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Warsh’s First Fed Test Comes With Inflation Still Hot · The Financial Exchange Show

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Speaker 1: is the Financial Exchange with Chuck Zada and Paul.
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Speaker 2: Lane, Chuck, Paul, and Tucker with you here, and Happy
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Speaker 2: FED day everyone, specifically, Happy Kevin Warshfed Day.
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Speaker 3: It is Kevin Walsh's first day on the job, and
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Speaker 3: we're going to see exactly what kind of the first
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Speaker 3: you know, first glimpses of the Worsh FED look like.
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Speaker 3: This afternoon. The Fed's interest rate decision is scheduled to
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Speaker 3: be released at two pm this afternoon. We are also
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Speaker 3: scheduled to receive the Summary of Economic Projections, and there
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Speaker 3: is going to be a Kevin Worsh press conference at
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Speaker 3: two thirty pm. The biggest question out there, in my
1:51
Speaker 3: mind is what color is Kevin Warsh's tie going to be?
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Speaker 3: Jay Powell, the master of the Purple Tie, has been
2:00
Speaker 3: relegated to just another board seat on the FED, and
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Speaker 3: I'm I'm guessing there has to be a prediction market
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Speaker 3: out there somewhere for what color is is Kevin Worsh's
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Speaker 3: tie going to be? Having not looked for it or
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Speaker 3: seen anything about it, I'm gonna go with Worsh as
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Speaker 3: I'm gonna go with Warsh as a gold guy.
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Speaker 4: So there is no prediction market, there's not just yet,
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Speaker 4: but perhaps an endeavor for for the financial exchange to pursue.
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Speaker 5: Paul, let's get that off the ground.
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Speaker 3: What color, What color do you have?
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Speaker 5: I'm gonna go with red.
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Speaker 3: You're going red?
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Speaker 5: Yes?
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Speaker 3: Talk What about you? No tie? No tie?
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Speaker 5: Cash?
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Speaker 3: Are you also going with no shirt in addition to
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Speaker 3: no tie, sleeves or no sleeves, sleeves jacket or no
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Speaker 3: jacket jacket? Okay, so just a little bit more casual
2:59
Speaker 3: is what you're singesting there. So, in reality, the big
3:03
Speaker 3: questions that I have when it relates to this meeting.
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Speaker 3: Number one, the FED is not going to cut interest
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Speaker 3: rates at this meeting. Correct. We know this with almost
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Speaker 3: one hundred percent. Certainly you can have one hundred percent
3:15
Speaker 3: certain of anything.
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Speaker 5: But uh, if nine point six on the FED futures markets.
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Speaker 3: Given what we heard from the rest of the committee
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Speaker 3: that is still there, including j Powell at the last meeting,
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Speaker 3: it is, I would be shocked. I would be flabbergasted.
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Speaker 3: I would eat my own shirt. Oh gosh, tomorrow.
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Speaker 5: In a different word, no, I would.
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Speaker 3: Eat my own shirt tomorrow if the FED cut interest
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Speaker 3: rates at this meeting. All right, I don't think they waned,
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Speaker 3: but I don't think that's coming. Here are the things
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Speaker 3: I'm interested in. Number one, is there any change to
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Speaker 3: the format of the statement that comes out after the
3:55
Speaker 3: FED meeting? Generally right now, it's like four to five
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Speaker 3: paragraphs long. It goes through ball blah blah. Does Worsh
4:01
Speaker 3: take an opportunity One of the things he's wanted to
4:03
Speaker 3: review is the communication policy of the FED. So is
4:06
Speaker 3: there a change just in the overall formatting of the
4:08
Speaker 3: statement in what they say there? I think that'll be
4:11
Speaker 3: something he.
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Speaker 4: Wants, less communication just for listeners out there than what
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Speaker 4: has been previously done by the FED.
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Speaker 3: Number Two, we are going to get a summary of
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Speaker 3: economic projections today. Does Worsh take this as an opportunity
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Speaker 3: to say, Hey, we're halting the summary of Economic projections
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Speaker 3: after this meeting. They're not required to put it out.
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Speaker 3: It's not a statute of the FED, it's not a
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Speaker 3: law passed by Congress. And so does Worsh say, hey,
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Speaker 3: we're not going to do the summary of economic projections again?
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Speaker 3: Number three? Uh, press conference?
4:43
Speaker 6: Again?
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Speaker 3: The FED is not obligated to send the chair out
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Speaker 3: for the press conference every meeting. Does Worsh a cut
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Speaker 3: this one?
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Speaker 6: You know?
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Speaker 3: Pretty short? Not really say too much? And b does
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Speaker 3: he make any formal changes to the schedule of press
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Speaker 3: conferences going forward. I think these are the big things
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Speaker 3: I'm looking for right now, rather than Hey, is he
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Speaker 3: going to talk duvishly or talk hawkishly, because I think
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Speaker 3: that all of that stuff is going to end up
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Speaker 3: being resolved by where the economy goes. You know, if
5:18
Speaker 3: warst talks hawkishly today, just as an example, and we
5:23
Speaker 3: see oil prices continue to slide through the rest of
5:26
Speaker 3: the summer and inflation, you know, abates, it's not gonna
5:30
Speaker 3: matter that he talked hawkishly today because the path forward
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Speaker 3: will be okay, we don't need to worry about inflation
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Speaker 3: as much and we can move on from there. If
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Speaker 3: he talks dubishly today and things in the Middle East
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Speaker 3: flare up again in oil prices, you know, rebound in
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Speaker 3: the second half of the summer, and inflation becomes a
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Speaker 3: bigger problem, it's not gonna matter that he talked douvishly today.
