Latest / The Financial Exchange Show / Oil Shock, Escalation in the Middle East & The Hidden Risks of Life Estates

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Oil Shock, Escalation in the Middle East & The Hidden Risks of Life Estates · The Financial Exchange Show

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Speaker 1: Zada and Mark Vandetti, Chuck, Mark.
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Speaker 2: And Tucker with you and uh, for those of you
1:17
Speaker 2: unfamiliar with our show, there's hopefully none of you. But
1:24
Speaker 2: for those of you who might be unfamiliar, the way
1:27
Speaker 2: it works is every morning, Tucker comes into the office,
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Speaker 2: grumbles a little bit about how dark it is, how
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1:34
Speaker 2: and then goes through all of the major you know,
1:37
Speaker 2: news of the day and prints out the stuff that
1:39
Speaker 2: he finds either interesting or stuff that he knows is
1:41
Speaker 2: gonna get arise out of me, just to you know,
1:44
Speaker 2: tweak me a little bit during the course of the day.
1:47
Speaker 2: And it's what we call the Stack. And at the
1:49
Speaker 2: end of the show we go through what we haven't done,
1:50
Speaker 2: you know, stack roulette, blah blah blah. We're at the
1:53
Speaker 2: point now in the news cycle where the stack is
1:58
Speaker 2: out of date by the time we actually start the show.
2:01
Speaker 2: Not that Tucker is like doing a bad job. I'm
2:04
Speaker 2: not saying that. It's just that things are moving very
2:06
Speaker 2: very quickly as far as you know what is going on.
2:11
Speaker 2: So the top story is one that was titled Iran
2:14
Speaker 2: conflict turned shipping market into the wild West. And that's true.
2:18
Speaker 2: We're gonna get to that in just a second.
2:20
Speaker 3: PPI.
2:22
Speaker 2: No, we're gonna get to that. And just what is
2:24
Speaker 2: what I'm saying like things are out of date, Things
2:27
Speaker 2: are moving fast, Things are moving fast. So this morning,
2:29
Speaker 2: at around eight am, the Israeli government indicated that they
2:35
Speaker 2: had conducted an attack on what is known as the
2:40
Speaker 2: South I'm sorry, yes, the South Pars gas Field. If
2:44
Speaker 2: you're not familiar with what this is. The South Pars
2:48
Speaker 2: gas Field is estimated to be not estimated. It is
2:52
Speaker 2: the single largest natural gas field in the world, and
2:57
Speaker 2: the estimates are that it may actually contain more natural
3:01
Speaker 2: gas reserves in it than every other deposit on the
3:05
Speaker 2: planet combined. So it's big. It's also right in the
3:10
Speaker 2: middle of the Persian Gulf, under about eight thousand feet
3:13
Speaker 2: of water, so it's you know, not something where you
3:16
Speaker 2: can just like get to it easily. And why this
3:20
Speaker 2: matters is not only did Israeli sources indicate that this
3:23
Speaker 2: had been attacked, the Iranian government also confirmed shortly after,
3:28
Speaker 2: about ten to fifteen minutes later, that it had been
3:31
Speaker 2: attacked as well, and that they were conducting a partial
3:34
Speaker 2: shutdown of some of the production facilities there. Why this
3:40
Speaker 2: matters is that this is effectively an escalation as it
3:45
Speaker 2: relates to potential targets both on the United States and
3:49
Speaker 2: Israeli side as well as on the Iranian side. To
3:52
Speaker 2: this point, the targets in the energy sector have largely
3:58
Speaker 2: been what we call midstream or down stream targets. Midstream
4:02
Speaker 2: being the transport of oil and gas, either in the
4:04
Speaker 2: form of pipelines or tankers. Downstream production being you know export,
4:11
Speaker 2: you know, tanks and things like that, you know, things
4:13
Speaker 2: that are holding oil for you know, potential transport somewhere else.
4:18
Speaker 2: So basically where we sit right now is that Iran
4:23
Speaker 2: is also now indicated that they are going to They've
4:27
Speaker 2: issued evacuation orders for five energy sites in the UAE,
4:31
Speaker 2: Bahrain and Saudi Arabia. I believe or know UAE Qatar
4:35
Speaker 2: in Saudi Arabia that they are likely to target in
4:39
Speaker 2: the coming hours, days, you know, whatever it might be.
4:43
Speaker 2: But here, here's where this this matters is to this point,
4:48
Speaker 2: the issue that most people have been focusing on has been, hey,
4:51
Speaker 2: how can we get oil moving through the Strait of Hormuz.
4:54
Speaker 2: This is before you even talk about the fact that
4:56
Speaker 2: there's about eight or nine million barrels a day in
4:58
Speaker 2: production that's been voluntarily taken offline because there's nowhere to
5:01
Speaker 2: put it. Right now, Iraq has pulled about three million
5:04
Speaker 2: barrels a day, the Saudis have pulled a couple million.
5:06
Speaker 2: Bahrains pulled a couple million. So like this has been
5:09
Speaker 2: been happening. When you start talking about the destruction of
5:13
Speaker 2: production facilities, now you start getting into stuff that means that, hey,
5:19
Speaker 2: even if you get horm moves open, you might not
5:21
Speaker 2: have oil that you're able to immediately turn right back on.
