Latest / The Financial Exchange Show / Is the stock market too expensive right now?

Transcript

Is the stock market too expensive right now? · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:03
is hosted by employees of the Armstrong Advisory Group, a
0:05
registered investment advisor. All opinions expressed are solely those of
0:09
the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
or anyone else. Investments can lose money. This program does
0:14
not offer any specific financial or investment advice. Please consult
0:17
your own financial, tax, and estate planning advisors before making
0:20
any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
this program do not endorse each other or their services.
0:26
Armstrong and Money Matters Radio do not compensate each other
0:28
for referrals and are not affiliated. This is The Financial
0:35
Exchange with Chuck Zada and Paul Lane, your exclusive look
0:39
at business and financial news affecting your day, your city,
0:42
your world. Stay informed and up to date about economic
0:46
and market trends, plus break in business news every day.
0:50
The Financial Exchange is a proud partner of the Disabled
0:52
American Veterans Department of Massachusetts. Help us support our great
0:56
American heroes by visiting DAV five KM and making a
1:00
donation today. The DAV five K Boston is presented by
1:04
Veterans Development Corporation. This is the Financial Exchange with Chuck
1:09
Zutta and Paul Lane.
1:12
Speaker 2: Wednesday here on the Financial Exchange, Chuck, Paul, and Tucker
1:15
with you, and not a ton going on as far
1:19
as new data today. We are in the middle of
1:21
earning season, so we do have some additional companies reporting
1:24
earnings this morning, Abbott Labs, Morgan Stanley, US Bank Corps.
1:28
So yeah, that we're continuing to get kind of a
1:31
drip drip drip of earnings as we move through the week.
1:34
Tomorrow a couple big names coming out with Netflix and
1:37
Blackstone both set to report, so we'll see what we
1:41
get from them. But today let's kick things off talking
1:45
a little bit just about the overall state of valuations
1:49
in this market. David Einhorn, who is the president of
1:54
green Light Capital, has been a hedge fund manager for
1:57
as long as I can remember. Paul, I mean at
1:59
least going back fifteen to twenty years, probably niner than next.
2:01
Speaker 3: It looks like he kicked off his head.
2:04
Speaker 2: Yeah, so there you go. So Einhorn is not out
2:09
with a piece today, but he put out his annual
2:12
letter earlier yesterday, and just some quotes from it that
2:19
that I'll read here, and specifically he's talking about Warren
2:23
Buffett selling some stocks recently, and you know, disclosing that
2:27
Berkshire Hathaway has sold, you know, some positions in Trimson
2:30
positions a little bit. Quote. Our sense is that mister
2:33
Buffet's portfolio adjustments are not a prediction that the market
2:36
will fall next week, next month, or even next quarter. Rather,
2:39
these stock sales more likely express a long term view
2:43
the right now is not a great time to have
2:45
a lot of equity exposure, and that the opportunity set
2:47
is expected to be better at some point in the
2:49
not too distant future. And you know, it goes on
2:53
to say that you know, this market is valued, you know,
2:56
very steeply right now. Also another quote here that I
2:59
think good Paul Tutor Jones, who is another investment manager
3:03
wide we thought of, I think as one of the
3:04
best kind of traders of all time. Quote, we think
3:09
Paul Tutor Jones is right when he says that managing
3:11
the last third of a great bowl or bear market
3:13
move is often the toughest kind of implying that, hey'
3:17
that's what this market is in right now, and look,
3:21
you will get a whole bunch of different metrics out there,
3:25
and it's tough to find one at this point that
3:29
indicates that large cap us stocks you know, proxied by
3:33
the S and P five hundred are in any way cheap. Sure,
3:38
Is that a fair read? That's a fair read.
3:40
Speaker 3: Whatever you want to look at for pe Pe price starnings, ratios,
3:44
any type of valuation metrics out there, they are more
3:47
expensive than they historically have been.
3:50
Speaker 2: So what do you make of all this and what
3:52
does the average person do with this information?