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Speaker 3: So I'm I'm not really too concerned about, you know,
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Speaker 3: the specifics of what he says about the economy right now,
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Speaker 3: because ultimately, where the economy goes over the next six
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Speaker 3: to twelve months is going to lead the Fed. What
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Speaker 3: I do think the best practice for him would be
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Speaker 3: at this point, even given that he likely wants to
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Speaker 3: cut interest rates, if his public statements previous to this
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Speaker 3: are any indication, the best practice for him still to say, Hey,
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Speaker 3: the economy right now is showing signs of elevated inflation.
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Speaker 3: We're going to monitor that to see if it becomes
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Speaker 3: a continued problem, and if it does, we'll look to
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Speaker 3: address that. If it is not a continued problem, then
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Speaker 3: we will seek out appropriate policy as we see fit,
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Speaker 3: and YadA YadA. That will be the best thing for
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Speaker 3: him to say. And look, here's the thing. When you
6:44
Speaker 3: become the FED chair, it's it's not by accident. There
6:48
Speaker 3: are plenty of talented economists out there. It's like becoming
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Speaker 3: the CEO of a major company. You don't get there
6:55
Speaker 3: just by being good at your job. You get there
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Speaker 3: by knowing how to play the game. Worsh is no dummy.
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Speaker 3: He again, has been on the FED board before, and
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Speaker 3: he knows how to play the game to get to
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Speaker 3: where he wants to be, which is the FED chair
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Speaker 3: right now. I don't expect him to walk into the
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Speaker 3: first FED meeting, rip his shirt off and go y'all
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Speaker 3: are cutting rates. No, Like, he's not going to do
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Speaker 3: that because he's no dummy, and he also knows all
7:23
Speaker 3: these people, you know, from his time at the FED. Anyway,
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Speaker 3: It's not again, he's not walking into the committee meeting
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Speaker 3: going Hi, I'm Kevin, Nice to you are, oh, like
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Speaker 3: so nice to meet you, Jerome like yes, No, like,
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Speaker 3: these people all know each other. And so I think
7:38
Speaker 3: that by and large, while worsh has talked about wanting
7:42
Speaker 3: to change, you know, how the FED operates a little bit,
7:44
Speaker 3: I don't think he's going to be stupid about it,
7:48
Speaker 3: or at least I hope he isn't. I don't think
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Speaker 3: that's where he's going to go in my opinion.
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Speaker 4: Yeah, Ultimately, you have to convince all the other members
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Speaker 4: on the board to go in the direction that you're trending.
7:57
Speaker 4: So you have to establish credibility here with your first
8:00
Speaker 4: time coming through. So the idea of making dramatic changes
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Speaker 4: to the way he runs things on his first meeting,
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Speaker 4: you probably would think would not be a great approach
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Speaker 4: to get your other board members on the same page
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Speaker 4: with you going forward. So, really, like you said, what
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Speaker 4: it does come down to is how is the communication
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Speaker 4: style going to change really what the FED has done
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Speaker 4: previously with these quarterly projections and the release of the
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Speaker 4: dot plot, as well as these press conferences. All of
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Speaker 4: this is aimed at keeping investors and any market participants
8:33
Speaker 4: apprized of what the FED is thinking, so as not
8:36
Speaker 4: to create a scenario where any interest rate decision comes
8:39
Speaker 4: as a surprise to the markets.
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Speaker 3: It allows for people who.
8:42
Speaker 4: Are behind the scenes that are really critical to the
8:46
Speaker 4: interest rates policy in this country in markets, to understand
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Speaker 4: where the direction of rates are going. Kevin Warshas said
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Speaker 4: that he feels that there is there's too much communication
8:56
Speaker 4: in the current iteration of the FED and that there
8:58
Speaker 4: needs to be tweaks to a allow for greater flexibility
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Speaker 4: for the FED by basically them saying less. And so
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Speaker 4: that's kind of pigging backing off your point, but that's
9:07
Speaker 4: what I'm looking for today. It's like, how does he
9:09
Speaker 4: make that distinction in his overall sort of thought process
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Speaker 4: behind lesser communication. How does that take shape or form today?
9:18
Speaker 3: You guys big forgetting Sarah Marshall fans. Sure, yes, yeah,
9:23
Speaker 3: so solid solid rom com from two thousand and eight.
9:26
Speaker 3: I believe you guys remember Paul Rudd's character in that
9:31
Speaker 3: Carno do us I knew.
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Speaker 5: You're gonna go there, do leus that pop up?
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Speaker 3: Do less. No, Now, you're not doing anything that is
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Speaker 3: Kevin warsh what he's trying to do. He wants to
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Speaker 3: just be. He wants the FED to bob in the
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Speaker 3: waters of monetary policy. That's what he wants them to do.
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Speaker 3: And by the way, most of the time, the answer
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Speaker 3: for the FED is the thing. Don't need to do
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Speaker 3: anything right, Like, they don't need to overreact to every
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Speaker 3: ripple in the economy, because you go through these periods
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Speaker 3: where hey, the economy looks like it's slow in a
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Speaker 3: little bit for four to six months, and then it
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Speaker 3: looks like it's accelerating, and then it looks like it's
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Speaker 3: it's a living system. It doesn't just go at one speed.