5:25
Speaker 2: You know, even the shut in stuff takes a little time,
5:28
Speaker 2: but if you have oil and gas that you can't
5:30
Speaker 2: just turn back on, you have a real problem even
5:34
Speaker 2: getting anything to send through hor moves, let alone. You know, hey, great,
5:37
Speaker 2: we're allowed to go through there now. So this is
5:41
Speaker 2: absolutely an escalation by the way the oil market has
5:44
Speaker 2: interpreted as such, the reason being when I woke up
5:47
Speaker 2: this morning, the May contract for Brent crude was sitting
5:50
Speaker 2: at about one hundred and three bucks a barrel, which
5:53
Speaker 2: was down thirty forty cents overnight. As I talk to
5:57
Speaker 2: you right now, it's at one oh nine to twelve
5:59
Speaker 2: up five dollars seventy cents, so a six dollar about
6:02
Speaker 2: a six percent reversal in Brent crude. And so the again,
6:06
Speaker 2: this is not like me telling you, hey, this is worse.
6:10
Speaker 2: This is the oil market saying, hey, this is worse.
6:12
Speaker 2: So I'm not putting my own spin on this. It's
6:17
Speaker 2: very much the oil markets had kind of you know,
6:21
Speaker 2: I don't want to say like settled, but they had
6:23
Speaker 2: calmed down a little bit. You weren't seeing you know,
6:24
Speaker 2: ten percent daily moves. It was you know, a couple
6:26
Speaker 2: percent here, a couple percent there for the last couple
6:28
Speaker 2: of days. And this represents a fundamental divergence in the
6:33
Speaker 2: activity that we've seen. And it happened. I was sitting
6:36
Speaker 2: at my computer, it was, you know, okay, this news
6:38
Speaker 2: came across, and oil jumped immediately and hasn't stopped climbing since.
6:43
Speaker 2: So this is where we stand right now in terms
6:47
Speaker 2: of you know, potentially further escalations, further escalations happening. And
6:52
Speaker 2: the other piece that you have to remember on this
6:56
Speaker 2: that I'm gonna I'm gonna come back to probably I
6:59
Speaker 2: hope I don't have to come back to it. When
7:02
Speaker 2: we talk about liquefied natural gas LNG as it's known
7:06
Speaker 2: in the BIZ. LLNG doesn't exist in that format in
7:11
Speaker 2: the wild. You don't just go and, you know, say, hey,
7:15
Speaker 2: there's some LNG here in the ground. Let's get it out.
7:17
Speaker 2: The way that you make LLNG, if you're not familiar
7:20
Speaker 2: with it, is you take a whole bunch of natural
7:22
Speaker 2: gas out of the ground and you cool it way
7:26
Speaker 2: the heck down to I think it's it's pretty close
7:29
Speaker 2: to absolute zero. You're talking like a couple hundred degrees
7:33
Speaker 2: below zero is where you take this stuff. Let me
7:37
Speaker 2: pull this up, hangout. I'll get the exact temperature just
7:40
Speaker 2: so that you can, you know, have it. What is
7:44
Speaker 2: the temperature of I just want to make sure I
7:48
Speaker 2: have it right. Let me know if I can help.
7:50
Speaker 2: Uh no, it's fine. There's the keyboard on my computer's broken,
7:53
Speaker 2: so I have to do it on the old phone.
7:56
Speaker 2: Oh come on, no, don't put it. Don't auto correct me.
7:59
Speaker 2: There we go. Okay, what is the temperature of LNG?
8:04
Speaker 2: Here we go? Yes, I was I was correct. Negative
8:06
Speaker 2: two hundred and sixty degrees fahrenheit. So it's no, it's
8:11
Speaker 2: it's cold and that's how Yeah, it's negative one hundred
8:14
Speaker 2: and sixty two celsius negative two to sixty fahrenheit. So
8:17
Speaker 2: it's it it's like space cold. Yeah, yeah, it's it's
8:21
Speaker 2: you got to cool it a lot.
8:22
Speaker 3: I had no idea.
8:23
Speaker 2: This is a process that's called liquefaction, and liquefaction is
8:27
Speaker 2: really energy intensive obviously, because you basically have to like
8:31
Speaker 2: suck all of the heat out of where you're gonna
8:34
Speaker 2: hold the LNG like, that's how you do it. You
8:36
Speaker 2: can't remember, you can't pump cold in. You have to
8:39
Speaker 2: suck heat out. That's ultimately how it ends up working.
8:43
Speaker 2: Even if you think about air conditioning, really, what you're
8:46
Speaker 2: doing with air conditioning you are sucking heat out of
8:49
Speaker 2: a room and the cold air is what you're returning
8:51
Speaker 2: to it. That's why with the heat pump, you're just
8:53
Speaker 2: reversing the flow. So it's basically like giant heat pumps
8:57
Speaker 2: that are really powerful that do this stuff. Long way
9:01
Speaker 2: of saying, liquefaction terminals and LERG export terminals. The going
9:06
Speaker 2: rate for one of those today is eight to fifteen
9:08
Speaker 2: billion dollars and they take anywhere from three to five
9:11
Speaker 2: years to build. It's a long process. The place I'm
9:15
Speaker 2: going in a worst case scenario is if you start
9:18
Speaker 2: seeing like LNG terminals actually blown up. Now you're talking
9:23
Speaker 2: about okay, even if Hormu starts flowing again, you don't
9:26
Speaker 2: have anything that you can ship through there in the
9:28
Speaker 2: form of not gas, Like you can't just ship like
9:32
Speaker 2: non LLNG NOTT gas. You'll get like nothing on a boat.
