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Bond investors are very worried about Trump's tax bill · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mark Fandetti, Chuck.
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Speaker 2: Mark and Tucker with you here, and pretty light week
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Speaker 2: as far as economic data, there's just not a ton
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Speaker 2: out there, but still obviously you got some movement in
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Speaker 2: some different markets that we'll be talking about. We got
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Speaker 2: a tax bill that's trying to get through Congress, and
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Speaker 2: so that is kind of where we're going to start today,
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Speaker 2: is the intersection of taxes and bonds and the question
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Speaker 2: that is out there, which is, hey, look, bond yields
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Speaker 2: have started to move back up over the last couple
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Speaker 2: of weeks, and you've got this tax bill that is
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Speaker 2: making its way through Congress. Now they say this is
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Speaker 2: if you know, the tax bill has legs and it's
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Speaker 2: just strolling around like hey, congress person, how you do?
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Speaker 2: And Senator are good to see you. I'm a tax bill,
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Speaker 2: Nice to meet you. Hope I pass. Obviously that's not
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Speaker 2: quite how it happens. But I think the obvious question
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Speaker 2: that's out there is can you draw a line between
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Speaker 2: this tax bill and what's going on in bonds, and specifically,
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Speaker 2: a couple times in the past year or so we've
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Speaker 2: seen these upward moves in bond yields, and the answer
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Speaker 2: that you know has been given to us a couple
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Speaker 2: of times is well, it's because the deficits too big,
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Speaker 2: and that's why bond yields are going up, to which
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Speaker 2: I always respond after bond yields have subsequently gone back down, Gee,
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Speaker 2: did the deficit picture get better?
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Speaker 1: Like?
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Speaker 2: Did the deficit picture improve?
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Speaker 3: Is?
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Speaker 2: Is that what we're seeing here? And the answer is no,
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Speaker 2: it didn't. And so I think that you can put
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Speaker 2: to bed, at least for the last couple of years,
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Speaker 2: the idea that, hey, the level of debt outstanding has
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Speaker 2: been a major driver of bond yields. I just don't
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Speaker 2: think it has. I think it's been far more growth
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Speaker 2: and inflation that have been the drivers. Still, the question
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Speaker 2: on this is, here we have a concrete event that
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Speaker 2: has the potential to reshape what future deficits look like.
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Speaker 2: And in that case, is it different or is this
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Speaker 2: just people again looking for an explanation as to why
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Speaker 2: bond yields are moving and there's no there there when
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Speaker 2: it comes to the deficit.
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Speaker 4: Yeah, probably a little bit of both. Deficits do matter
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Speaker 4: for rates, They're just not the only thing that matters.
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Speaker 4: Interest rates are just the compensation for deferring consumption. You
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Speaker 4: sacrifice today, you give your money to someone that needs it.
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Speaker 4: It could be a bank, it could be the government,
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Speaker 4: or indirectly through say a mutual fund. So interest rates
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Speaker 4: are determined, and they're that's plural, so there are lots
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Speaker 4: of different ones, but they're all they all have one
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Speaker 4: thing in common. They're determined by the supply and demand
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Speaker 4: for loanable funds. So to the extent that government deficits,
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Speaker 4: just the difference between what government takes in and what
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Speaker 4: it spends, to the extent that that goes up, that
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Speaker 4: will all else will put upward pressure on interest rates.
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Speaker 4: We've been really lucky though, for the past twenty years,
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Speaker 4: especially twenty five years now, I guess roughly since nine
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Speaker 4: to eleven, when the wheels really fell off our fiscal situation,
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Speaker 4: and we've never fully reattached them. International investors in particular
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Speaker 4: have been willing to buy our treasury debt and that's
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Speaker 4: helped keep rates low, not just here but all over
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Speaker 4: and developed economies all over the world. The question is,
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Speaker 4: I guess, has our luck run out?
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Speaker 2: And I don't think that you know the answer to
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Speaker 2: that until you get past it, because that's right as
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Speaker 2: I've said over and over and over and over and
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Speaker 2: over and over and over. If you have tried to
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Speaker 2: make a career in the investment world over the last
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Speaker 2: fifty years, saying, Gee, the definit's too high, we got
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Speaker 2: to you know, this is a real problem, and then
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Speaker 2: you made an investment strategy based off of that, it
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Speaker 2: probably would not have worked out very well for you,
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Speaker 2: because your strategy would have been, well, I gotta get
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Speaker 2: short bonds because bond yields are gonna go up. And basically,
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Speaker 2: from nineteen eighty two through twenty twenty two they didn't.
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Speaker 2: Bond yields were on a you know, forty year march down.
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Speaker 2: And you also might have said, well, this is going
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Speaker 2: to crowd out investment, so I want to get light
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Speaker 2: on equities. I don't want to own much there because
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Speaker 2: you know equity performance is going to be bad, And
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Speaker 2: in fact it wasn't. So like the thesis of hey,
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Speaker 2: there's too much debt out there and this is a
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Speaker 2: problem has not really been viable for the last forty years.
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Speaker 2: The question of is it different this time, I think,
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Speaker 2: is a worthy one to at least ask. I don't
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Speaker 2: have the answer for it, but I think it's worthy
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Speaker 2: of asking for two reasons. They're kind of, you know, intertwined.