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Speaker 3: It's not cruise control. It's no like this changed and
10:21
Speaker 3: so companies decided to do this, and then that caused
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Speaker 3: other changes which made them go back. You're like, that's
10:26
Speaker 3: that's kind of how things move. So I do think
10:29
Speaker 3: there's something to be said. We've talked a lot about this, guys.
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Speaker 3: I don't need eleven FED speakers in a week.
10:35
Speaker 4: No I've never understood the need for them to all
10:37
Speaker 4: go on their press junkets to have all of their
10:40
Speaker 4: thoughts voiced out.
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Speaker 3: But I do need to know if you're not talking,
10:46
Speaker 3: that you're looking at the stuff, you're paying attention, and
10:49
Speaker 3: when it is time to react, when it's not one
10:51
Speaker 3: of those little wiggles, but instead it's a larger wobble
10:54
Speaker 3: that needs to be dealt with, that you're on the
10:57
Speaker 3: case and you're ready to go. And that's what Wars
10:59
Speaker 3: is going to need to convince people of, is Hey,
11:02
Speaker 3: I'm not gonna be holding your hand talking about everything
11:04
Speaker 3: twenty four to seven, but I'm here. If you need me,
11:09
Speaker 3: you can count on me, just like just like the
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Speaker 3: Michelin Man or Smokey the Bear or any other anthropomorphic
11:18
Speaker 3: character that you can count on. That's what I want Kevin.
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Speaker 5: Wars to be pillars of our society.
11:24
Speaker 3: You know Smokey the Bear exactly. You know, only you
11:28
Speaker 3: can stop inflation. That's if Smokey was fed chair. Let's
11:33
Speaker 3: take a quick break here. When we return, let's talk
11:37
Speaker 3: a little bit about oil and the Middle East.
11:40
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12:23
Speaker 3: All right, let's talk a little bit about the oil
12:26
Speaker 3: outlook beyond twenty twenty six. When we take a look
12:31
Speaker 3: at you know, twenty twenty seven and twenty eight. The IEA,
12:34
Speaker 3: the International Energy Association or association, I don't know whatever
12:41
Speaker 3: the A stands for. The IA is agency agency. It's fine.
12:46
Speaker 3: The IA is out and with their estimates of what
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Speaker 3: twenty twenty seven looks like and the big thing they
12:55
Speaker 3: are expecting to see after a one point one million
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Speaker 3: barrel per day drop in demand this year, a two
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Speaker 3: million barrel rise so net of one million over twenty
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Speaker 3: twenty five, and oil supplies expected to rebound by about
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Speaker 3: eight million barrels a day on average. Again, because we've
13:13
Speaker 3: had this large disruption this year, and this gets it
13:19
Speaker 3: something that I've been talking about, but I still don't
13:22
Speaker 3: think the IA is quite there on it. In that, look,
13:26
Speaker 3: if you're concerned about the potential for you know, higher
13:30
Speaker 3: oil prices at some point later this summer, which like
13:33
Speaker 3: I still am, I know that we're not seeing higher
13:36
Speaker 3: prices right now. They're very much lower. There's a pretty
13:40
Speaker 3: narrow window for those higher prices to materialize, which is
13:44
Speaker 3: kind of late summer through the end of this year,
13:47
Speaker 3: because as you get into twenty twenty seven, a few
13:50
Speaker 3: things happen. Number One, you've got all kinds of countries
13:54
Speaker 3: in the Middle East talking about or already building pipelines
13:57
Speaker 3: to bypass the straight afore movie. Sure, so some of
13:59
Speaker 3: that reduction is going to come back online anyways. Number Two,
14:02
Speaker 3: other production around the world. If prices do remain higher
14:06
Speaker 3: for longer or get back to being higher for longer,
14:09
Speaker 3: other producers say, hey, we can spool up to fill
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Speaker 3: that demand as well, knowing that this isn't just a
14:14
Speaker 3: short term thing. Yeah, we're happy to you know, start
14:17
Speaker 3: producing more then. And so I do think that the
14:21
Speaker 3: IA gets it the idea that, look, if there's going
14:23
Speaker 3: to be any kind of supply crunch. It's going to
14:26
Speaker 3: be in Q three and Q four of this year
14:28
Speaker 3: because the factors that lead to it start to be
14:32
Speaker 3: resolved next year, even if traffic doesn't resume in horror moves,
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Speaker 3: you know, as you know was previously. The piece that
14:40
Speaker 3: I do think that they are missing, uh, is the
14:43
Speaker 3: fact that and again it's the IA, so like that
14:47
Speaker 3: they're not dummies. I know this, but the IA has
14:51
Speaker 3: underestimated demand for the last twenty five years. Basically, they
14:54
Speaker 3: consistently underestimate demand. The place that I think that they're
14:59
Speaker 3: going to underestimate it is in countries that either need
15:03
Speaker 3: to refill their strategic reserves or countries that don't have
15:07
Speaker 3: them right now looking to build those strategic reserves. And
15:11
Speaker 3: so this is you know why I've said, Look, even
15:15
Speaker 3: if you get a resolution and everything starts moving cleanly,
15:18
Speaker 3: you're not going back to fifty five dollars oil anytime soon,
15:22
Speaker 3: because there is going to be sustained demand for a
15:25
Speaker 3: three to five year period to build those reserves back up.