9:34
Speaker 2: There's a reason why you liquefied is it's the only
9:36
Speaker 2: way to make it, you know, cost competitive as it is.
9:40
Speaker 2: So ultimately, once you start moving up the escalation law,
9:45
Speaker 2: do you start talking about this and that turns this
9:47
Speaker 2: from hey, potentially a week's or months problem to a
9:50
Speaker 2: year's problem in terms of getting that supply back online.
9:54
Speaker 2: This is before you even get to the question of okay,
9:58
Speaker 2: let's say that I want to Let's say that there's
9:59
Speaker 2: a an LNG terminal that gets destroyed in Qatar. Who's
10:04
Speaker 2: going to finance building the new one knowing that the
10:06
Speaker 2: previous one was blown up by the Iranians? If that's
10:09
Speaker 2: the case, like, how do you get insurance underwriting for
10:12
Speaker 2: the thing? What if it just never comes back? These
10:16
Speaker 2: are reasonable questions to ask, and they're reasonable because, by
10:20
Speaker 2: the way, a lot of you listening might remember Gulf
10:24
Speaker 2: War One, where prior to Golf War one, Kuwait was
10:28
Speaker 2: kind of like the jewel of the Persian golf. It
10:33
Speaker 2: never recovered from Gulf War One. It just never did.
10:37
Speaker 2: And so I think it's a reasonable question ask, Look,
10:40
Speaker 2: what if the same thing happens to Dubai and Qatar
10:43
Speaker 2: and you know, like all these different countries down there.
10:47
Speaker 2: What if you end up with that kind of situation,
10:49
Speaker 2: if the damage gets too significant, what if you just
10:53
Speaker 2: have you know, basically you know Western businesses that say no,
10:58
Speaker 2: we're not going to underwrite that risk because it's not
11:00
Speaker 2: worth it to us. These are thoughts that I have
11:04
Speaker 2: on days like this. Let's take a quick break when
11:07
Speaker 2: we come back. Let's let's then talk a little bit
11:11
Speaker 2: about the PPI data that we got this morning. Producer
11:13
Speaker 2: Price indext came out at eight thirty am. We'll tell
11:16
Speaker 2: you what we saw, what it means, and uh, well,
11:19
Speaker 2: I guess that's what we'll do after this.
11:21
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Speaker 2: wonderful our ideas are? You can tell us Chuck, I
12:26
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12:28
Speaker 2: you said.
12:29
Speaker 1: Well, we'll looking for questions.
12:31
Speaker 2: You could say, hey, your hair cut looks bad and
12:33
Speaker 2: I'd say thank you.
12:34
Speaker 4: We could say, hey, Chuck, why are you moron?
12:36
Speaker 2: The answer is like, you know, Kat doesn't change its stripes,
12:41
Speaker 2: Tiger doesn't change its stripes. You know, let's talk a
12:44
Speaker 2: little bit about PPI, which doesn't change it stripes either.
12:48
Speaker 2: See what I did there, PPI, the Producer Price Index,
12:51
Speaker 2: the most misread price index in all of economics, came
12:56
Speaker 2: in this morning and it came in hot. Reading was
12:59
Speaker 2: expect at point three percent, came in at point seven.
13:02
Speaker 2: Core came in at point five compared to expectations of
13:04
Speaker 2: point three. So you now have core PPI running three
13:09
Speaker 2: point nine percent year over year. Headline is running three
13:13
Speaker 2: point four. So it's it's roasty like. You've got roasty
13:19
Speaker 2: numbers here, and the estimates that I've now seen are
13:22
Speaker 2: that it's going to push up February PCEE into that
13:25
Speaker 2: point three to point five range. Probably right around point
13:28
Speaker 2: four is where most of them are converging. But again
13:31
Speaker 2: no one knows with a one hundred percent certainty. So remember
13:35
Speaker 2: this is from February. Even before you have the energy
13:39
Speaker 2: price shock that you have here, you've got, you know,
13:42
Speaker 2: a couple of readings, this is two in a row
13:44
Speaker 2: on PPI now that have come in warm, and so
13:47
Speaker 2: you've got something happening in terms of the prices that
13:51
Speaker 2: are being accepted by customers here, and that is not
13:56
Speaker 2: a great sign for the inflationary picture. Even before you
14:00
Speaker 2: get to this energy price shock, I do now want
14:03
Speaker 2: to get to again PPI is like it's the third
14:08
Speaker 2: most important out of the major three price in disease.
14:11
Speaker 2: So we again we don't really get into it a ton.