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Speaker 2: The first is the aggregate level of debt that's outstanding
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Speaker 2: has changed dramatically in the last ten years, in particular
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Speaker 2: to the upside and annual deficits, even with unemployment at
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Speaker 2: some of the lowest rates that we've ever seen. You know,
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Speaker 2: even with unemployment at four point two percent, you're running
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Speaker 2: annual deficits north of six percent, potentially challenging you know,
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Speaker 2: seven or eight percent in any kind of baseline scenario
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Speaker 2: over the next you know, five to seven years. And
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Speaker 2: that is a fundamentally different proposition than we have ever
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Speaker 2: seen in the United States out of either wartime or
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Speaker 2: in the midst of a recession. We have not run
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Speaker 2: annual deficits that high with low unemployment.
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Speaker 1: Ever.
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Speaker 4: Yeah, I think that's the key point. It's different. In
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Speaker 4: the nineteen eighties and nineteen nineties, did witness falling interest rates,
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Speaker 4: say use the ten year as the ten year US
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Speaker 4: Treasury as a reference point the nineteen eighties, though in
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Speaker 4: the early eighties the economy first swooned and then recovered,
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Speaker 4: and during that recovery, though, nominal interest rates were falling
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Speaker 4: along with inflation, and nominal just means you include inflation.
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Speaker 4: Most people aren't interested in nominal stuff because you don't
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Speaker 4: eat nominal, you eat real. You're interested in your standard
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Speaker 4: of living, and that's measured by real or after inflation concepts.
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Speaker 4: Thus the nominal real distinction. Real interest rates then shot
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Speaker 4: up in the very early in the mid nineteen eighties
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Speaker 4: up till nineteen eighty five, because the economy was expanding
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Speaker 4: vigorously and the demand for loanable funds went up, and
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Speaker 4: the budget deficit was exploding, and not coincidentally, because it's related,
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Speaker 4: the trade deficit was also exploding larger. Then, real interest
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Speaker 4: rates came down for various reasons in the late nineteen eighties,
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Speaker 4: and they stayed relatively placid throughout the nineteen nineties. Most
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Speaker 4: researchers think that's because we got our fiscal house in
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Speaker 4: order in the nineteen nineties, so a great stroke of
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Speaker 4: luck over the last twenty five years that interest rates
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Speaker 4: have not exploded higher coincident with this growing overall debt
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Speaker 4: to GDP gross domestic product, which is one way to
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Speaker 4: measure debt burden. Most researchers don't think the current fiscal
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Speaker 4: path that is to say, projected deficits which will explode
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Speaker 4: under this tax bill, which is astonishing given that the
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Speaker 4: economies experiencing a relatively robust expansion doesn't need stimulus. Most
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Speaker 4: researchers don't think it's sustainable.
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Speaker 2: So it kind of leads to the question does not
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Speaker 2: beg the question? It raises the question, Okay, when is
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Speaker 2: it going to actually not be sustainable? Like when will
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Speaker 2: that actually show up? Because it's kind of binary, you know,
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Speaker 2: it's it's kind of binary in that, Hey, this either
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Speaker 2: is a problem or it's not. It's not just going
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Speaker 2: to be yeah, business as usual. What does it mean
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Speaker 2: when it shows up? And when does it actually show
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Speaker 2: up as that problem? And so I think that's that's
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Speaker 2: the question that I think is worth raising based on
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Speaker 2: what the bond market is saying right now, is Hey,
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Speaker 2: is the passage of a tax bill that has the
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Speaker 2: potential to dramatically increase deficits over the next decade. Is
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Speaker 2: that going to be the bridge too far?
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Speaker 3: Maybe?
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Speaker 2: But let's also keep the idea out there that maybe
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Speaker 2: it's not, because that's been the that's been how it's worked.
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Speaker 2: I'm not saying that it will or won't. I'm just
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Speaker 2: saying acknowledge both possibilities as being there, and we'll see
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Speaker 2: if this plays out. Because when it does happen, whether
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Speaker 2: it's in a week, a month, a year, a decade,
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Speaker 2: or one hundred years, when you finally see the size
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Speaker 2: of that deficit become an issue, you're going to know, right,
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Speaker 2: it's not just going to happen to be like oh,
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Speaker 2: like it's businesses. Usually like you will know.
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Speaker 4: Yeah, you use the phrase this time is different to
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Speaker 4: researchers Ryan Hart and rogue Off. I'm just using their
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Speaker 4: last name. Yeah, wrote a book came out in two
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Speaker 4: thousand and nine, I think, but they published research that
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Speaker 4: underpinned it much earlier. Their red line was one hundred
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Speaker 4: percent debt to GDP, meaning the size of debt held
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Speaker 4: by the public treasury debt equals are a GDP. We're
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Speaker 4: now about at that red line. They didn't find the
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Speaker 4: they did it. They looked at a large cross section
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Speaker 4: over time, on mixing terms a little bit there to
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Speaker 4: come to that conclusion that one hundred percent debt to
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Speaker 4: GDP seems to be the red line. At that point,
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Speaker 4: growth slows and interest rates go up. Obviously that's not
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Speaker 4: a law, that's just a regulation that they observe, Right,
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Speaker 4: that's just a regularity that they observed. At some point
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Speaker 4: it will matter. We're crossing a potentially dangerous line. The
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Speaker 4: question is what happens when we get on the other side.