15:29
Speaker 3: And is there going to be enough you know, upswinging
15:32
Speaker 3: production to offset that. I don't think so. And so
15:37
Speaker 3: this is the place that I get to, which is hey, great,
15:40
Speaker 3: you've got you know, the memorandum of understanding signed and
15:43
Speaker 3: final signing ceremonies going to be on Friday. We should
15:46
Speaker 3: start to see ships you know, moving through Hormuz in
15:49
Speaker 3: higher levels shortly after. That is the expectation. And if
15:55
Speaker 3: you get that, yeah, you can potentially stave off some
15:58
Speaker 3: of these worst cases in as if you know, Hormus
16:01
Speaker 3: had remained closed through you know, mid July or August
16:05
Speaker 3: or longer. But it still is something where the longer
16:10
Speaker 3: term picture is not one where you get oiled back
16:13
Speaker 3: to fifty five a barrel, because there are factors that
16:17
Speaker 3: are going to lead to higher demand in the next
16:20
Speaker 3: several years relative.
16:21
Speaker 1: To what it was before.
16:22
Speaker 4: Yeah, I feel like it's kind of a tight rope
16:24
Speaker 4: that you're walking to hit all of these different checkpoints.
16:27
Speaker 5: Appropriately.
16:28
Speaker 4: You've got infrastructure in the Middle East that has been
16:31
Speaker 4: destroyed that will need to be rebuilt.
16:34
Speaker 5: You have perhaps you know.
16:35
Speaker 4: This significant investment in building pipelines to work around the
16:38
Speaker 4: straight like all of these things, and then this agreement
16:41
Speaker 4: is supposed to be signed on Friday, you know, how
16:43
Speaker 4: quickly does traffic resume? And then to your earlier point,
16:46
Speaker 4: the real demand to you know, replenish strategic reserves there.
16:51
Speaker 4: There just feels like there's going to be a significant
16:53
Speaker 4: amount of demand factors that could far outpace what the
16:58
Speaker 4: supply or even in supply could look like in twenty
17:02
Speaker 4: twenty seven. Like a lot has to go right, I feel,
17:05
Speaker 4: in order to have this sort of smooth landing of
17:09
Speaker 4: sorts in twenty seven where there is enough supply to
17:12
Speaker 4: meet the demand factors, like I just think.
17:14
Speaker 3: You get there. I'm less concerned about twenty seven. It's
17:17
Speaker 3: really the period that I still think bears watching is
17:22
Speaker 3: as you get into kind of mid July through you know,
17:25
Speaker 3: mid September is is the peak time for a potential
17:28
Speaker 3: crisis to hit. And after that, I'm hard pressed to see,
17:33
Speaker 3: you know, any problems really continuing unless horror moves like
17:37
Speaker 3: somehow remains closed throughout all of this, and.
17:40
Speaker 5: Which can't be ruled out to something the Middle.
17:42
Speaker 3: East, like you can never rule anything out, like it's
17:45
Speaker 3: again you never know exactly how this is going to
17:48
Speaker 3: play out. But again, the only reason I'm hesitant there's
17:54
Speaker 3: been so many false starts on this, right, this feels
17:57
Speaker 3: more real than you know, previous things over the last
18:00
Speaker 3: couple months. But you never know.
18:03
Speaker 5: I mean even I look at it, still a long
18:05
Speaker 5: way to go before Friday.
18:06
Speaker 3: I even look at like and again there's various versions,
18:08
Speaker 3: Like Bloomberg has a version of the memorandum that's out there.
18:11
Speaker 3: It's like, Okay, Iran commits to like restoring traffic, you know,
18:14
Speaker 3: within a thirty day period, and part of it like
18:17
Speaker 3: what goes through my head just because again, like I
18:20
Speaker 3: I've seen how the Iranians have operated this whole time
18:23
Speaker 3: with their definitions of like open and what if they
18:27
Speaker 3: wait until like day twenty nine and so like now
18:29
Speaker 3: we're sitting here, it's mid July, and then they're finally like, okay,
18:32
Speaker 3: now it's open. But it's been another four weeks at
18:34
Speaker 3: that point, and I haven't done anything that's mentioned on
18:37
Speaker 3: the logistical issues that are going to come through going
18:40
Speaker 3: through that straight now where there's minds that I think
18:42
Speaker 3: have to be taken out.
18:44
Speaker 4: They're scheduling, there's insurance coverage, like, there's a lot of
18:46
Speaker 4: different issues that need to be sorted out to make
18:49
Speaker 4: that traffic resume seamlessly in the street.
18:53
Speaker 3: So we'll see again, I'm I'm optimistic that we can
18:58
Speaker 3: avert these worst case scenarios. But this whole sagas had
19:02
Speaker 3: so many different twists and turns over the last couple
19:05
Speaker 3: of months that until it's you know, you see consistent
19:09
Speaker 3: flow for like a few days with no problems. It's like,
19:13
Speaker 3: let's just see how things progress here. But I'm hopeful
19:16
Speaker 3: we can avert some of the worst case scenarios that
19:18
Speaker 3: we were talking about and we'll see where things go.
19:22
Speaker 3: Let's take a quick break here when we return, Todd
19:27
Speaker 3: Lutsky from No, Toddletsky does not join us.
19:30
Speaker 5: Oh yes, as Todd.
19:31
Speaker 3: It's not on the calendar. Bad does sounds for us?
19:34
Speaker 3: Todd next.
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20:01
Speaker 7: investors await the conclusion to Kevin Warris's first FED meeting
20:05
Speaker 7: as chair at two o'clock this afternoon. Right now, the
20:09
Speaker 7: Dow is up four tenths of a percent, SMP five hundred,
20:13
Speaker 7: edging six points higher. NASDAC up only twenty one points.