14:14
Speaker 2: It's just it is what it is. A couple of
14:17
Speaker 2: things that just caught my eye. The first, Iraq has
14:21
Speaker 2: now confirmed that Iran has shut off GNAT gas supplies
14:25
Speaker 2: that go to Iraq. And why this matters is that
14:28
Speaker 2: an awful lot of Iraq's power rack doesn't produce much
14:32
Speaker 2: GNT gas. I know, it's kind of hard to believe,
14:34
Speaker 2: given like where it is, but they produce before this
14:37
Speaker 2: about four and a half million bars of barrels of
14:39
Speaker 2: oil and not a ton of GNAT gas. So in
14:42
Speaker 2: order to power their economy, they need that gnat gas
14:44
Speaker 2: coming in or they have to rely on you know,
14:46
Speaker 2: fuel oil, which they can only produce so much of
14:48
Speaker 2: because they need to export it in order to actually
14:50
Speaker 2: make the economy work. So what you have here is remember,
14:55
Speaker 2: in order to actually refine oil or actually do anything
14:58
Speaker 2: as a country needs not gas from somewhere else, because
15:02
Speaker 2: you need to produce power to do these things. And
15:05
Speaker 2: so this is kind of a big deal for Iraq
15:09
Speaker 2: in terms of you know, like it's overall stability and
15:13
Speaker 2: you know, ability to maintain its electrical grid and things
15:16
Speaker 2: like that. This is kind of a big one and
15:18
Speaker 2: potentially has you know, further knock on effects in the
15:21
Speaker 2: region as we go. The other piece is one that
15:26
Speaker 2: was in Bloomberg this morning. Actually it was yesterday, and
15:31
Speaker 2: Tucker didn't put it in the stack, but it just
15:32
Speaker 2: came across my screen and I said, oh, this is interesting.
15:36
Speaker 2: So yes, Tucker, I am ripping you for not putting
15:39
Speaker 2: this one in the stack. Talk to me, babe. Asian
15:42
Speaker 2: refiners scour the world for oil with hormos flows halted.
15:44
Speaker 3: Missed it.
15:45
Speaker 2: I know, there's so many things. Listen, it's Tucker's hit
15:49
Speaker 2: rate is like ninety nine. So this is, you know,
15:53
Speaker 2: the the exception that proves the rule. I'm going to
15:56
Speaker 2: quote from it here. Asia's oil refiners are ramping up
15:59
Speaker 2: crude from outside the Middle East, the latest sign of
16:02
Speaker 2: a scramble to secure supplies, as shipping through the vital
16:04
Speaker 2: straight of horrm moons remains all but halted. After initially
16:07
Speaker 2: balking at sky sky high crude prices, Asian fuel makers
16:12
Speaker 2: have returned to the market to secure cargoes from the
16:14
Speaker 2: US to Africa and the North Sea. With scant signs
16:16
Speaker 2: of a resolution to the war, they're now willing to
16:19
Speaker 2: pay elevated premiums to secure supply. Traders familiar with the
16:22
Speaker 2: matters said, why this matters the first couple weeks, remember
16:27
Speaker 2: you still had tankers that were coming from horror moves
16:29
Speaker 2: because it takes anywhere from like eleven to nineteen days
16:32
Speaker 2: to make the trip from Hormuz to wherever you're dropping
16:34
Speaker 2: off in Southeast Asia. We're now on day nineteen of
16:38
Speaker 2: the conflict, which means there's nothing else coming from there,
16:41
Speaker 2: so that oil at sea is no longer going to
16:44
Speaker 2: be coming through. And so this is something where if
16:49
Speaker 2: you talk about the cost of ship a barrel of
16:51
Speaker 2: oil anywhere in the world, it's typically like one to
16:53
Speaker 2: three dollars a barrel. It's a relatively low cost to
16:56
Speaker 2: the overall cost structure. Now, looking at these countries, whether
17:03
Speaker 2: it's Pakistan, Thailand, India, Taiwan, Japan, these are places that
17:08
Speaker 2: don't really produce much of their own oil and typically
17:10
Speaker 2: get a lot from the Middle East, they're now saying, okay,
17:13
Speaker 2: this is not you know over today, we need to
17:16
Speaker 2: start securing supplies elsewhere and that has the potential to
17:19
Speaker 2: put upward pressure on crude prices, whether you're talking from
17:23
Speaker 2: you know, Europe talking Brent crude, or the US West
17:26
Speaker 2: Texas intermedia. This then gets us to the obvious question
17:30
Speaker 2: that people are going to ask. Sorry, Mark, I'm gonna
17:32
Speaker 2: let you say something today. At some point, the obvious
17:35
Speaker 2: question that people are gonna ask is, Okay, in order
17:37
Speaker 2: to keep our prices down, should we ban exports of
17:40
Speaker 2: either crude oil or refined products? And the answer is,
17:44
Speaker 2: in the short term, that can provide a benefit for
17:46
Speaker 2: two to three weeks. The downside is that the US,
17:50
Speaker 2: for all of its you know, production capacity, the refineries
17:54
Speaker 2: are not set up to refine the type of oil
17:56
Speaker 2: that we produce. They can produce refine some of it,
18:00
Speaker 2: but a lot of them are designed to refine other
18:02
Speaker 2: types of oil beyond what is produced in the US.
18:05
Speaker 2: And so here's where you get to. After a couple
18:07
Speaker 2: of weeks, Let's say the US imposes an export ban.
18:12
Speaker 2: That probably brings prices down a touch in the short
18:14
Speaker 2: term because you're no longer connected to the world market
18:17
Speaker 2: in the same way. But the problem is because of
18:20
Speaker 2: the mix of oil that you produce here versus what
18:23
Speaker 2: your refineries need. If you want to produce you know,
18:27
Speaker 2: diesel and distillates and bunker fuel and stuff like that,
18:30
Speaker 2: you don't get that from you know, the light sweet
18:32
Speaker 2: crude that you produce largely in the US, you need
18:35
Speaker 2: to get it from heavier, sour stuff that comes from elsewhere.
18:39
Speaker 2: And so the problem that you run into after about
18:41
Speaker 2: two to three weeks is your domestic supplies of the
18:43
Speaker 2: feed stock for that are gone, and now other countries
18:48
Speaker 2: have said, fine, you're not going to send us your products.