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Speaker 2: What's the sample? Do you happen to know the sample
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Speaker 2: size on that? Just because I'm just trying to think
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Speaker 2: back historically, like how many how many countries are there
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Speaker 2: that have gotten into that shape where we have like
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Speaker 2: reliable economic data.
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Speaker 4: For now, it's not large. For reasons that you talk about,
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Speaker 4: you need develop it needs to be a developed market
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Speaker 4: economy because only they have the record keeping to provide.
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Speaker 4: So there's always a bias.
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Speaker 2: And oftentimes they're only the ones that can get to
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Speaker 2: that level of debt. Also because no one lends to
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Speaker 2: you if you're an emergency economy, and that's a certain point.
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Speaker 4: Look at Japan, they're at two hundred percent debt to GDP.
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Speaker 4: Their circumstances are different, so the red line is different.
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Speaker 4: There there is one. We just don't know where it is.
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Speaker 5: So I don't know.
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Speaker 4: Small sample is conclusion.
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Speaker 2: Nobody knows anything.
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Speaker 4: No, I wouldn't go that far.
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Speaker 5: Nobody knows.
11:59
Speaker 4: Nobody knows everything.
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Speaker 2: Yeah, Welcome to the Financial Exchange, where nobody knows everything.
12:04
Speaker 2: We're gonna take a quick break. When we come back,
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Speaker 2: talk about should we do target Yeah, we got some earnings,
12:11
Speaker 2: let's do targeting lows.
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13:15
Speaker 2: Couple different retailers reporting earnings this morning. Let's start first
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Speaker 2: with Target. Target shares are down five percent because I
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Speaker 2: gotta tell you, I gotta tell you, and I didn't
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Speaker 2: come to this conclusion too lightly. I came to it
13:32
Speaker 2: a little bit lightly, but not too lightly. I'm starting
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Speaker 2: to get the feeling about Target that we got ten
13:43
Speaker 2: to fifteen years ago with Macy's and five or six
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Speaker 2: years ago with Cole's, and I guess what I'm getting
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Speaker 2: at here. So Target's quarter was not particularly good. In fact,
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Speaker 2: it was bad. Their comparable sales were down three point
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Speaker 2: eight percent. That was worse than expected. They expect net
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Speaker 2: sales to decline by a low single digit number this year,
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Speaker 2: and they basically said, like, look like things are not
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Speaker 2: going particularly well, and the you know, there were a
14:18
Speaker 2: few mentions of you know, tariffs and this and that.
14:20
Speaker 2: But I gotta tell you, there are plenty of other
14:22
Speaker 2: retailers that have been reporting earnings and they have not
14:25
Speaker 2: shown these kinds of numbers. So I think Target has
14:29
Speaker 2: a problem here, And it could be any one of
14:33
Speaker 2: a number of things that I think can best just
14:35
Speaker 2: be summed up as they're not executing particularly well. It
14:39
Speaker 2: could be their product mix.
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Speaker 5: Is not very good.
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Speaker 2: Anymore.
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Speaker 5: I don't know.
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Speaker 2: I'm not a I'm not a shoper at any of
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Speaker 2: these stores. I don't do it. I just it's it's
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Speaker 2: not me. So I don't know, you know, any of
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Speaker 2: this for certain. They've got, you know, again, maybe maybe
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Speaker 2: it's a mix of goods problem. Maybe it is a
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Speaker 2: problem with how they are marketing and not being able
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Speaker 2: to reach the customers they used to. Maybe it's something
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Speaker 2: where they're just not you know, they're just not operating
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Speaker 2: as efficiently as they can. I don't know what it is,
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Speaker 2: but something stinks there. And again, it's not necessarily that
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Speaker 2: the company's just gonna fall apart and be nothing, But
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Speaker 2: could you see it become one of these like Macy
15:26
Speaker 2: situations where okay, there's sales are one hundred billion dollars
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Speaker 2: this year, and twenty years from now, their sales are
15:31
Speaker 2: still one hundred billion dollars and they're selling you know,
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Speaker 2: stores off and trying. Yeah, like it's kind of got
15:37
Speaker 2: that vibe to it at this point.
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Speaker 4: Seems like a lot of unforced errors too. They're wading
15:42
Speaker 4: into political debates, uh, coming in hot on one side,
15:48
Speaker 4: backing off, getting boycotted by both ends. Everyone's boycotting that
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Speaker 4: by both ends of the spect they're being boycotted, which
15:56
Speaker 4: is great for me because I walk in, get what
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Speaker 4: I want, and walk out. There's never a line.
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Speaker 2: Well, even though they're not really being boycot by everyone
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Speaker 2: because they're stilling one hundred million dollars in salad, but.
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Speaker 4: I'm a margin the direction of So it seems like
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Speaker 4: there's something wrong at the very top. Maybe it's bad judgment,
16:14
Speaker 4: bad culture, bad management culture. I don't know how much
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Speaker 4: pain will share holders tolerate before they demand a cleaning
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Speaker 4: of the house and an entirely new direction from the
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Speaker 4: top down.
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Speaker 5: I don't know.
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Speaker 2: It's uh, it's it's just a real question, you know,
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Speaker 2: as to where they go from here.
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Speaker 7: I just.
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Speaker 2: I don't know what the answer is because ultimately, you've
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Speaker 2: got a million different places that you can buy stuff
16:43
Speaker 2: right now, Why are you going to pick them?