20:16
Speaker 7: RUSS two thousand is up nearly one percent. Dan your
20:20
Speaker 7: trezreeld is flat at four point four to three percent.
20:22
Speaker 7: In Oil up over one and a half percent higher,
20:26
Speaker 7: trading at seventy seven dollars a barrel after three storage
20:29
Speaker 7: sessions of positive gain since its IPO. SpaceX down nearly
20:33
Speaker 7: three percent today, sticking with space where ast space Mobile
20:37
Speaker 7: said it successfully launched into orbit three new satellites that
20:41
Speaker 7: will continue to build its cellular broadband network in space
20:45
Speaker 7: that stock up over three and a half percent. Meanwhile,
20:48
Speaker 7: CarMax dropping six percent despite the car retailer posting and
20:52
Speaker 7: earnings and revenue beat elsewhere. Young Brands officially agreed to
20:56
Speaker 7: sell its pizza Hut business for two point seven billion
20:59
Speaker 7: dollars and two seven for deals to Long Range Capital
21:02
Speaker 7: and Yum China Holdings. YOUM Brands down by one percent
21:06
Speaker 7: and shares and Lionsgate Studios retreating six percent after streaming Giant.
21:11
Speaker 7: Netflix denied reports that it is interested in acquiring the
21:15
Speaker 7: media company. Lionsgate rallied by fourteen percent yesterday, amid the
21:20
Speaker 7: speculation I'm Tucker Silva in that is Wall Street.
21:24
Speaker 1: Watch this is Ask Todd on the Financial Exchange Radio network.
21:30
Speaker 1: If you have an existing estate plan or in the
21:32
Speaker 1: market for one, Todd Lutsky is here to answer your
21:34
Speaker 1: questions and help you plan for a later life. Ask
21:37
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
21:40
Speaker 1: New England for more than thirty five years, helping families
21:43
Speaker 1: with the state and tax planning, medicaid planning, and probate law.
21:47
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
21:53
Speaker 3: As promised, we are now joined by Todd Lutsky from
21:58
Speaker 3: the law firm of Cushing and Dolan. Segments called Asked Todd,
22:03
Speaker 3: and this is your chance to ask Todd your estate
22:05
Speaker 3: planning questions live on air right now. Eight eight eight
22:12
Speaker 3: two zero five two two sixty three is the number
22:15
Speaker 3: to call again. Eight eight eight to zero five two
22:18
Speaker 3: two six three. We've got the phone lines open, but
22:21
Speaker 3: remember we usually get through maybe two to three of
22:24
Speaker 3: your questions, so get calling early and often to make
22:28
Speaker 3: sure we get to your estate planning question again. That
22:31
Speaker 3: phone number is eight eight eight to zero five two
22:36
Speaker 3: two six three. Mister Lutsky, how are you doing today?
22:41
Speaker 6: I'm never better? How you doing.
22:43
Speaker 3: I'm doing pretty well.
22:45
Speaker 6: It's always something pretty well.
22:47
Speaker 3: I was reading about uh, Isaac Newton the other day.
22:50
Speaker 6: I've heard of him. He's what the apple.
22:52
Speaker 3: Well I was reading about when he discovered gravity. Yeah,
22:55
Speaker 3: you know what he said when he discovered it? No said, oh,
22:58
Speaker 3: it's about to go down. Yeah, not to go down.
23:02
Speaker 3: It did, let me tell you it did, Todd. I
23:04
Speaker 3: want to talk a little bit about trusts and specifically, uh,
23:10
Speaker 3: you know, key differences that help to inform people as
23:14
Speaker 3: to the right trust for them, because there are a
23:17
Speaker 3: number of different instruments out there. Correct, It's it's not
23:20
Speaker 3: just like, hey, here's your.
23:22
Speaker 6: Trust right right.
23:24
Speaker 3: When someone is trying to make an informed decision, what
23:28
Speaker 3: are the considerations they need to have in their mind
23:31
Speaker 3: that help to clarify which one of the tools is
23:34
Speaker 3: going to be the right one for their specific situation.
23:36
Speaker 6: Yeah.
23:37
Speaker 8: I think that's a fair question, because you know, they'll
23:39
Speaker 8: be sitting perhaps with an attorney, and you know, yeah,
23:42
Speaker 8: the attorney's supposed to provide some guidance and and some
23:46
Speaker 8: consultation as to how how to go about.
23:49
Speaker 6: It, and they will ask a lot of questions.
23:51
Speaker 8: So I don't want you to feel like, if you're
23:52
Speaker 8: trying to get started in the estate planning world, that
23:55
Speaker 8: you should fear going in there because you know, the
23:57
Speaker 8: lawyer should provide a lot of guidance, ask a lot
23:59
Speaker 8: of quoestestions about your situation which will help guide you.
24:03
Speaker 8: But in your mind, you know, sort of go in
24:05
Speaker 8: with these ideas in mind. You know, do you want
24:09
Speaker 8: to avoid probate. You're going to be thinking about that
24:11
Speaker 8: as an option, okay, because that's going to make sure
24:14
Speaker 8: that make sure these items come up in your meeting,
24:18
Speaker 8: and if they don't, you bring them up in the meeting.
24:20
Speaker 8: That's kind of where I'm going with this. Sure, So
24:23
Speaker 8: you know you should be thinking about probate. You should
24:26
Speaker 8: be thinking about how you own your assets.