3:55
Speaker 3: It's always important to consider context when you have this
3:59
type of letter being released or quoted. This is a
4:04
hedge fund that is up nine percent year to date,
4:06
the market's up over twenty percent, so you have to
4:10
put in a little bit of grain of salt to
4:12
recognize that he's trying to justify what is significant underperformance
4:16
to the S and P five hundred. Hedge funds tell
4:19
charge a pretty hefty sum to participate in them, and
4:22
their fee structure is much larger than the typical advisory
4:26
structure out there, so you always have to keep that
4:28
in mind. It seems like he's giving messaging to indicate
4:31
why the hedge fund has underperformed, and in fact, he
4:35
basically mentioned at some point here that the fund is
4:39
likely they are not outright bearsh but they're likely underperform
4:43
a rising market. So justifying a little bit of the
4:46
underperformance I think is part of it. I'm not going
4:48
to disagree with his notion that Buffett has been a
4:51
great market timer over history. He's been one of the
4:53
best investors in history, So not disagreeing with any of
4:56
the sentiments regarding the valuation for the stock market or
5:00
anything like that. But I do think that part of
5:03
this is a little cya to the funds underperformance in
5:08
a time that's been a really strong year. How that
5:11
folds out for twenty twenty five. Perhaps they're better positioned
5:14
when markets may slow down. But like we've talked about before, Chuck,
5:18
the difficult thing with these valuation metrics and small caps
5:22
are a great example of this that they can be
5:25
off for a significant period of time and you can
5:28
underperform for decades before valuations come back under control.
5:33
Speaker 2: Yeah, they're not something that is inherently useful as a
5:36
timing tool for trading markets because you don't know how
5:39
things are going to play out. And I think that
5:42
point about adding context in terms of, hey, what Einhorn
5:46
is actually seeing with his fun this year is meaningful,
5:51
Like it's notable, Like you don't write something like this
5:55
if you're knocking the cover off the ball, right, And
5:57
it's not to say that you need to always knock
6:01
the cover off the ball as a hedge fund manager either,
6:04
like sometimes you might say, look, it's better to be
6:06
prudent and miss on this than whatever else is going on,
6:10
Like you don't have to dance every dance. But I
6:13
think it's also something where in terms of you know,
6:19
what you actually do with this, the answer, you know,
6:23
as we talk about quite often, is well, as an
6:25
individual investor, you probably don't do anything with this. If
6:29
this is the first time that you've you know, heard
6:32
of David Einhorn, or this is the first time that
6:35
you know you've read anything from one of his letters
6:37
and he's talking about Warren Buffett. Okay, you're gonna wait
6:41
for his letter next year to know what to do.
6:42
Then you know, he doesn't put one of these out
6:45
every day. He's not he's not a newsletter guy. That's
6:47
not really his thing. Sure, So I think that ultimately,
6:52
when when trying to read financial media. It's important to
6:58
know that one of them may major reasons why it
7:01
exists is so that people can talk their own book
7:04
and in some ways, you know, kind of get you
7:06
to trade just from you know, reading whatever the piece is.
7:10
But just like Einhorn doesn't have to dance every dance,
7:13
neither do you as the individual investor. There's always another trade.
7:16
There's always another opportunity. It's it's never hey, Paul, this
7:23
is it. This is the last one, like this is
7:25
the last trade. And after that, no, like you always
7:28
have another chance. And that's why when you look at
7:32
it just from a from a perspective of trying to
7:36
figure out, you know, should I do anything? In general,
7:40
you got four outcomes in markets, there's only four. There
7:43
are no more outcomes than these. You can win big,
7:47
you can win small, you can lose small, or you
7:50
can lose big success in Really, I'll call it trading,
7:55
because investing is more Hey, just stick it in something
7:58
and let it go for a while. Trading it's all
8:01
about avoiding the big loss. You always live to fight
8:05
another day because there's always another trade. There's always another
8:08
new hot thing, there's always something else that comes along.
8:11
It might not be in a week, it might not
8:13
be in a month, it might not be in a year.
8:14
Sometimes you go like ten to fifteen years between those setups.