16:47
Speaker 3: Why?
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Speaker 2: Like, what what is the reason to pick them?
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Speaker 5: With?
16:50
Speaker 2: With Walmart? I can explain it, and it's right in
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Speaker 2: their tagline always low prices, always like you walk into Walmart,
16:57
Speaker 2: you feel like you're getting a value. You walk into
17:02
Speaker 2: Where else do you buy stuff? Amazon? You know why
17:05
Speaker 2: you buy stuff on Amazon? It's there tomorrow. That's why
17:09
Speaker 2: you buy stuff on Amazon. They get everything there and
17:13
Speaker 2: it's there tomorrow. What are other big stuff retailers stuff retailer?
17:18
Speaker 2: Who's the biggest? Who are the other big stuff retailers
17:20
Speaker 2: out that?
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Speaker 6: Do you want to put any of the dollar store
17:22
Speaker 6: retailers there?
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Speaker 2: We're gonna talk about, like toss them on the list.
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Speaker 2: Why do you buy stuff there? It's even cheaper than Walmart.
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Speaker 2: I'll say this. We go to Target two to three
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Speaker 2: times a month. Yeah, just out of necessity and proximity.
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Speaker 2: There's not a Walmart close to us. Yeah, but it's
17:39
Speaker 2: more of a convenience experience than it is a discount experience.
17:44
Speaker 2: Like we don't seek out Target because of their day,
17:47
Speaker 2: it's because it's there, correct, Yeah, so what's the selling
17:50
Speaker 2: point for them? On the other hand, Lowe's the home
17:54
Speaker 2: improvement retailer. They came out with earnings as well, and
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Speaker 2: their stock is down about one point six percent, but
18:01
Speaker 2: they had, you know, pretty decent numbers for the quarter.
18:03
Speaker 2: They still have some concerns out there as far as
18:06
Speaker 2: how tariffs could could impact them, but overall it's something
18:10
Speaker 2: where they say, yeah, we're expecting same store sales to
18:14
Speaker 2: be up, you know, anywhere from flat to up one
18:16
Speaker 2: percent this year, and given you know where the American
18:18
Speaker 2: consumer is, and that's that's not all bad, like that's
18:21
Speaker 2: that's not a bad place to be. So I think
18:25
Speaker 2: that the the home improvement stores Home Deepo reported yesterday,
18:31
Speaker 2: they're kind of telling you a story which is the
18:33
Speaker 2: same as what we're hearing from like the rest of
18:34
Speaker 2: the housing market, which is, Eah, the housing market's kind
18:38
Speaker 2: of slow, but we're finding ways to moddel through and
18:41
Speaker 2: we'll get there and it's not going to be like
18:42
Speaker 2: this forever. That's what they're telling us right now. With housing,
18:45
Speaker 2: it can obviously change in an instant. Interest rates go
18:49
Speaker 2: up half a percent, things look pretty bad. They go
18:52
Speaker 2: down half percent. Hey, look a lot of people are
18:54
Speaker 2: buying you know, stuff at lows and home depot again.
18:57
Speaker 2: But to this point, it's the same stories we're hearing
19:00
Speaker 2: from you know, existing home sales and stuff like that,
19:02
Speaker 2: which is, yeah, it's kind of sluggish out there. We're
19:06
Speaker 2: finding ways to make the sales, but the numbers, you
19:09
Speaker 2: know that they're gonna be what they're gonna be and
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Speaker 2: we'll live to fight another day. That's kind of what
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Speaker 2: you're hearing from them, No execution problems. It's just they're
19:16
Speaker 2: operating in a slow segment of the market, whereas you know,
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Speaker 2: Target is going up against Walmart, who just keeps, you know,
19:24
Speaker 2: hitting singles and doubles off the wall all day every day.
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Speaker 2: Let's take a quick break. When we come back, we
19:29
Speaker 2: got Wall Street Watch and they were joined by Todd Lutsky.
19:31
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19:54
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20:00
Speaker 6: Markets ourn negative territory as Wall Street monitors tax bill
20:04
Speaker 6: developments out of Washington, and also react to more retailer
20:07
Speaker 6: earnings this morning from.
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Speaker 2: Target and Lows.
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Speaker 6: Right now, the Dow is down by about one percent,
20:14
Speaker 6: SMP five hundred is down by six tenths of a percent,
20:17
Speaker 6: and the Nasdaq down by a third of a percent.
20:20
Speaker 6: Russell two thousand is actually up by nine tenths of
20:23
Speaker 6: a percent this morning. Ten year treasure yield up five
20:26
Speaker 6: basis points and is now at four point five to
20:29
Speaker 6: three percent, and crude oil up two thirds of a percent,
20:32
Speaker 6: trating at sixty two dollars and forty two cents a barrel.
20:37
Speaker 6: Target down by about five percent after the retail giant
20:40
Speaker 6: came up short on first quarter revenue estimates and cut
20:43
Speaker 6: its full year sales outlook. Executives blame tariff uncertainty, weaker
20:48
Speaker 6: discretionary spending, and backlash to the company's rollback of diversity programs.