24:29
Speaker 6: You know, is it joined?
24:30
Speaker 8: Do I have it in an existing trust already? You know,
24:34
Speaker 8: do I have designated beneficiaries on it? How is it
24:36
Speaker 8: owned in my own name? Then roughly, what are they worth?
24:41
Speaker 8: Approximate round numbers. We don't need, you know, just a
24:44
Speaker 8: good guess as to what they worth. And so think
24:47
Speaker 8: about what these assets are, so when you go in
24:49
Speaker 8: you're going to be prepared to answer these questions. You know,
24:52
Speaker 8: I got a house, I got a vacation home. I
24:54
Speaker 8: have a rental. I have a four oh one k
24:56
Speaker 8: and ira. I have life insurance. What's the death benefit?
24:59
Speaker 6: You know?
25:00
Speaker 8: I have an investment portfolio. Of folks, These all are
25:03
Speaker 8: the kinds of assets that most people have. Understand what
25:07
Speaker 8: they're worth, because it's that number that's going to help
25:11
Speaker 8: the lawyer decide what kind of trust is right for you.
25:15
Speaker 8: So when you add up that list of assets, if
25:18
Speaker 8: it exceeds two million, now we're in the Massachusetts a
25:21
Speaker 8: state tax world. If it exceeds four we're starting to
25:24
Speaker 8: get out of the Massachusetts a state tax world because
25:27
Speaker 8: it's getting higher and higher, you know. And and if
25:29
Speaker 8: it's you know, above the fifteen million, we need to
25:32
Speaker 8: know that. So so that's.
25:33
Speaker 6: Going to make a difference. And of course your age
25:35
Speaker 6: is good.
25:36
Speaker 8: And so I think and then a little bit about
25:38
Speaker 8: your family dynamics is good too.
25:40
Speaker 6: You know. Remember, we're going.
25:42
Speaker 8: To be asking, you know, does everybody get along? And
25:44
Speaker 8: if they do, great, and then you know, think about
25:46
Speaker 8: how do you want to leave things to your family.
25:49
Speaker 8: They're going to be asking you questions. The lawyer are
25:51
Speaker 8: going to be saying things like do you want them
25:53
Speaker 8: to have it out right, you know do you are
25:55
Speaker 8: you concerned about losing assets to a future divorce? Now
25:59
Speaker 8: you don't. This is not for the mom and dads.
26:01
Speaker 8: This is for your kids. Right you're dead and ten
26:03
Speaker 8: years later, you know they get a divorce. Well if
26:06
Speaker 8: you left them assets outright, Oh yeah, they're good, they're healthy,
26:10
Speaker 8: they're smart kids. We can leave it to them. Yeah,
26:12
Speaker 8: all that might be, yes, but the divorce still happens
26:16
Speaker 8: even though they're good, well well mannered kids.
26:19
Speaker 6: And so I don't want it. So I want to
26:21
Speaker 6: hold it in trust to protect it from them.
26:23
Speaker 8: Generation skipping benefits, getting it down a generation without paying taxes.
26:28
Speaker 8: These are some of the things to think about and
26:30
Speaker 8: that will help the lawyer. Then pick the trust that's
26:33
Speaker 8: right for you, whether it's revocable, irrevocable, gifting trusts, depending
26:38
Speaker 8: on how much you're worth.
26:39
Speaker 6: So that's a mouthful.
26:40
Speaker 3: Talking with Todd Lutsky from the law firm of Cushing
26:43
Speaker 3: and Dolan. Phone lines open for you to ask Todd
26:47
Speaker 3: your estate planning questions. Again, it's why we call the segment.
26:50
Speaker 3: Ask Todd eight eight eight two zero five two two
26:54
Speaker 3: six y three is the number. And again, still got
26:57
Speaker 3: a little bit of room there, so make sure you
26:58
Speaker 3: get your calls in so that you can ask Todd
27:01
Speaker 3: your estate planning questions live on air right now eight
27:05
Speaker 3: eight eight to zero five two two sixty three. Again,
27:09
Speaker 3: that number is eight eight eight two zero five two
27:13
Speaker 3: two six three. We're gonna take a quick break right now,
27:17
Speaker 3: but when we return, we're gonna get to your calls
27:20
Speaker 3: with Todd. Again. That phone number is eight eight eight
27:23
Speaker 3: to zero five two two six three.
27:27
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:31
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:36
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:40
Speaker 1: Radio Network.
27:51
Speaker 3: Alrighty, let's get right to your questions with Todd Lutsky.
27:56
Speaker 3: First in the queue for Todd, We've got Jay in Nashwood. Hey,
28:00
Speaker 3: what's your question for Todd?
28:03
Speaker 9: Hi Todd, thanks for listening to me. I don't usually call,
28:07
Speaker 9: but I'm financial background CPA. We have a family trust
28:11
Speaker 9: set up. There's obviously my mom and dad, who's one
28:16
Speaker 9: percent each GPS. Me and my brothers have LP interests.
28:21
Speaker 9: My father has passed and his say, twenty percent is
28:26
Speaker 9: in his trust set up, and my mom's trust will
28:29
Speaker 9: be set up obviously when she passes to me and
28:33
Speaker 9: my brothers get a step up and basis on the
28:36
Speaker 9: percentage ownership of the general partners my parents.
28:40
Speaker 8: So this is very very I'm trying to understand the setup. So,
28:44
Speaker 8: first of all, trusts exist before parents die.