8:18
But you don't have to dance every dance, and when
8:20
you do dance, make sure that you don't break something
8:24
so badly that you can't get up and dance again.
8:26
You can't have the big loss. And I think that's
8:30
what Einhorn's getting at. He's like, look, i might not
8:33
make much money right now, and you might not like
8:35
me as an investment manager for that, but I'm nervous
8:39
about taking the big loss, and as such, I'm not
8:42
gonna dance. That's kind of his message, is he gonna
8:46
be right? Don't know, we'll have the scorecard in a year.
8:50
Probably within the next two years, we'll have the scorecard.
8:52
Speaker 4: You know.
8:53
Speaker 2: That's what it is in every hedge fund manager, every
8:56
manager out there, they all love their bad years. It's
8:59
like any other job. I mean, you look at you know,
9:02
quarterback in the NFL. You look get cashier, at the grosser.
9:06
Everyone's got their bad days and bad years where it's like, oh,
9:09
it didn't really do my best today, Like I didn't
9:12
have it for whatever reason. I was sick. I was tired.
9:15
You know, the kids have been going crazy. I haven't
9:17
slept in months, like everyone has it. Hey, we get
9:21
the scorecard every year for hedge fund managers, and if
9:25
you're consistently bad, then eventually your capital leaves you and
9:28
you have to go do something else. If you're consistently good,
9:31
then you get to say, yeah, I had a bad
9:34
year back in twenty twenty four, So what look at
9:36
my track record? Since it's kind of how it goes.
9:39
Speaker 3: The bottom line is I hope you dance.
9:42
Speaker 2: Who sang it? Tucker?
9:47
Speaker 5: I know the song, I don't know who's sang it?
9:48
Speaker 2: Who sang it?
9:49
Speaker 5: I don't know.
9:50
Speaker 2: Paul knows it. I know at all correct ding ding
9:55
ding ding ding. Let's take a quick break here, and
9:58
when we return that song and when we will turn
10:03
it's Tucker. Tucker's a great dancer. I'm a big believer
10:06
in Tucker's danceing ability to take a quick break. When
10:09
we come back, we'll talk about holiday retail sales right
10:12
after this.
10:14
Speaker 1: Get up to the minute market updates with Wall Street
10:16
Watch week days at ten thirty only here on the
10:20
Financial Exchange Radio Network. Find daily interviews and full shows
10:24
of the Financial Exchange on our YouTube page. Like us
10:28
on YouTube and get caught up on anything and everything
10:31
you might have missed. This is the Financial Exchange Radio Network.
10:37
Speaker 5: This segment of the Financial Exchange is brought to you
10:40
in part by the US Virgin Islands Department of Tourism.
10:43
The US Virgin Islands are Saint Croix, Saint Thomas, and
10:45
Saint John. Summer's over, so now's the time to start
10:48
looking at a fabulous holiday vacation, and there's no better
10:52
place than the US Virgin Islands. Enjoy perfect weather, world
10:55
class dining, incredible beaches and a vibrant nightlife. No passport
10:59
is needed, and there's no money du exchange. Take your
11:01
next vacation in America's Caribbean paradise to the United States Virgin Islands.
11:06
Go to visit USBI dot com to book your trip.
11:09
That's visit USBI dot com.
11:12
Speaker 2: Piece in New York Times Today, holiday sales growth expected
11:17
to normalize in an abnormal year, and the National Retail
11:21
Federation City Yesterday expects holiday sales to increase two and
11:24
a half to three and a half percent from last
11:26
year to as much as nine hundred and eighty nine
11:29
billion dollars. It's almost a trillion dollars in gifts.
11:33
Speaker 3: Paul, not too bad too.
11:35
Speaker 2: Why it's wild slightly slower growth in the year before
11:39
when they came in three point eight percent up from
11:42
the prior year. But the uh, you know, in terms
11:46
of what we typically saw, you know, pre pandemic, you
11:49
were kind of in the mid threes, like that was
11:51
kind of where the economy lived, and so it looks
11:54
like the US is kind of getting back to normal
11:57
as far as holiday spending trends.
