18:09
Speaker 2: What if they don't want to boost consumer confidence, then
18:12
they just want to boost market confidence.
18:14
Speaker 3: They're doing a good job of that clearly, and hey,
18:16
they're ripping a page out of the US's playbook, which
18:19
which did some of this right around COVID and after
18:23
that by being extremely accommodative, and you saw valuation sore
18:27
as a result of it. It really took twenty two,
18:30
the year of twenty twenty two to get some of
18:32
those back at reasonable levels. So it's not a bad approach,
18:36
but I just don't know how much legs it can
18:38
have when you're not going to get sales growth to
18:41
back it up or consumption to back it up.
18:44
Speaker 2: Yeah, it's Look, the Chinese economy is still very much
18:48
a mess, and nothing that's been done to this point
18:51
is enough to clear that up. But hey, you could
18:55
maybe paper over it at least by saying, well, look,
18:57
you know, our stock market looks good. And the thing
19:00
that is interesting on this is, hey, for the last
19:05
I don't know, three four years at least now, I mean,
19:07
I don't know if the data. Going back further, if
19:09
you were a hedge funder and institutional money manager, you said, okay,
19:13
I can short China and I can go along us,
19:15
and that was a great trade for me. That starts
19:17
to change. How does this potentially impact US markets if
19:21
you start to see some equity assets flowing overseas instead
19:25
of everything coming here. Let's take a quick break. When
19:27
we come back, we got Wall Street Watch, and then
19:29
we're joined by Todd Lutsky.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
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TFE show. Breaking business news is always first right here
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19:53
Street Watch. A complete look at what's moving markets so
19:56
far today, right here on the Financial Exchange Radio Network.
20:00
Speaker 4: Well after yesterday's rough starts to the month of October,
20:03
markets today are really flat as traders continue to monitor
20:08
the escalating tensions in the Middle East, resulting in a
20:11
jump in oil prices. Wall Street also readying for a
20:14
job support on Friday. At the moment, the Dow is
20:17
up by twenty three points, SMP five hundred is up
20:20
only one point, and the Nasdaq up by thirteen points.
20:24
RUSS two thousand up by six points. Just over a
20:27
quarter of a percent ten year treasure willed up six
20:30
basis points at three point eight zero percent in crude
20:33
oil up another nearly three percent today trading at seventy
20:37
one dollars in eighty cents a barrel. Nike down by
20:40
over seven percent after the athletic apparel company withdrew it's
20:44
full your guidance after posted a ten percent slump in
20:47
revenue for the latest quarter, while it's profits declined twenty
20:50
eight percent from a year ago. Nike executives also warn
20:53
that sales could slide another ten percent in the current quarter. Meanwhile,
20:58
Humana down by fifteen percent of the healthcare company announced
21:01
worries some preliminary Medicare advantage data for the next year. Elsewhere,
21:06
Tesla posted its third quarter production and deliveries report this morning,
21:09
roughly in line with expectations, where global deliveries rebounded, reversing
21:14
earlier declines this year that stocked down by over five percent.
21:18
Sticking with autowhere, Stalantis reported its US sales declined nineteen
21:22
point eight percent from a year ago in the previous
21:24
quarter and saw an eleven point five percent decrease from
21:28
the prior three months. That stock up by about a
21:31
third percent and Canagra brands down by nine percent after
21:35
the frozen foods and snacks producer saw its quarterly profit
21:40
in sales miss expectations.
21:43
Speaker 1: I'm Tucker Silvan. That's Wall Street Watch. This is Asked
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Mister Lutsky. How are you doing today?
23:01
Speaker 5: I'm never better? How you doing?
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Speaker 2: Todd, I want to talk to you a little bit
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about beneficiaries on accounts, specifically on retirement accounts. What's the
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general thinking these days in terms of how to name
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IRA beneficiaries in order to coordinate them with an the
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state plan.