18:50
Speaker 2: We're not going to send you oars. And now you
18:53
Speaker 2: don't have high prices. You have shortages because you don't
18:57
Speaker 2: have the feedstock for the ways your refineries are said
19:00
Speaker 2: up to produce the products that you need for the
19:02
Speaker 2: domestic consumption. So you'll probably hear the idea of export
19:09
Speaker 2: bands bandied about. They will help prices in the short term.
19:12
Speaker 2: The problem is after that short term period, they start
19:15
Speaker 2: leading to actual shortages because we just don't have refineries
19:19
Speaker 2: that match what the US produces, because we need other
19:23
Speaker 2: types of oil to make the actual finished products that
19:26
Speaker 2: we need. There we go just take a quick break here.
19:30
Speaker 2: When we come back Wall Street watch and Todd Lotski
19:33
Speaker 2: joins us for Ask Todd right after this, Like us.
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20:03
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21:24
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
21:28
Speaker 1: If you have an existing estate plan or in the
21:30
Speaker 1: market for one, Todd Letsky is here to answer your
21:32
Speaker 1: questions and help you plan for a later life. Ask
21:35
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
21:38
Speaker 1: New England for more than thirty five years, helping families
21:42
Speaker 1: with a state and tax planning, Medicaid planning, and probate law.
21:45
Speaker 1: Visit Cushingdolan dot com. Now Here's Todd Lutsky.
21:50
Speaker 2: Todd Lutsky from Cushing and Cushing and Dolan.
21:54
Speaker 3: Slow Down Buddy.
21:56
Speaker 2: One speed only Todd toddjo leinds us now on the
22:01
Speaker 2: Financial Exchange for Ask Todd. As always, it's your opportunity
22:05
Speaker 2: to ask Todd your estate planning questions live on air
22:08
Speaker 2: right now. We got the phone lines open at eight
22:11
Speaker 2: eight eight to zero five two two sixty three. That's
22:15
Speaker 2: the number to call to ask Todd your questions. It
22:18
Speaker 2: is eight eight eight to zero five two two six three.
22:21
Speaker 2: And remember we can usually get through two or three questions.
22:24
Speaker 2: So if you don't call early, well you might not
22:26
Speaker 2: get a chance to ask Todd your questions. So get
22:29
Speaker 2: calling at eight eight eight to zero five two two
22:32
Speaker 2: six three. Again, that is eight eight eight to zero
22:36
Speaker 2: five two two six three. Mister Lutsky, how are you
22:40
Speaker 2: doing today?
22:41
Speaker 3: I am never better.
22:42
Speaker 2: You not good?
22:43
Speaker 3: No, You're never good. There's always something wrong.
22:45
Speaker 2: I bought the world's worse, the soaurus worse, the sourus.
22:50
Speaker 2: It's not just awful, it's awful. It's it's just it's
22:54
Speaker 2: it's awful.
22:55
Speaker 3: It's awful.
22:55
Speaker 2: Todd. I want to talk to you a little bit
22:57
Speaker 2: about uh kind of continuing conversation from last week. We
23:01
Speaker 2: were talking last week about the use of life estates
23:06
Speaker 2: as part of an estate plan. And I don't want
23:09
Speaker 2: to put words in your mouth, but you were pretty
23:11
Speaker 2: critical of them as a tool.
23:14
Speaker 3: Yeah, life estates are problematic.
23:17
Speaker 2: Give me a comparison in a pros and cons of
23:21
Speaker 2: life estates versus irrevocable trusts for estate planning.
23:27
Speaker 3: Okay, so this will be the abridged version, but let's
23:32
Speaker 3: see if we can make it the crib notes. Remember
23:34
Speaker 3: crib notes, I do. Yeah, this is the crib notes version.
23:39
Speaker 3: So you know, if you want to protect your home,
23:42
Speaker 3: that's the goal of a life estate, So it's also
23:45
Speaker 3: the goal of an irrevocable trust. How do we protect
23:47
Speaker 3: our primary residence if that's what we're talking about. So
23:51
Speaker 3: if I set up a life estate and I put
23:55
Speaker 3: the house in the hands of the children, and I
23:58
Speaker 3: reserve the right to live there, what have I done.
24:02
Speaker 3: I have the right to live there, I have the
24:04
Speaker 3: right to collect rent, and I have the right to
24:05
Speaker 3: pay bills. That's about it. But but the good news
24:12
Speaker 3: from that is not only do I at least have
24:15
Speaker 3: the right to live there, but if I die, the
24:17
Speaker 3: kids will get a step up in basis for capital
24:18
Speaker 3: gains tax purposes, and in five years the house would
24:22
Speaker 3: be protected from the cost of nursing home care. So
24:25
Speaker 3: it's not altogether horrible. It's going to at least accomplish
24:30
Speaker 3: those things which are good from a capital gains, tax
24:32
Speaker 3: standpoint and a protection standpoint. So sure, I'm good and
24:35
Speaker 3: I avoid probate. So that's good. But remember, folks, when
24:39
Speaker 3: we do this, we often do this and live a
24:42
Speaker 3: long time. Right, we might be sixty five when we
24:44
Speaker 3: set these things up and life changes. Right, we want to,
24:48
Speaker 3: you know, move, we want to downsize, we want to
24:50
Speaker 3: move to a nice warm climate. Perhaps. What about selling?