12:00
Speaker 3: Yeah, it seems like you hit on some of the
12:02
major key points here. E Commerce looks like it's going
12:04
to continue to outpace total retail sales the amount of
12:07
growth that they're seeing on that side of things. It's
12:10
estimated eight or nine percent jump in e commerce sales,
12:13
so that will be between two hundred ninety five to
12:16
two hundred ninety eight billion of that nine hundred and
12:18
eighty nine billion chuck that you were alluding to before.
12:22
You've got Target and Walgreens. They've come out with some
12:25
pretty significant price cuts to try and spur on some demand.
12:29
Walmart has announced seventy two hundred rollbacks on its pricing,
12:32
so a lot of retailers trying to position themselves for
12:35
the holiday season, which I believe is supposed to be
12:39
between November one and December thirty first, so a couple
12:42
weeks from now. But of course many stores out there,
12:45
as noted in this piece, are getting a head start
12:48
putting their holiday decorations out before Halloween, which always blows
12:52
my mind, but.
12:54
Speaker 2: That's what they do. You can't skip ahead a holiday.
12:58
I'll even say, look for decoration and stuff like that,
13:01
you can skip ahead one, but you can't have You
13:04
can't be selling Christmas decorations in September, which I've seen
13:09
this year.
13:10
Speaker 1: Crazy.
13:11
Speaker 2: Having said that, I did purchase some new Christmas lights
13:13
in the last couple weeks, so maybe you should actually
13:15
be able to do it. I don't know, I don't know. Also,
13:19
this the National Retail Federation, they do not include auto
13:23
dealer purchases in this, which raises the question, well, look
13:27
what about all those people that get those cars with
13:29
the big bows that they advertised. Who actually buys someone
13:34
a car for Christmas? Like, oh, come outside, And first
13:38
of all, how did you get it there so early
13:39
in the morning. The dealer's not open that late on
13:42
Christmas Eve? That's true. They're just not second.
13:46
Speaker 3: Unless you stored it somewhere else. Yeah, it's logistically a
13:51
nightmare second together.
13:52
Speaker 2: Where do I get one of those big bows?
13:55
Speaker 3: I wonder if you walked into dealership? You know, all right,
13:57
I'll commit to this new model. But the only way
14:00
I'm doing it is that you got to produce a
14:02
bow so I can give it to my wife for
14:04
whomever I.
14:05
Speaker 2: Want one of those for like a really tiny gift,
14:07
just a little gift, like a little get my daughter,
14:09
like one of the matchbox cars or something like that.
14:11
With one of those giant bows on top of it.
14:13
Speaker 3: You can barely fit it through the front door.
14:15
Speaker 2: It would be fantastic. Like check this out, I got
14:18
you a car, And it's mean.
14:21
Speaker 5: I'm seeing you can get on an Amazon for ten bucks,
14:24
and I'm seeing you can get on a Etsy for
14:25
one hundred and eight dollars.
14:27
Speaker 2: I don't know why Amazon for ten dollars correct, That
14:30
seems a little cheap for a bow that's the size
14:32
of a car. I just always sure how big the
14:35
one the dimensions on the ten dollars Amazon bow stand
14:38
by and is it? Is it velvety or is it
14:40
like she's nice cheap. No, I need something velvety, something's
14:44
got a little bit of.
14:45
Speaker 1: Yeah, just do it.
14:46
Speaker 3: That's easier way to go.
14:47
Speaker 2: Yeah.
14:48
Speaker 5: Etsy, want to tell you know what, it's not the
14:50
bow that goes all the way around the car. It's
14:52
only goes on the grill.
14:54
Speaker 2: No, no, no, no, we need the big I need
14:56
the big one.
14:56
Speaker 1: Yeah.
14:56
Speaker 2: It feels like it should be at least fifty bucks. Yeah,
15:00
it feels like I feel like you could do like
15:02
a forty to fifty dollars one not on Etsy. So
15:06
in any case, that is what is expected for holiday
15:09
sales growth. Also another piece from the New York Times
15:12
titled would a strong job market stop the FED rate cuts?