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Speaker 5: So this this is I'm glad we have a month
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to talk about this, folks, because this is very very
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since the Secure Act came out, you know, say call
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it twenty twenty two ish, So that is new in
23:52
the estate planning world, and there's a lot of rules
23:55
that go with it. So it's going to take time
23:58
to explain all that all right. This is not a
24:01
one minute answer, but generally speaking, when you're dealing with
24:05
an IRA, right, you probably have to understand two parts
24:12
within an estate plan. One, I've got income tax problems
24:16
with an IRA because none of it's been taxed. H
24:20
there's a whole other problem that many people forget about
24:24
the estate tax side. When you die, it's also subject
24:29
to a state tax, so it's included in the estate
24:32
first state tax, and as it comes out, it's subject
24:34
to income tax. So how it comes out and how
24:38
quickly it comes out is very important from an income
24:42
tax perspective. And if that's not complicated enough, if that's
24:46
not enough, with two balls in the air, that we
24:48
have to think about. Add in those folks who say
24:52
I also want to protect this from the nursing home,
24:57
knowing full well that during life I cannot change the
25:00
owner of the IRA to the trust because of that
25:06
second ball in the air income tax problems. If I
25:10
took it all out and moved it to the trust
25:12
to protect it from the nursing home, now I got
25:15
to pay income tax on it. So that's a problem.
25:17
So I just I didn't even really answer your question.
25:20
I just started laid the groundwork for what we have
25:23
to start thinking about when we name the beneficiary of
25:26
an IRA your a state, like when can you do it?
25:29
Who can do it? How old should you be? Lots
25:32
of stuff to think about, But the quick answer is,
25:36
now that I've gone this far, is that you.
25:39
Speaker 6: Can do it. It can work to shelter assets from a
25:44
state taxes. It can be done where it doesn't create
25:48
any adverse income taxes, no better, no worse, but not adverse,
25:54
and at the same time serve to protect an asset
25:58
from the nursing home in a way way that we
26:00
could not do it before.
26:02
Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
26:05
and Dolan. If you've got a question that you want
26:06
to ask Todd right now live on air studio line
26:10
here is eight eight eight to zero five two two
26:14
six three. We're going to take a quick break, but
26:17
when we come back it is going to be right
26:19
to your questions with Todd. That number is eight eight
26:22
eight to zero five two two sixty three. Again quick
26:27
break here, than write to your questions one more time.
26:29
That number is eight eight eight to zero five two
26:33
two sixty three.
26:35
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
26:38
only here on the Financial Exchange Radio Network. The following
26:44
is an important message from SAB Solutions Incorporated. You're trusted
26:47
advisor for companies needing inventory management. You're listening to Ask
26:52
Todd with Todd Lutsky on the Financial Exchange Radio Network.
27:04
Speaker 2: Still a little bit of room on the phone. So
27:06
if you have a question for Todd, Watski called eight
27:08
eight eight to zero five two two sixty three. Again
27:11
that is eight eight eight to zero five two two
27:15
six three. Let's go to fill on the cave, Phil,
27:17
what is your question for Todd?
27:20
Speaker 7: Yes, Todd, you did a trust for me more than
27:25
five years back, and now in the trust I had
27:29
a rental property. I want to sell the property. Can
27:32
I take some money out of that sale?
27:35
Speaker 2: So?
27:36
Speaker 5: What are you going to sell the property for?
27:39
Speaker 6: Oh?
27:40
Speaker 5: About how much?
27:42
Speaker 1: Oh?
27:43
Speaker 7: Stay round?
27:44
Speaker 5: Six hundred thousand, six hundred thousand, okay. So first, just
27:49
to explain to everybody so we understand the whole transaction. One,
27:53
the first question is can I sell it? Because it's
27:55
in an irrevocable trust. It's irrevocable, right, that is correct?
27:58
All right? So can I sell the answers, Yes, the
28:01
trustee can sell it. Next, you're going to have capital
28:04
gains taxes that you have to pay, right, so you know,
28:07
whatever you paid for it, plus capital improvements less depreciation
28:12
if you've been renting it is your basis. And so
28:16
the difference between the fair market value and the basis
28:19
will be your capital gain, which folks, by the way,
28:23
is the same as it would be if it wasn't
28:25
in the trust. So we don't have any adverse taxes.
28:28
So you'll have to file that return pay the taxes,
28:31
but the money will flow into the trust and the
28:34
house will flow out of the trust to the buyer.
28:38
And now you'll file a ten forty one income tax
28:40
return to pay that tax now or we're getting there,
28:43
I promise to your question. So now everybody can understand
28:47
what's happened internally in the trust because of this sale.