24:54
Speaker 3: What have I given up? Well, couple of things. One,
24:58
Speaker 3: I've put the house in the hands of the children.
25:00
Speaker 3: If I do it that way, that's the version I'm
25:02
Speaker 3: talking about. I've now exposed a house to the kids creditors.
25:06
Speaker 3: Granted they might not be able to take it against
25:08
Speaker 3: me while I'm alive, but they're gonna have to deal
25:11
Speaker 3: with it. What if they get divorced, What if there's
25:13
Speaker 3: a car ax and a financial problem. These kids now
25:16
Speaker 3: own that piece of the property, that future interest that
25:19
Speaker 3: you that you gave them. Okay, Well that's not good.
25:23
Speaker 3: It's not good for them, it's not good for you.
25:25
Speaker 3: It's not good for anybody. Okay, Well, then what if
25:28
Speaker 3: I do want to sell it? What if I want
25:29
Speaker 3: to move? Well, now you need permission. You need to
25:33
Speaker 3: ask the kids. Can I sell the house? Well, hopefully
25:36
Speaker 3: they both agree, because you're gonna need both people to sign,
25:39
Speaker 3: or if you have three kids, you need all three
25:40
Speaker 3: kids to sign. Okay, Well, Todd, my kids are great.
25:44
Speaker 3: They're gonna go ahead and sign for me. So okay,
25:46
Speaker 3: so we got past that hurdle. Well, now when you
25:49
Speaker 3: sell it, remember you have to calculate how the gain
25:52
Speaker 3: is allocated and how the proceeds are allocated. And depending
25:56
Speaker 3: on your age, a larger portion, a much larger portion
25:59
Speaker 3: is likely to go to the children, and a smaller
26:02
Speaker 3: portion to you. Okay, so that's not great because now
26:06
Speaker 3: I got less money, and if I have less money,
26:08
Speaker 3: I probably don't have the money I need to buy
26:10
Speaker 3: another house. And even if I did have the money
26:12
Speaker 3: I needed to buy another house, that new house would
26:15
Speaker 3: be at risk of the nursing home all over again. Okay,
26:18
Speaker 3: but now the kids have a portion of the gain.
26:22
Speaker 3: If they don't live there, they have to pay capital
26:23
Speaker 3: gains tax on all that money, so they don't get
26:27
Speaker 3: the exclusion that I get for living in my primary residence,
26:30
Speaker 3: so there's an adverse capital gains tax consequence. And then
26:33
Speaker 3: if they're nice enough to give me the money back,
26:35
Speaker 3: then they can pay a gift tax on top of
26:37
Speaker 3: the capital gains tax to give me the money back.
26:40
Speaker 3: Now I can take all my money and go buy
26:41
Speaker 3: a house, and then I have to start the five
26:44
Speaker 3: year clock all over again. I don't think I need
26:46
Speaker 3: to go on.
26:48
Speaker 2: I'd prefer that you don't.
26:49
Speaker 3: That's really bad.
26:51
Speaker 2: Talking with Todd Lutsky from the law firm of Kushing
26:55
Speaker 2: and Dolan. If you've got questions for Todd, this is
26:57
Speaker 2: your chance to ask them live on air right now.
27:00
Speaker 2: Eight eight eight to zero five two two six three
27:04
Speaker 2: is the number still room on the phone lines at
27:07
Speaker 2: eight eight eight to zero five two two six three,
27:11
Speaker 2: And again Todd can help to answer some of your
27:14
Speaker 2: big questions about estate planning. Let's take a quick break here.
27:18
Speaker 2: When we return, we're gonna get to your questions with Todd.
27:22
Speaker 2: That phone number is eight eight eight to zero five
27:26
Speaker 2: two two six three. One more time, it's eight eight
27:30
Speaker 2: eight two zero five two two six three.
27:34
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:37
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:43
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:47
Speaker 1: Radio Network.
28:03
Speaker 2: Still got a bit of room on the phone lines
28:05
Speaker 2: for your estate planning questions at eight eight eight two
28:09
Speaker 2: zero five two two six three. That number again is
28:13
Speaker 2: eight eight eight two zero five two two six three.
28:17
Speaker 2: For your estate planning questions again eight eight eight two
28:21
Speaker 2: zero five two two six three. Let's go to Marie
28:24
Speaker 2: in Springfield. Marie, what is your question for Todd?
28:28
Speaker 5: Yes, I have a trust that was written in twenty thirteen.
28:32
Speaker 3: Twenty thirteen. Yeah, okay, and.
28:35
Speaker 5: It's very hard to read. I get out page ten
28:40
Speaker 5: and you've lost me. I would like to do a
28:43
Speaker 5: new trust. I'm wondering what is involved.
28:46
Speaker 3: So let me ask you a couple of questions about
28:48
Speaker 3: the trust you have. Because when I meet clients that
28:51
Speaker 3: have estate planning documents, in all fairness, I tell them
28:53
Speaker 3: up front, look, if I don't need to recreate the
28:56
Speaker 3: wheel and you don't need to spend any money, don't
28:59
Speaker 3: do it right. There's no reason to do it if
29:01
Speaker 3: there's just just for me to recreate the wheel. So
29:05
Speaker 3: just because they're hard to read, I get it. They're
29:08
Speaker 3: they're complicated, they're hard to read. And when I meet
29:11
Speaker 3: a client, I read it to them in English after
29:14
Speaker 3: I give it to them to read. So you might
29:16
Speaker 3: just need this reread to you in English by by
29:20
Speaker 3: your state planning attorney. But first of all, is it revocable?