20:52
Speaker 6: Target also noted it aims to keep price increases as
20:56
Speaker 6: small as possible, as for lows that stock down by
20:59
Speaker 6: one percent after the home improvement retailer reaffirmed its full
21:03
Speaker 6: year forecast, put in the company on track for year
21:06
Speaker 6: over year sales growth. Lowe's first quarter revenue did, however,
21:09
Speaker 6: come up just short of expectations. Meanwhile, shares in Palo
21:14
Speaker 6: Alto Networks down by six percent after the cybersecurity companies
21:18
Speaker 6: sales outlook missed expectations. The company did still beat on
21:22
Speaker 6: earnings and revenue expectations for the quarter. Elsewhere, VF posted
21:27
Speaker 6: lower than expected quarterly revenue, as the owner of Van
21:30
Speaker 6: Sneakers and The North Face said it accelerated production and
21:34
Speaker 6: shipments into the US during the ninety day tariff pause.
21:38
Speaker 6: That stock down by ten percent, Toll Brothers back to
21:41
Speaker 6: its annual outlook despite software demand and a fall in
21:44
Speaker 6: profit in the previous quarter. That stock is up by
21:47
Speaker 6: three quarters of a percent and United Health down by
21:50
Speaker 6: over five percent after HSBC downgraded the health insurance giants,
21:55
Speaker 6: saying valuations are still elevated despite a recent out on
22:00
Speaker 6: Tucker Silva. And that's Wall Street Watch.
22:04
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
22:07
Speaker 1: If you have an existing estate plan or in the
22:10
Speaker 1: market for one, Todd Letsky is here to answer your
22:12
Speaker 1: questions and help you plan for a later life. Ask
22:15
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:18
Speaker 1: New England for more than thirty five years, helping families
22:21
Speaker 1: with a state and tax planning, Medicaid planning, and probate law.
22:25
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:30
Speaker 2: Todd Lotsky joins us now for Ask Todd. We got
22:34
Speaker 2: phone lines open at eight eight eight two zero five
22:36
Speaker 2: two two six three, because that's the number to call
22:38
Speaker 2: to Ask Todd your estate planning questions. Again, that number
22:43
Speaker 2: is eight eight eight to zero five two two sixty three.
22:46
Speaker 2: And the point of this segment is for you to
22:48
Speaker 2: ask your questions live on air about your state plan,
22:51
Speaker 2: and Todd will not send you a bill after doing so.
22:55
Speaker 2: Mister Lotski, thanks for joining us.
22:57
Speaker 5: Thank you always a pleasure.
22:58
Speaker 2: Again, we got phone lines opening eight eight eight to
23:01
Speaker 2: zero five two two six three get calling because we
23:03
Speaker 2: usually only get through two or three. Last week we
23:05
Speaker 2: did a record I think we got we did. We
23:07
Speaker 2: got four, which ties the record for the most calls
23:09
Speaker 2: we've ever gotten through. But otherwise we're usually a two
23:12
Speaker 2: to three call per show. Deal again eight eight eight
23:16
Speaker 2: to zero five two two six three to Is there
23:19
Speaker 2: any size estate that is too small to benefit from
23:24
Speaker 2: doing trust work?
23:25
Speaker 8: I mean I the way I look at estate planning
23:29
Speaker 8: is a couple of things need to be accomplished.
23:32
Speaker 5: One, you know, obviously probates an issue.
23:35
Speaker 8: Is it?
23:35
Speaker 5: Is it the biggest issue? No?
23:37
Speaker 8: No, you probably don't have to plan just to avoid
23:40
Speaker 8: probate if you don't want to. You know, taxes always
23:43
Speaker 8: got to talk about taxes. Taxes may be an issue.
23:45
Speaker 8: But obviously if you're a state small chuck, as you indicate,
23:49
Speaker 8: maybe taxes isn't.
23:50
Speaker 5: A huge deal.
23:51
Speaker 8: But you can't ignore, you know, family, because a lot
23:56
Speaker 8: of what you're doing. You know, whatever the size of
23:58
Speaker 8: your estate, you know, how you get it to your
24:00
Speaker 8: family or when they get it or why they get
24:03
Speaker 8: it might be important to you. And if it is,
24:05
Speaker 8: then then that might be a reason to plan. And
24:07
Speaker 8: let me let me answer that by saying, what if
24:09
Speaker 8: you're if you're younger, right, and and you have minor children,
24:13
Speaker 8: you might not have a taxable estate yet, right, you
24:16
Speaker 8: might not be over the Massachusetts two million dollar exemption,
24:20
Speaker 8: so you don't need a trust to avoid the tax.
24:24
Speaker 8: Hopefully you're going to grow if your asset, you know,
24:26
Speaker 8: if you're younger and you're just starting out and your
24:28
Speaker 8: assets going to grow. But if you pass away, you know,
24:32
Speaker 8: unexpectedly at a young age, and you have young children.
24:36
Speaker 8: Whatever you do have, even if it's just your home,
24:39
Speaker 8: you want to make sure that that asset doesn't get
24:42
Speaker 8: controlled by somebody like a guardian. You want it to
24:46
Speaker 8: be controlled by a trust. So I might want to
24:48
Speaker 8: trust for my family. So and so even if I'm
24:51
Speaker 8: older and I don't have a taxable situation, but I
24:53
Speaker 8: have some assets that I want to leave to a
24:56
Speaker 8: family member in a certain way, do it if you
24:59
Speaker 8: don't have a tax event, But you want to protect
25:01
Speaker 8: assets from the nursing home. So I could have a
25:02
Speaker 8: smaller estate under a million, but I want to protect
25:06
Speaker 8: my house from the nursing.