28:53
Now there's money sitting in the trust. I don't know
28:55
after taxes, let's say there's five hundred thousand dollars in there.
28:58
I'm just guessing what can we do with it. First
29:01
of all, I want to ask you, you know, do
29:05
you really need five hundred thousand dollars Before I tell
29:08
you whether you can take it out or not. Is
29:09
it something you really need to put five hundred thousand
29:11
dollars in your pocket?
29:13
Speaker 7: I do not, but I you know, I spent a
29:15
lot on the house myself. Okay, I got a pocket expense,
29:19
so I don't need five hundred but I could use
29:23
half of.
29:23
Speaker 5: That, Okay. And again I'm going to ask you again,
29:26
why do I need a quarter million dollars in my
29:28
pocket right now? Because the where it sits. And here's
29:32
why I'm asking. It's important for everybody that money is
29:37
just as protected from the nursing home. Remember you've been
29:41
in there more than five years, folks, So that money
29:44
is just as protected from the nursing home, avoiding probate,
29:47
sheltered from estate taxes, providing for your family when you pass.
29:51
As it was when it was a house. We didn't
29:55
reset a clock, we didn't do any of that. So
29:57
my advice would be, you know, can we get a out. Yes,
30:01
I'm going to just tell you that, I'm sure we
30:03
can get you the money. Secondly, maybe I just take
30:07
it when I need it. I know it's mine. Do
30:10
I need it in my pocket right now? Or do
30:12
I need just some right now? To take care of
30:14
something that I want to do. So let me ask
30:16
you that where are you at with that?
30:18
Speaker 7: Yeah, just something like take a trip or something.
30:22
Speaker 5: Like that, exactly exactly. So that's what I want you
30:26
to remember. I want you to remember that it's your money.
30:28
It's just sitting there. If you don't need it all today,
30:32
then don't take it. If you do need it for
30:35
a car, a trip or something like that, then I
30:37
can explain to you the two step approach to get
30:40
it out by you know, gifting it out to the
30:42
kids and we can certainly talk off air. It comes
30:45
out off to the kids and they give it back,
30:48
so at the end of the day, that's a way
30:51
to do it, even though you can get it. My
30:54
advice would be spend money outside the trust first, simply
30:59
because money outside the trust is completely at risk for
31:03
the cost of long term care, and so why wouldn't
31:06
I spend that first, especially if it's from an IRA,
31:09
because saving it for the kids isn't always the best
31:11
way to go because then it comes out over ten
31:13
years to the kids if it's an IRA, which isn't
31:16
helpful from an income tax perspective. So that's my thought
31:20
on that and I hope that answered your question and
31:23
a whole lot more and give you something to think
31:25
about as well. But we can certainly discuss it off air.
31:28
Give me a call, folks. This was a great question
31:32
because it explains that the way the trust works and
31:35
how flexible it is. And it also even got us
31:38
to the IRA question, which is what our guide is about. Right,
31:41
there might be money outside the trust that everybody has.
31:45
Because we can't put an IRA in a trust, how
31:48
do we deal with our iras as part of our
31:51
estate plan? Right? Naming the estate, although seemingly isn't the
31:56
way you would initially think, now because the secure pasted,
32:01
it gives us an opportunity to name the estate as
32:04
an IRA without causing adverse estate tax consequences or income
32:08
tax consequences, and can ultimately protect it from the nursing
32:12
home faster than we could other ways before or otherwise before.
32:17
So folks, learn how to do this. If you have
32:19
an IRA, get the guide eight six six eight four
32:23
eight five six nine nine or Legal Exchange Show dot
32:27
com again eight six six eight four eight five six
32:32
nine nine or Legal Exchange Show dot com.
32:35
Speaker 2: Todd, I've got another one here for you. Let's go
32:37
to Jim in Maine. Jim, what is your question for
32:39
Todd Alunsky?
32:42
Speaker 8: Hey, Todd, I got a question on a step up
32:44
in basis on a on a on a primary resident
32:50
owned by a husband and wife. The wife passed away
32:53
years ago in nineteen ninety something.
32:56
Speaker 5: Well, oh, can you give me the year because that
32:58
year is going to be really important. Was it nineteen
33:01
ninety seven or was it was it before nineteen ninety
33:05
seven or after nineteen ninety seven. It's going to make
33:07
a huge difference in my answer.