15:15
This official says no. That's Mary Daily from the Federal
15:19
Reserve Bank of San Francisco. And look he the reason
15:28
that the Fed has signaled they want to begin cutting
15:31
interest rates. And this is explicit from Jay Powell. This
15:34
is not reading between the lines like Fed watcher crap.
15:37
This is Jay Powell coming out and saying, we will
15:41
not tolerate further weakness in the labor market. And that's
15:44
why we're doing this. If the labor market thus strengthens,
15:51
I don't know why you would need to cut interest rates,
15:56
Like if if the economy is saying, hey, we're fine,
16:01
the labor market you know, starts, you know, growing again,
16:03
the unemployment rate move moved down to you know, three eight,
16:06
three nine, Why do you need to cut interest rates?
16:12
Speaker 3: Is there an argument to be made that you're holding
16:16
them as restrictive monetary policy longer than you need to
16:20
because of the inflation side of the coin.
16:22
Speaker 2: Well, maybe they're not restrictive. Then if if you're having
16:26
more growth, if growth is accelerating, then why would you
16:30
want to ease and make things less restrictive? I guess
16:34
is the question that I would be asking, because no
16:36
one knows, like where the line is between restrictive and
16:39
accommodative on any given day. It's it's an estimate, and
16:42
it's just like it's it's fairy dust, you know, it's
16:46
it's that's what it is. No one knows where it is.
16:50
So if the economy starts accelerating, I don't know that
16:55
it makes sense to be like, well, we said we
16:57
were gonna cut, so we're getting Well, no, you said
17:00
you were gonna cut and you were wrong. If the
17:02
economy starts accelerating, the.
17:04
Speaker 3: Other problem with this is that we're not going to
17:06
have enough data to make that assessment ahead of the
17:09
November FED meeting, because what's going to happen is the
17:11
October jobs report's going to come out and widely reported
17:15
that it's going to be really dismal because of all
17:18
the things going on with the hurricane and other strikes
17:20
throughout the country. So we're gonna get that one and
17:22
you and I or Mike and you are gonna be
17:24
sitting here looking at that report saying, Eh, it's not
17:26
that great, but we don't really know what to do
17:28
with this one. We kind of got to throw it
17:30
out the window because of the timing. So then you're
17:32
gonna have that Federal Reserve meeting in November. Perhaps they
17:34
do one more quarter basis cut there, but you're really
17:37
not gonna have You like to see a pattern in
17:40
the data, right, we want to see multiple months of
17:42
a strong job support. We just had the strong one
17:44
in October. We all know the game not the game,
17:46
it's just it can be revised, Revisions can occur, So
17:49
you want to be able to see two or three
17:50
in a row. We're about to have an interruption in
17:53
the month of October's job report. So this idea of
17:57
strong labor market cuts, we're perhaps putting the car a
18:01
little bit before the horse, because there's a lot that
18:03
needs to happen before we get there, and we're not
18:05
going to know to at least let's call it January
18:07
or February, if that's the trend totally.
18:09
Speaker 2: I think that's a great point in that, Yeah, we
18:15
one month does not a great job market make, you know,
18:18
like you need a little bit more time to be
18:21
able to actually see if we've hit an inflection point.
18:25
And yeah, the the data is going to be a mess,
18:32
probably at least for the next month or two, maybe longer.
18:35
I mean, I don't know, like the stuff that we're
18:37
seeing out of North Carolina still where I mean, there
18:40
are places that are not gonna have road access, like
18:43
accessible by actual cars probably for months. Quite honestly, that's
18:49
not covered enough.
18:49
Speaker 3: You know, we cover the storm, but then the aftermath
18:52
doesn't get covered enough. How long it takes to kind
18:55
of reboot.
18:56
Speaker 2: Yeah, I mean they have estimates that like some of
18:58
these you know, major roads, they're not gonna have them
19:00
fully rebuilt for like three or four years. And it's
19:05
because like the entire underpinning of the road just washed away.