25:07
Speaker 5: Home and do it. So.
25:08
Speaker 8: I guess at the end of the day, Chuck, I'm
25:11
Speaker 8: probably at a point where I'm saying a lot of
25:14
Speaker 8: it is family driven, but I also say it does
25:18
Speaker 8: have to make economic sense.
25:20
Speaker 5: I get it.
25:20
Speaker 8: If I can tell you a way that's less expensive
25:24
Speaker 8: than spending the full amount to do an estate plan,
25:27
Speaker 8: I'll tell you right. So if it doesn't make economic
25:30
Speaker 8: sense to spend the money now to provide the family benefit,
25:35
Speaker 8: an economic benefit to the family, well then I say
25:38
Speaker 8: don't do it, and I will tell you like if
25:40
Speaker 8: I just want to avoid probate and give it all
25:42
Speaker 8: to my kids, well then maybe just name designated beneficiaries
25:44
Speaker 8: on all your accounts and be done with it. You
25:46
Speaker 8: might have a little probate here and there, but they'll
25:48
Speaker 8: get it.
25:49
Speaker 2: Talking with Todd Lotski from the law firm of Cushing
25:51
Speaker 2: and Dolan, again we call the segment asked Tod because
25:54
Speaker 2: it's your chance to ask Todd your estate planning questions.
25:57
Speaker 2: Still got a little bit of room on the phone
25:59
Speaker 2: lines eight to zero five two two six three. That
26:04
Speaker 2: is the number to call to ask Todd your questions
26:06
Speaker 2: live on air right now again eight eight eight to
26:10
Speaker 2: zero five two two six three. We're going to take
26:13
Speaker 2: a quick break here, but when we come back, it's
26:17
Speaker 2: going to be right to your questions with Todd Ltsky.
26:20
Speaker 2: That phone number one more time is eight eight eight
26:23
Speaker 2: to zero five two two sixty three. Quick break than
26:27
Speaker 2: your questions with Todd.
26:29
Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
26:33
Speaker 1: only here on the Financial Exchange Radio Network. Todd Letsky
26:39
Speaker 1: answers your questions about a state and elder life planning
26:42
Speaker 1: every Wednesday at ten thirty right here on the Financial
26:45
Speaker 1: Exchange Radio Network.
26:50
Speaker 2: All right, let's get right to your questions with Todd Lotsky.
26:53
Speaker 2: First up, we got Patrick in Ludlow. Patrick, what's your
26:56
Speaker 2: question for Todd?
26:59
Speaker 9: Hi, I'm a.
27:00
Speaker 7: Look curious as far as regards if if there's any
27:02
Speaker 7: new loopholes for capital gains. I've seen rumors about this
27:07
Speaker 7: administration possibly trying to get rid of that at some point,
27:10
Speaker 7: But right now I have a rental property which my
27:16
Speaker 7: wife and I have decided to get rid of it
27:19
Speaker 7: and I know we're going to have to pay capital
27:22
Speaker 7: gains on it. Is there any suggestions as far as
27:24
Speaker 7: any new loopholes or anything like that where we could
27:27
Speaker 7: avoid that.
27:28
Speaker 5: Do you want to buy another property or no?
27:32
Speaker 7: Not at this moment. No, And I know that there's
27:35
Speaker 7: what is it.
27:36
Speaker 8: The ten thirty one exchange exactly, and we could delay,
27:40
Speaker 8: you know, and never pay the tax if you're die
27:42
Speaker 8: owning whatever property you're die owning. Well, so if that's out,
27:45
Speaker 8: there's still ten thirty one exchanges, and they're called you
27:48
Speaker 8: don't have to actually buy real estate, but you can
27:52
Speaker 8: buy these Delaware trusts or whatever they are. There's some
27:56
Speaker 8: sort of an investment. And again I don't want to
27:59
Speaker 8: step out of my lane, but you know, check with
28:02
Speaker 8: your investment advisor and and they might have these these
28:06
Speaker 8: Delaware trust investments that you can buy and they hold
28:10
Speaker 8: real estate and they qualify for a ten thirty one exchange.
28:14
Speaker 8: Without buying real estate, you're buying an investment that qualifies.
28:18
Speaker 5: So that might be the way to go for you.
28:20
Speaker 8: That way, you don't have to have the property and
28:22
Speaker 8: you can delay the you know, the taxes or whatever.
28:25
Speaker 8: And but learn more about about how that works and
28:28
Speaker 8: The only other issue I can think of is, well, no,
28:32
Speaker 8: there isn't. I mean, as far as I know, capital
28:34
Speaker 8: gains are still there and they're here to stay.
28:36
Speaker 5: But I don't.
28:36
Speaker 8: I don't know that that's in the even in the
28:38
Speaker 8: new tax bill, unless they get rid of the entire
28:41
Speaker 8: ir irs, which is possible.
28:44
Speaker 5: Who knows.
28:45
Speaker 8: So hopefully that helped a little gives you some ideas
28:47
Speaker 8: on what to do, folks. Speaking of ideas on what
28:49
Speaker 8: to do, many people don't do their estate planning. That's
28:53
Speaker 8: a pothole. Right to me, I got a new guide here.