29:26
Speaker 5: No, yeah, it is.
29:27
Speaker 2: It's revocable, revocable.
29:29
Speaker 3: And how old are you?
29:32
Speaker 5: I'm in my nineties.
29:33
Speaker 3: Wow, God, I love you. That's awesome. So roughly, how
29:38
Speaker 3: much are you worth? Round numbers like more than the
29:40
Speaker 3: Massachusetts two million dollar exemption or less.
29:44
Speaker 5: Just as less, less little.
29:48
Speaker 3: The only concern I would say then, for what you
29:50
Speaker 3: do have is it's revocable, and is one of your
29:57
Speaker 3: concerns trying to protect any of these assets if in
30:00
Speaker 3: the event, in the future you needed long term care? No,
30:04
Speaker 3: all right, so that's not a concern. If protecting assets
30:07
Speaker 3: is not a concern, the revocable trust for someone your age,
30:11
Speaker 3: your net worth, you know, worth less than the two
30:14
Speaker 3: million dollar exemption, likely doesn't need to be redone. It's
30:19
Speaker 3: just my initial reaction. It puts your assets in there.
30:22
Speaker 3: You're probably the donor, you're probably the trustee, you're probably
30:27
Speaker 3: in control of the assets all good, it'll avoid probate.
30:31
Speaker 3: I think the most important part for you to read
30:33
Speaker 3: it rather than get into all the weeds. Back in
30:36
Speaker 3: page you know, twenty five or thirty, look for the
30:40
Speaker 3: paragraph that says upon the death of the don oor okay,
30:46
Speaker 3: and just read that paragraph, because again, if it's revocable,
30:51
Speaker 3: retitle your assets to the trust, you lose no control.
30:53
Speaker 3: You do everything you do during life today, no tax return,
30:58
Speaker 3: and if it's set upon the death of the don or,
31:02
Speaker 3: I don't know equally to my kids or whoever you're
31:05
Speaker 3: leaving it to. As long as that paragraph is still
31:08
Speaker 3: doing what you want it to do, leave it to
31:11
Speaker 3: who you want to leave it to, there might be
31:14
Speaker 3: no reason to update your document. So I hope that
31:17
Speaker 3: helps at least check that out first. If that's not
31:19
Speaker 3: what you want and you want to change it, then
31:21
Speaker 3: you need to either amend the trust or we can
31:24
Speaker 3: certainly do a new one at that juncture. Folks. That's
31:29
Speaker 3: just one thing. I'm glad she did the plan, and
31:31
Speaker 3: kudos to her, But a lot of people just put
31:33
Speaker 3: together a life estate and they throw their house in
31:35
Speaker 3: a life estate deed, give it to the kids, or
31:37
Speaker 3: give it to a trust and then keep a life estate. Folks,
31:41
Speaker 3: you don't always know what you get. This Calculating the
31:44
Speaker 3: Consequences of a life Estate guide tells you the three
31:48
Speaker 3: ways in which I would ever do a life estate.
31:51
Speaker 3: It tells you the two ways in in which they're created.
31:54
Speaker 3: I always like to say the right way and the
31:56
Speaker 3: wrong way, but please learn about the ways they're created
31:59
Speaker 3: if you. Also tells you all about the gift tax,
32:03
Speaker 3: the income tax consequences, the ability to sell, the creditor risks.
32:08
Speaker 3: It really tells you what you have and maybe what
32:12
Speaker 3: you don't have. So if you've got a life estate,
32:14
Speaker 3: this guise for you because you can find out what
32:16
Speaker 3: it is and maybe how to get out of it.
32:18
Speaker 3: If you don't have one and you're thinking about getting one,
32:21
Speaker 3: then you can get the guide and learn whether you
32:25
Speaker 3: should actually have one, Folks eight six six eight four
32:29
Speaker 3: eight five six nine nine or Legal Exchange Show dot com.
32:33
Speaker 3: You can download it there again eight six six eight
32:36
Speaker 3: four eight five six nine nine or Legal Exchange Show
32:40
Speaker 3: dot com. And you can also go to our Instagram
32:43
Speaker 3: page Cushing Dolan PC for lots more information.
32:47
Speaker 2: Todd, we got another one for you here. Let's go
32:49
Speaker 2: to Brad in Winchester. Brad, you're on with Todd Lutsky.
32:53
Speaker 6: Hi, I own an investment property and it has equity,
32:57
Speaker 6: and right now I've owned it for a long time,
32:58
Speaker 6: and I'm thinking of putting it into a trust so
33:01
Speaker 6: that I can avoid the five year look back. My
33:04
Speaker 6: question is, so does that lock it up permanently if I, like,
33:07
Speaker 6: buy an investment proper, if I buy a second home
33:10
Speaker 6: or something and retire, can I get the money out
33:13
Speaker 6: of it? Or is it permanently stuck in it?
33:15
Speaker 4: Then?
33:15
Speaker 1: Oh?
33:16
Speaker 3: No?
33:16
Speaker 1: No?
33:16
Speaker 3: So I assume you are you married? Single?
33:20
Speaker 6: No single?
33:21
Speaker 3: Single? No kids?
33:23
Speaker 7: No?
33:24
Speaker 3: Okay, so you might you know. So when you talk about,
33:27
Speaker 3: you know, avoiding the five year look back period, to me,
33:29
Speaker 3: you're saying I want to protect it from the nursing home.