19:08
Like you can't just be like, oh, like repave it.
19:10
There's nothing to pave on. It's just it's air underneath now,
19:15
and you can't pave on air, Paul, you can't pave
19:19
on air. It's the rule number one of roads. Can't
19:24
pave on air. Let's take a quick break when we
19:26
come back, got Wall Street Watch and Todd Lutsky joins
19:29
us for Ask Todd.
19:43
Speaker 1: Like us on Facebook and follow us on Twitter at
19:46
TFE show. Breaking business news is always first right here
19:50
on the Financial Exchange Radio Network. Time now for Wall
19:55
Street Watch. A complete look at what's moving markets so
19:58
far today, right here on the Financial Exchange Radio Network.
20:03
Speaker 5: After yesterday's retreat from record highs, markets are bouncing back slightly.
20:07
Today is third quarter earning season picks up steam right now.
20:10
The Dow is up by half a percent, or two
20:12
hundred and ten points, SMP five hundred is up nearly
20:15
a quarter for percent, and the Nasdaq edging six points higher.
20:20
Russell two thousand is up over one and a half
20:22
percent so far today. Ten year treasure reeled is down
20:25
by two basis points at four point zero one percent.
20:29
And crude oil is mostly flat, trading at seventy dollars
20:33
in fifty cents a barrel. Sheries and Morgan Stanley up
20:36
by six percent after the financial firm posted better than
20:39
expected third quarter earnings in addition to a jump in
20:42
investment banking revenue. Meanwhile, United Airlines beat earnings and revenue
20:47
estimates for the third quarter and also announced a one
20:49
and a half billion dollars share buyback, it's first since
20:52
before the pandemic. That stock jumping by nine percent. Breaking
20:57
news out of Amazon this morning, where the Tech China
21:00
announced it's Amazon Web Services units sign an agreement with
21:03
Dominion Energy to explore the development of a small module
21:06
and nuclear reactor. The five hundred million dollar investment is
21:10
a step toward Amazon's path to net zero carbon emissions.
21:14
Amazon shares are flat, and Abbott Laboratory is reported slightly
21:18
better than expected third quarter results and hiked its mid
21:22
and hiked the midpoint of its annual outlook. That stock
21:26
is up by two and a half percent. I'm Tucker Silvan.
21:30
That's Wall Street Watch.
21:32
Speaker 1: This is asked Todd on the Financial Exchange Radio Network.
21:36
If you have an existing estate plan or in the
21:38
market for one. Todd Lutsky is here to answer your
21:41
questions and help you plan for a later life. Ask
21:44
Tod is presented by Cushing and Dolan, serving Massachusetts and
21:47
New England for more than thirty five years, helping families
21:50
with a state and tax planning, Medicaid planning, and probate law.
21:54
Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:00
Speaker 2: Promise. We're now joined by Todd Lutsky. Four Ask Todd.
22:03
This is the segment where you get to ask your
22:05
questions to Todd Lutsky live on air. Anything related to
22:09
your estate plan or lack thereof. This is your opportunity.
22:13
We've got the phone lines open at eight eight eight
22:15
to zero five two two six three. That is the
22:19
number to call to ask Todd your estate planning questions
22:22
right now. Again that number is eight eight eight to
22:25
zero five two two six three. Last couple of weeks,
22:29
we haven't enough time to get all the way through,
22:31
So get dilin early, get in line and we'll get
22:34
to you again. Eight eight eight to zero five two
22:38
two sixty three is the number. Mister Lutsky. How are
22:41
you today?
22:42
Speaker 6: I am doing wonderful and you pretty good overall? Oh yeah,
22:46
what's going on?
22:47
Speaker 4: Well?
22:48
Speaker 2: I ate an abacus yesterday an abacus talking to my
22:54
parents and they told me that it's really on the
22:56
what's on the inside that counts, and so I went
22:59
back to actually one of yeah, yeah, yeah, everything's great. Though, Todd,
23:02
I want to talk to you a little bit about
23:05
retirement accounts and how they relate to the estate tax.