28:47
Speaker 6: They don't.
28:48
Speaker 8: They do exist during life, and then they continue to
28:51
Speaker 8: exist when one dies. So is you do your parents
28:55
Speaker 8: have a joint family revocable trust or does your dad
28:58
Speaker 8: have a separate trust and your mom have a set.
29:00
Speaker 9: Trust one one trust overall. That's why my dad's trust
29:07
Speaker 9: was created on his asset. My mom's still revoca No.
29:12
Speaker 8: No, So there's a joint family trust or there's one
29:16
Speaker 8: trust for dad, one trust for mom. That's what I'm
29:19
Speaker 8: trying to understand to you. There's two separate trusts. Okay,
29:22
Speaker 8: so we'll call it the dad trust and the mom trust. Okay,
29:26
Speaker 8: So does whatever's in dad's trust if it was revocable
29:30
Speaker 8: when he died, whatever's owned by Dad's trust when he died,
29:34
Speaker 8: gets a step up in basis.
29:36
Speaker 6: Okay. So if you've got.
29:38
Speaker 8: A separate family limited partnership, which it sounds like you do,
29:41
Speaker 8: which is again separate from the family trust. I'm guessing
29:45
Speaker 8: that the limited partnership units of the family limited partnership
29:51
Speaker 8: are owned by dad's family trust. Correct, his twenty percent?
29:55
Speaker 6: Correct?
29:56
Speaker 9: Yes, but my mom was also a twenty percent owner.
29:59
Speaker 8: Right, But where your mom's alive, So that doesn't matter, right,
30:02
Speaker 8: your mom's twenty percent, your mom's twenty percent are in
30:05
Speaker 8: her trust, so that that's a separate issue. So the
30:09
Speaker 8: twenty percent that's in your dad's trust, that would get
30:12
Speaker 8: a step up in basis. Now good, You're gonna have
30:14
Speaker 8: to worry about a seven to fifty four election and
30:16
Speaker 8: making an inside basis outside basis election. But that's way
30:19
Speaker 8: too complicated for radio. But but it will get it
30:22
Speaker 8: will get a step up in basis. The one percent
30:26
Speaker 8: that I'm guessing you and your siblings is that right,
30:30
Speaker 8: it's it's you and your siblings are just you? Okay,
30:32
Speaker 8: So you and your siblings. If you guys own one
30:36
Speaker 8: percent as a general partner, that simply means that you
30:40
Speaker 8: control the partnership and you own one percent. So Dad's
30:44
Speaker 8: dying has zero impact on basis for your one percent
30:50
Speaker 8: because he didn't own it, right, You owned it. So no,
30:54
Speaker 8: I don't think you get a step up in basis
30:56
Speaker 8: on the one percent that you own because because no
31:00
Speaker 8: one died. So hope that helps out and get you
31:04
Speaker 8: where you need to go. And it sounds like at
31:05
Speaker 8: least you've got some good planning in place for your folks,
31:08
Speaker 8: so you know, always good to hear that that's being done.
31:13
Speaker 6: Folks.
31:14
Speaker 8: That's just one kind of trust that was done here,
31:17
Speaker 8: and so Jay was, you know, getting that done for
31:20
Speaker 8: his family, which was the revocable variety. This guide offers
31:24
Speaker 8: you the top eight estate planning trusts from nominee realty
31:29
Speaker 8: trusts which may not even be trusts all the way
31:31
Speaker 8: to the regular revocable trust, irrevocable trust for Medicaid, then
31:36
Speaker 8: the gifting or irrevocable life insurance trusts. They're very different.
31:41
Speaker 8: Pooled trust, special needs trust for your kids and folks.
31:45
Speaker 8: Not just a top eight list, it actually explains how
31:50
Speaker 8: to fund them. It explains how they operate during life,
31:53
Speaker 8: what you can and cannot do. It explains the income
31:56
Speaker 8: tax and the estate tax benefits, and how it operates
31:59
Speaker 8: when you die, which is what's going on here with Jay. So, folks,
32:03
Speaker 8: not just a top eight list, but it will really
32:05
Speaker 8: help you get your estate plan off the ground and
32:08
Speaker 8: pick which trust is right for you eight six six
32:11
Speaker 8: eight four eight five six ninety nine or Legal Exchange
32:15
Speaker 8: Show dot com again eight six six eight four eight
32:19
Speaker 8: five six nine nine or Legal Exchange Show dot com.
32:24
Speaker 3: Todd, I got another one queued up for you.
32:26
Speaker 2: Here.
32:26
Speaker 3: Let's go to Nancy and have roll and Nancy, you
32:28
Speaker 3: are on with Todd Lutsky.
32:31
Speaker 10: Thank you.
32:32
Speaker 9: Hello.
32:33
Speaker 6: Hello.
32:35
Speaker 10: My question is I have my house in an irrevocable
32:39
Speaker 10: trust and it's done past five years?
32:41
Speaker 6: Okay, I'm londay.
32:43
Speaker 10: Is it too late if I wanted to move into
32:46
Speaker 10: a different buy a different house of ranch home? Well,
32:50
Speaker 10: I have to go back by Can I do that
32:52
Speaker 10: now that it's irrevocable? And is there a penalty I
32:56
Speaker 10: have to pay.
32:58
Speaker 7: Extra?
32:59
Speaker 6: Yeah? So this is great.
33:00
Speaker 8: I think indirectly you're saying, Todd, can I sell it?