33:32
Speaker 3: My initial question would be, who are you protecting it for?
33:36
Speaker 6: Relative?
33:37
Speaker 3: Okay, so there is someone you need to Okay, great,
33:39
Speaker 3: So as long as there's a family member that you
33:42
Speaker 3: need to protect us for, then yes, I think the
33:44
Speaker 3: irrevocable Medicaid trust is probably right for you. One last question,
33:48
Speaker 3: how old are you? Sixty four, fifty four maybe a
33:52
Speaker 3: little early sixty and over. I like to think about
33:55
Speaker 3: these irrevocable trusts, but there's no magic number. And so
33:59
Speaker 3: to answer your question, you can put a rental property
34:03
Speaker 3: in there for sure. You can continue, Well, you need
34:06
Speaker 3: someone else to be trustees, so maybe your sister or
34:09
Speaker 3: someone other than you. You can continue to collect a
34:13
Speaker 3: rent like you do now. You continue to pay the
34:16
Speaker 3: bills like you do now. Use your money. You're allowed
34:20
Speaker 3: to sell the house anytime you want to sell it.
34:24
Speaker 3: You could use the money to buy another house if
34:26
Speaker 3: you want it to do that inside the trust, whether
34:29
Speaker 3: it's rental or house you want to live in, all
34:32
Speaker 3: that flexibility remains available to you. You can also then
34:37
Speaker 3: if it's if it's turned into money and you want
34:40
Speaker 3: it all back again, you're going to have to sit
34:43
Speaker 3: down with the family and figure out who you're making
34:46
Speaker 3: beneficiaries of this trust. But there is a way to
34:49
Speaker 3: take assets out to the beneficiaries who may or may
34:52
Speaker 3: not give it back to you. But be careful so
34:54
Speaker 3: it's not locked up per se. But I think you
34:58
Speaker 3: have a lot of control over it. I think it's
34:59
Speaker 3: worth looking into and getting a little more in depth
35:02
Speaker 3: discussion about a lot of flexibility for you.
35:05
Speaker 2: Tod I've got another one for you here, let's go
35:08
Speaker 2: to Philip on the Cape. Philip, we only have a
35:10
Speaker 2: couple of minutes, so you got to be quick. But
35:11
Speaker 2: what's your question?
35:13
Speaker 7: Todd? You did an irrevocable trust for me eight years ago,
35:17
Speaker 7: and now I'm concerned. You talked about the Massachusetts two
35:21
Speaker 7: million dollar exclusion. Yes, well everything has increased, so it's
35:29
Speaker 7: over that. Now is there anything I need to do
35:33
Speaker 7: going forward?
35:34
Speaker 3: Great question? So are you how old are you now?
35:39
Speaker 7: Seventy eight?
35:40
Speaker 3: Are you married?
35:41
Speaker 7: Yes?
35:42
Speaker 3: Did we do one trust or two trusts?
35:45
Speaker 7: Two trust?
35:46
Speaker 3: So you're in good shape because my trusts are flexible
35:49
Speaker 3: enough that I assume we like, put this house half
35:52
Speaker 3: in your trust and half in your wife's trust. Correct?
35:56
Speaker 7: Then go correct?
35:57
Speaker 3: Good? And how much is the house worth?
36:00
Speaker 7: Well, it's not just the house, there's several of them,
36:03
Speaker 7: and they're all rental.
36:04
Speaker 3: And so how much is in each trust? A round number?
36:10
Speaker 3: Five million in each trust?
36:13
Speaker 7: Oh no, no, oh, say two and one and one
36:18
Speaker 7: and a half and another.
36:19
Speaker 3: So let's just call it even if it's two and two,
36:21
Speaker 3: don't worry about it. Right. So the bottom line is
36:24
Speaker 3: that these trusts are designed to shelter two million each.
36:28
Speaker 3: So now you can actually shelter four million from Massachusetts
36:33
Speaker 3: a state tax with these trusts, so they are doing
36:36
Speaker 3: everything you want them to do. They are providing you income,
36:39
Speaker 3: avoiding probate, protecting from the nursing home, and still sheltering
36:45
Speaker 3: the maximum amount that we can shelter from a state taxes.
36:48
Speaker 3: Kudos to you. If you get over the two million,
36:51
Speaker 3: over the four million dollar limit, well, yeah, there's some
36:53
Speaker 3: tax for that. We can sit down and think if
36:55
Speaker 3: there's anything more you need to do for that. But
36:58
Speaker 3: right now I think your trust are doing wonderful and
37:01
Speaker 3: you're sheltering the whole four million from the state taxes.
37:04
Speaker 2: So there you go, mister Lobsky, Thanks so much for
37:06
Speaker 2: joining us today.
37:07
Speaker 3: Always pleasure. Thank you.
37:09
Speaker 1: This has been asked Todd on the Financial Exchange Radio
37:12
Speaker 1: network Aske Todd with Todd. Lutsky has been presented by
37:15
Speaker 1: Cushing and Dolan, serving Massachusetts and New England for more
37:18
Speaker 1: than thirty years, helping families with the state and tax planning,
37:21
Speaker 1: Medicaid planning and probate law. Call eight hundred three nine
37:24
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:28
Speaker 1: The views expressed in this segment are solely those of
37:30
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:32
Speaker 1: or tax advice. Please consult with your illegal or tax
37:34
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37:37
Speaker 1: each other and are not affiliated.