23:09
Speaker 6: Yeah, tough, tough apples.
23:11
Speaker 2: Is there any way through estate planning that someone with
23:17
retirement accounts IRA four one K roth IRA, whatever it
23:21
might be, is there any way to potentially reduce one's
23:24
estate tax burden that they might have that they might incur,
23:28
you know, through holding those retirement accounts or they kind
23:31
of stuck with it.
23:32
Speaker 6: Yeah, So, I guess when you're looking at IRA accounts,
23:35
there's lots of components. Right first and foremost, Remember there's
23:39
an estate tax, as you're mentioning, uh, chuck, and an
23:43
income tax, So already, right out of the out of
23:46
the gate, we have to think about two types of
23:49
taxes when you're dealing with an IRA, so makes it
23:53
a little more complicated. And by the way, I'm just
23:55
going to throw this out there to it you didn't
23:56
ask about it. But a roth ira is still an ira,
24:01
and so as much as we think in our minds, oh,
24:05
it's tax free, that's what I understand about roths that's true.
24:09
So when I'm dealing with a roth ira, I have
24:13
one less tax to deal with, meaning when you withdraw
24:18
the money, it's income tax free. But what people forget
24:22
when they say tax free is that there's still the
24:25
estate tax side of the equation. Sure, right, so many
24:29
people right think, oh, well, it's a roth ira, so
24:31
it's tax free, don't have to worry about it. But
24:33
it's still included in your estate when you die, because
24:37
you own it after all, and therefore it is subject
24:40
to the estate tax, even though it's not subject to
24:45
the income tax. So just keep that in mind when
24:48
you're doing it. Now, if we're talking about the estate
24:53
tax side, for both iras and roth iras, to reduce
24:59
the debt, to reduce your estate tax, there's really only
25:04
one way to do it, right if you leave your
25:06
ira to your spouse, which most people will do. And
25:12
it's okay. It's a great income tax way to leave
25:16
your your ira, no question about it, But it's a
25:21
horrible estate tax way to leave your IRA. Why because
25:26
if you've got a million dollar IRA and you just
25:29
leave it to your spouse, your spouse's a state just
25:32
went up by a million dollars. It's not sheltered, So
25:35
that's just adding to whatever your spouse has in her
25:40
own right follow me, So it's subject to a state tax.
25:45
If you, on the other hand, want to leave it
25:48
the designated beneficiary to your family trust, and inside the
25:53
family trust it hits the q tip share the I'll
25:57
call it the marital share, but it's a q tip.
26:02
Then it can still come out to the beneficiary your
26:06
spouse over her lifetime, which is what you want from
26:10
an income tax perspective, But it's sheltered in the trust
26:16
when she dies for estate tax purposes. So at least
26:20
you're winning now on both fronts, not harming the payout
26:24
for income and sheltering it from being included in her
26:28
estate when she dies. If she has not spent at all.
26:32
Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
26:35
and Dolan. Again, the number to call to ask Todd
26:38
your questions about your estate plan eight eight eight to
26:42
zero five two two sixty three. That is eight eight
26:46
eight to zero five two two sixty three. Still a
26:49
little bit of room on the phone line, So again
26:52
get calling if you do have a question for Todd.
26:54
That number again is eight eight eight to zero five
26:58
to to Todd. When when you're looking at I guess
27:05
again just sticking with kind of the estate tax side
27:07
of things, what about other assets that might not be
27:10
retirement accounts, after tax investment accounts. Is there a different
27:14
approach that is utilized there in terms of trying to
27:19
minimize estate taxes?
27:21
Speaker 6: Yeah, I mean after tax investment accounts. Please a much
27:25
simpler answer, thankfully. Please just retitle those while you're alive
27:31
to your family revocable trust and and or to your
27:35
irrevocable trust to the extent you want to. For medicaid, nursing,
27:39
home plannings. Just put it in there, and now it
27:43
will be avoiding probate and sheltered first aid taxes.