33:03
Speaker 8: I just want to rephrase the question for everybody you know.
33:06
Speaker 8: Can I sell it? Number one?
33:08
Speaker 6: Two?
33:09
Speaker 8: Can I buy another house? Because it sounds like you
33:11
Speaker 8: want to buy this ranch house, which is great? And Todd,
33:15
Speaker 8: is there going to be a bad tax when I
33:18
Speaker 8: pay it? And is there any penalty for that five
33:21
Speaker 8: year rule? Is that going to be affected? By doing this. Now,
33:25
Speaker 8: I'm only going to answer the question as if it
33:27
Speaker 8: was an irrevocable trust that Cushing and Dolan prepared that
33:31
Speaker 8: we prepare, because I know how that works. I, unfortunately,
33:34
Speaker 8: without reading your trust, don't know.
33:36
Speaker 6: But I'm going to assume it.
33:37
Speaker 8: Should be drafted similarly. When I say drafted similarly, I mean,
33:42
Speaker 8: first of all, it should be a grand tour trust
33:45
Speaker 8: for income tax purposes. So let's run through the example. First,
33:50
Speaker 8: you can you sell it? Yes, the trust sells it.
33:54
Speaker 8: The deed goes out of the trust for your old
33:58
Speaker 8: home to the buyer, and the buyer cuts a check,
34:02
Speaker 8: pay to the order of the trustee of the trust,
34:05
Speaker 8: and you deposit it in a bank account in the
34:08
Speaker 8: name of the trust. So if you don't have a
34:11
Speaker 8: bank account, go get one, open it up in the
34:13
Speaker 8: name of the trust, and get a tax ID number
34:16
Speaker 8: for the trust in case you don't already have one.
34:19
Speaker 8: Now you deposit the money. Now you can take that
34:22
Speaker 8: money and go buy this new ranch house that you
34:27
Speaker 8: want to buy. And so the trustee of the trust
34:30
Speaker 8: would then write a check from the trust to the seller,
34:36
Speaker 8: and in exchange, the seller would prepare a deed transferring
34:39
Speaker 8: the property into the name of the irrevocable trust. So
34:45
Speaker 8: at the end of the day, there's your completed transaction
34:48
Speaker 8: of you selling and buying a new house. Now what, well,
34:53
Speaker 8: do we have tax ramifications on this todd No, If
34:57
Speaker 8: it's a grant or trust for income tax purposes, that
35:02
Speaker 8: means you're treated as the owner for income tax purposes.
35:05
Speaker 8: So if it's your primary residence, which I'm guessing it was,
35:09
Speaker 8: and if you were married, you would get a five
35:12
Speaker 8: hundred thousand dollars capital gains exclusion. If, on the other hand,
35:17
Speaker 8: you are single, as long as you've owned and used
35:20
Speaker 8: it and owning it by the trust is okay. As
35:23
Speaker 8: your primary residence, you get a two hundred and fifty
35:26
Speaker 8: thousand dollars capital gains exclusion. So what does that mean
35:31
Speaker 8: in English? If you sell the property for a million
35:34
Speaker 8: dollars and you only paid five hundred thousand for it
35:37
Speaker 8: plus improvements, then the gain is five hundred thousand dollars.
35:41
Speaker 8: If you are married, you get five hundred thousand dollars
35:45
Speaker 8: off the gain, which would eliminate the tax. If you're single,
35:50
Speaker 8: you only get the two fifty off the gain, so
35:52
Speaker 8: you'd have to pay tax on the two fifty. My
35:54
Speaker 8: point is that there's no adverse consequences to selling it
35:59
Speaker 8: from this trust. You pay the same tax, no more,
36:03
Speaker 8: no less than you would before. So very important that
36:08
Speaker 8: you go to your lawyer and make sure it's a
36:10
Speaker 8: grant or trust so as not to have any adverse
36:14
Speaker 8: income tax consequences on the sale. And lastly, what happens
36:20
Speaker 8: to that five year rule? Todd, you told me earlier
36:23
Speaker 8: or I'm already beyond five years. So this old house
36:27
Speaker 8: is protected from the nursing home. Is the new house
36:30
Speaker 8: going to be protected from the nursing home? And if
36:32
Speaker 8: you follow the procedure I just walked you through for
36:35
Speaker 8: buying and selling it, the new house will be just
36:39
Speaker 8: as protected as the old house. It will not reset
36:44
Speaker 8: the five year waiting period simply because you did not
36:47
Speaker 8: put anything new in. You simply converted what was already
36:52
Speaker 8: in there from one investment to another. And so this
36:56
Speaker 8: explains to you how flexible vocable trusts really are.
37:01
Speaker 3: Mister Rotski, thank you so much for joining us today.
37:04
Speaker 3: We appreciate it.
37:05
Speaker 6: Always a pleasure.
37:07
Speaker 1: This has been asked Todd on the Financial Exchange Radio Network.
37:10
Speaker 1: Ask Todd with Todd Lutsky has been presented by Cushing
37:13
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:16
Speaker 1: thirty years, helping families with the state and tax planning,
37:18
Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
37:21
Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
37:25
Speaker 1: The views expressed in this segment are solely those of
37:27
Speaker 1: Cushing and Dolan Armstrong Advisory. He does not provide any
37:29
Speaker 1: legal or tax advice. Please consult with your legal or
37:32
Speaker 1: tax advisor on such matters. Cushing and Armstrong do not
37:34
Speaker 1: endorse each other and are not affiliated