28:55
Speaker 8: Potholes to avoid. We've been talking about it all month.
28:58
Speaker 8: It it basically, you know, so many people like someone
29:01
Speaker 8: dies and they forget that there's taxes that need to
29:03
Speaker 8: be filed on these on these these trusts that existed.
29:06
Speaker 8: Things change when someone dies. The type of tax return
29:09
Speaker 8: for the trust might change. And please don't make the
29:12
Speaker 8: mistake of taking everything out of one trust and putting
29:14
Speaker 8: it in the surviving spouse's trust. These are potholes that
29:17
Speaker 8: exist for people that have done their planning, or maybe
29:21
Speaker 8: they're changing residency. What do you do, folks, There's many
29:24
Speaker 8: things to think about. If you've done your planning, there
29:27
Speaker 8: could still be potholes. Get the guide. If you haven't
29:29
Speaker 8: done your planning. There's a whole list of things in
29:31
Speaker 8: here that will help you to avoid when you're starting
29:35
Speaker 8: out and doing your planning. So get the guide Potholes
29:39
Speaker 8: to Avoid eight six six eight four eight five six
29:43
Speaker 8: nine nine or Legal Exchange Show dot com again eight
29:47
Speaker 8: six six eight four eight five six nine nine or
29:51
Speaker 8: Legal Exchange Show dot Com.
29:54
Speaker 2: Got another one for you here, Let's go to David
29:55
Speaker 2: on the Cape. David, you are on with Todd Alotski.
30:00
Speaker 3: Hi, good morning, Todd. My mother has your Vocable Medicaid trust.
30:04
Speaker 3: I'm a trustee. She asked me to give my brother
30:08
Speaker 3: twenty thousand dollars. So that's over the eighteen thousand dollars limit.
30:12
Speaker 3: To see or I have to file a gift tax
30:15
Speaker 3: forma DIARS.
30:16
Speaker 5: So is this money that you plan on gifting to
30:19
Speaker 5: the brother coming from the trust account?
30:24
Speaker 3: It's coming from the trust. He's a lifetime beneficiary. I'm
30:27
Speaker 3: named on the trust.
30:28
Speaker 8: Well, I think yeah, the trust probably says income to mom, right,
30:35
Speaker 8: principal Mom cannot have okay, and principle, however, maybe in
30:42
Speaker 8: your discretion as trustee, David, can make distributions out to
30:47
Speaker 8: kids of all generations. I'm just gonna that's kind of
30:51
Speaker 8: how our trusts are drafted. So I'm going to assume
30:55
Speaker 8: this medicaid trust has similar language in it, which is
30:58
Speaker 8: first of all, for everybody listening. That's why money twenty
31:02
Speaker 8: grand can come out to the brother here that's a
31:06
Speaker 8: child of mom. So let me ask you this. How
31:10
Speaker 8: much is the amount of money in the trust potentially
31:14
Speaker 8: able to generate more than twenty thousand dollars a year
31:18
Speaker 8: in interest in dividends? Yes, okay, how much do you
31:23
Speaker 8: think it generates and interest in dividends per year?
31:28
Speaker 3: I think last year file taxes about fifty thousand.
31:31
Speaker 8: So arguably, if mom doesn't need all fifty thousand dollars
31:36
Speaker 8: you could use, you could make a distribution of twenty
31:39
Speaker 8: thousand dollars to mom. That's not a taxable event, that's
31:43
Speaker 8: not a gift, right, And that's technically income generated by
31:48
Speaker 8: the trust. And so now mom got the income if
31:52
Speaker 8: the trust provides, Mom's entitled to the income. So now
31:56
Speaker 8: Mom's got the income, she's got the twenty grand. She
31:59
Speaker 8: can turn around and make a gift to her son. Yes,
32:03
Speaker 8: she technically would need to file a gift tax return
32:06
Speaker 8: if it goes over nineteen. So my advice might be,
32:10
Speaker 8: you know what, take the nineteen and let's just go
32:12
Speaker 8: on from there. No need to file a gift tax
32:14
Speaker 8: return for the one one k. That might be easier,
32:18
Speaker 8: So I mean that's probably the answer. If not, then
32:22
Speaker 8: the trust makes the gift out to the to the brother. Again,
32:26
Speaker 8: I'd just stick with nineteen for one grand.
32:28
Speaker 5: I just wouldn't. I wouldn't worry about it.
32:31
Speaker 8: Would I would give the brother the nineteen there would
32:34
Speaker 8: be that's technically a gift for mom, non reportable, non taxable,
32:39
Speaker 8: and then the brother has it and you're all set.
32:41
Speaker 8: So that would probably be the two options I would do. Otherwise, Yes,
32:44
Speaker 8: if you do go over the nineteen thousand per year
32:47
Speaker 8: per person number, you do have to file a gift
32:50
Speaker 8: tax return, but there won't be any gift taxes do
32:55
Speaker 8: because whether it's you or your brother or the mother,
32:59
Speaker 8: we have a thirteen point nine million dollar gift tax
33:05
Speaker 8: exemption once in a lifetime, so unless we exceed that,
33:09
Speaker 8: we don't pay a tax. So if you gave twenty
33:11
Speaker 8: nineteen is a freebie. One comes off of the thirteen
33:14
Speaker 8: point nine million.