33:10
Speaker 8: Yeah, let's say four.
33:14
Speaker 5: Before nineteen ninety seven. Yeah, okay, because that's going to
33:19
make a huge difference.
33:22
Speaker 7: Okay, go ahead.
33:23
Speaker 8: So well, that so her interest in the house landed
33:26
in a family trust. The language of that trust provides
33:30
husband with a life of state that her interest in
33:35
that property in that trust was reported on her estate
33:40
return and no cue dip election taken. Okay, husband dies.
33:46
Husband dies in twenty twenty one, and we're thinking that
33:51
and he was a trustee of her trust by the
33:53
way that family trust. Yep, we're thinking with that life
33:56
of state, he gets a step up in basis on
34:02
his death in.
34:03
Speaker 5: Twenty twenty one, Okay, So I think we're gonna we're
34:06
gonna have to say no on that. And let me explain.
34:10
So one, he he had a one half interest in
34:14
the property, right because he owned half. She owned half
34:18
when he died. When she died, her half, as I
34:21
understand it, got included in her estate, stuck in a trust.
34:25
In the trust, it says he has the right to
34:28
live there. Okay. And and there was a step up
34:32
in basis by the way, when she died on her
34:36
piece that went into her trust. I'm gonna, I'm gonna
34:39
give you that. So there should have been a step
34:40
up in But that's nineteen ninety six, so you know
34:44
the number is low, so you got to step up
34:47
for that half. Then, Okay, that life estate is not
34:53
the kind of life estate that causes a step up
34:55
in basis when husband dies. Okay, So when husband dies,
35:00
the only way you get a step up in basis
35:02
is if you die owning something. In this case husband did.
35:06
Husband owned half, So you're gonna get a half step
35:09
up in basis in twenty twenty one when husband dies
35:13
on his piece. There was a half step up in
35:16
basis when wife died back in nineteen ninety six. Let's
35:20
say I get it right, but no step up in
35:24
basis on that life estate for husband. Why because in
35:28
order to get a step up in basis when you
35:30
have a life estate, the way the rule works is
35:33
you have to give something away and retain the right
35:37
to live there. In this case, husband didn't give anything away, right.
35:43
Wife died owning a half interest in the property, and
35:47
wife granted husband a life estate. Did so because husband
35:53
didn't give away the property and retain the enjoyment of
35:59
what he gave a way, and that's what twenty thirty
36:01
six of the code says. You have to give it
36:02
away and retain an interest in order to get a
36:07
step up in basis. In this case, that didn't happen. Okay, So,
36:12
and let me further explain how life estates work for
36:15
folks that have done that, because they're looking at it
36:18
and they're saying, whoa wait a minute, I have a
36:20
life state and I gave it to my kids, and
36:21
I retain the right to live there. When you do that,
36:24
when you talk about what's included, the full value of
36:29
the properties included in the estate of the decedent, not
36:33
just the life interest, which is amazing, right, But that's
36:36
how it works. So if you're all listening and you've
36:39
given away your property and you've retained the right to
36:42
live there when you dine, not just a life estate
36:45
is included, but the full value is included. And to
36:48
your point, Jim, if that were the case, then you'd
36:51
get a full step up in basis on those situations
36:56
when one dies. So but in your case, I hope
36:59
I explained, and that clearly you're not going to get
37:01
another step up on the life estate piece in the
37:04
wife's trust.
37:06
Speaker 2: Mister Lutsky, thank you so much for joining us today.
37:08
Speaker 5: Always a pleasure. Thank you.
37:11
Speaker 1: This has been Aske Todd on the Financial Exchange Radio network.
37:15
Ask Todd with Todd Lutsky has been presented by Cushing
37:17
and Dolan, serving Massachusetts and New England for more than
37:20
thirty years, helping families with the state and tax planning,
37:23
Medicaid planning, and probate law. Call eight hundred three nine
37:26
three four thousand and one or visit Cushingdolan dot com.
37:29
The views expressed in this segment are solely those of
37:31
Cushing and Dolan. Armstrong Advisory does not provide any legal
37:34
or tax advice. Please consult with your illegal or tax
37:36
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