33:16
Speaker 2: Tod, I got another one here for you. Let us
33:19
Speaker 2: go to Kevin in the car. Kevin, what's your question
33:23
Speaker 2: for Todd A Lotski?
33:26
Speaker 9: Hi guys, good morning, Hey Todd. I had a question.
33:30
Speaker 9: So I'm sixty three. I'm looking to retire and probably
33:33
Speaker 9: in two to three years. I have a four to
33:36
Speaker 9: one k My wife has the retirement. We own our house.
33:39
Speaker 9: That's about it. We checked out a couple of years ago.
33:43
Speaker 9: We were thinking of maybe doing some kind of trust
33:46
Speaker 9: and kind of got talked on a bit. Oh some
33:50
Speaker 9: people said we should do it, other people that take
33:53
Speaker 9: it too early to do it. We have a will
33:56
Speaker 9: and that's really all we have right now, and I'm
33:59
Speaker 9: just curious, is it is this something else we should
34:02
Speaker 9: be looking into as fire as uh, maybe doing the
34:05
Speaker 9: trust right now and spending the money.
34:07
Speaker 4: To do it.
34:08
Speaker 5: So let me ask you this. You've got a house,
34:09
Speaker 5: how much is that worth?
34:12
Speaker 9: One point two million?
34:13
Speaker 5: So you got that's a big asset.
34:15
Speaker 8: And then other than four to oh one k type money,
34:18
Speaker 8: do you have other money cash investments? And how much? No, No,
34:23
Speaker 8: it's all it's all four oh one k type money.
34:25
Speaker 8: A little bit of money in the bank maybe, but
34:27
Speaker 8: primarily a house and four to oh one k type money.
34:30
Speaker 8: So how much are we looking at as a total
34:32
Speaker 8: value of your estate you and your wife combined.
34:34
Speaker 9: It's probably somewhere two point five.
34:38
Speaker 8: And three million perfect And again one point two of
34:42
Speaker 8: it is is the house, which is a big number.
34:44
Speaker 5: So you're pushing close to half of your estate is
34:46
Speaker 5: a house. So you you.
34:48
Speaker 8: Should do planning, which which would involve a trust. The
34:52
Speaker 8: kind of trust still remains to be determined, but if
34:56
Speaker 8: you did a revocable trust, you're at least going to
34:58
Speaker 8: avoid probate. And and with a three point five million
35:01
Speaker 8: dollar estate, it will serve to not just reduce but
35:06
Speaker 8: eliminate your Massachusetts of state tax okay, because we can
35:10
Speaker 8: shelter up to four million dollars on the first death
35:14
Speaker 8: if you're married and you plan okay, So that's what
35:18
Speaker 8: the trust would do, so it will avoid probate, keep
35:20
Speaker 8: you in control, eliminate the taxes, and provide how these
35:26
Speaker 8: assets will get to your your family. Right, So there
35:30
Speaker 8: might be you know, kids aren't good with money. I'm
35:34
Speaker 8: worried about future divorces of the children. So there's a
35:38
Speaker 8: lot that can happen after you die that a trust
35:43
Speaker 8: can also provide for So I think that that you
35:46
Speaker 8: have enough assets to certainly do planning from a tax
35:51
Speaker 8: perspective and a probate perspective. And do you have children?
35:55
Speaker 8: I didn't ask you about that.
35:57
Speaker 9: I do, Yeah, they're they're not children anymore.
36:01
Speaker 5: Twenty eight Do you have grandkids?
36:04
Speaker 2: Not yet?
36:05
Speaker 8: Okay, see, but planning for all of that might be
36:07
Speaker 8: on your plate as well. And that's where the trust
36:10
Speaker 8: lives on after you die, and we can take care
36:12
Speaker 8: of them in whatever manner you want. So that's step one.
36:16
Speaker 8: The only thing that I didn't describe that may or
36:19
Speaker 8: may not be a concern of yours. Again sixty three
36:22
Speaker 8: and over or sixty and over, I'm going to ask
36:24
Speaker 8: the question nursing homes.
36:26
Speaker 5: You know, do I want to.
36:28
Speaker 8: Say, five years from now, have certain assets my home
36:32
Speaker 8: and any other assets I can put in the trust
36:34
Speaker 8: protected from the cost of nursing home care. If I do,
36:37
Speaker 8: then we would, you know, address how an irrevocable trust works,
36:41
Speaker 8: which would ultimately keep you in control of your assets
36:45
Speaker 8: ninety eight percent and do everything the revocable trust does,
36:50
Speaker 8: but also provide after five years protection from the cost
36:55
Speaker 8: of long term care.
36:57
Speaker 5: So I think you're on the right track now.
36:59
Speaker 8: I think you need to sit down and figure out
37:01
Speaker 8: which type of trust is right for you. But planning
37:04
Speaker 8: certainly would be good for you. Mister Weltsky, thank you
37:07
Speaker 8: for joining us today.
37:08
Speaker 5: Thanks so much.
37:10
Speaker 1: This has been Asked Odd on the Financial Exchange Radio network.
37:14
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:16
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:19
Speaker 1: thirty years, helping families with the state and tax planning,
37:22
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:25
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:29
Speaker 1: The views expressed in this segment are solely those of
37:31
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:33
Speaker 1: or tax advice. Please consult with your legal or tax
37:35
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37:38
Speaker 1: each other and are not affiliated.