27:47
Speaker 2: Talking with Tod Dolutsky from the law firm of Cushing
27:49
and Dolan. Again, still a little bit of room on
27:52
the phone lines at eight eight eight two zero five
27:55
two two six three. That's the number to call to
27:58
ask Todd your questions. Live on air, We're going to
28:01
take a quick break right now, but when we come back,
28:04
it's going to be right to your questions with Todd.
28:07
That number one last time is eight eight eight two
28:10
zero five two two six ' three.
28:14
Speaker 1: Ask Todd with Todd Lutsky Every Wednesday at ten thirty
28:18
only here on the Financial Exchange Radio Network. Todd Letsky
28:23
answers your questions about a state and elder life planning
28:26
every Wednesday at ten thirty right here on the Financial
28:29
Exchange Radio Network.
28:36
Speaker 2: Right to your calls with Todd Lutsky. First up, we
28:39
got Sal in Boston. Sal, what's your question for Todd?
28:43
Speaker 7: Hey, Todd, question about in heroded IRA?
28:48
Speaker 4: I heard you can turn it into a like kind IRA.
28:52
Speaker 2: In your own name and you have like ten years
28:54
to the clear the the money.
28:56
Speaker 6: Are you the child?
28:59
Speaker 4: Yes?
28:59
Speaker 6: Okay, so a parent died and you're the you're the beneficiary.
29:02
Speaker 2: Go ahead.
29:04
Speaker 7: So so if you do that, does that affect like
29:07
your own IRA, you know.
29:09
Speaker 2: Contributing to it or preventing you from contributing to your
29:12
own in that year?
29:14
Speaker 4: Or is this so? No?
29:16
Speaker 6: I think this is what I'm talking about. What we're
29:19
talking about here is not whether you're able to contribute
29:22
to your own IRA or how much you're able to
29:24
contribute to your IRA. This has no effect on that.
29:27
This simply is about you withdrawing from that IRA. Meaning again,
29:33
how old are you.
29:36
Speaker 4: Eight?
29:37
Speaker 6: So you're fifty eight, So your iras are you don't
29:40
have to touch them, you don't have to withdraw, you
29:42
don't have to do anything with them. But this IRA
29:45
you kind of have to, right depending on when how
29:48
old your father or mother was when they passed, but
29:52
likely at worst case scenario, you have to take this
29:55
out over ten years, and you have to either a
29:58
start right now and distributions have to come out. Probably
30:02
one tenth would make sense from an income tax standpoint,
30:05
but depending on whether or not your parent had reached
30:08
their required beginning date, you might be able to delay
30:12
the distribution and not make required minimums, but it still
30:16
has to come out over ten at the end of
30:18
the tenth year, and you'd never wait ten years to
30:21
take it out, because yeah, you'd have tax deferred growth
30:23
for ten years, but then you're going to get hammered
30:26
in year ten when you have to take it all
30:28
out from an income tax standpoint, So no impact on
30:31
what you can contribute that I'm aware of. To your
30:33
own iras. But you do got to focus on though,
30:36
withdrawing from this IRA sooner rather than later and watch
30:40
out for any penalties if you do not. Folks, iras
30:44
tough assets, tricky assets to deal with. This is why
30:48
we put together a guide this month naming your estate
30:51
and IRA beneficiary. When would you do it? How do
30:54
you do it? Does it make sense to do it right?
30:57
This is a situation where if you want to now
30:59
read reduce estate taxes by sheltering these for IRA purposes,
31:04
you want to not get an adverse income tax when
31:08
the beneficiary takes out the money that's the required minimum distributions.
31:14
And at the same time, if you have a surviving spouse,
31:17
you want the surviving spouse to be able to enjoy
31:19
the money access the money. But if they get sick
31:22
even the next day before they go into the nursing home,
31:27
not at risk for the nursing home, which is way
31:30
better perhaps than just leaving it directly to the spouse,
31:33
in which case it would be at risk for the
31:36
nursing home and less to the children. Lots to think
31:39
about with an IRA, Folks, from an estate planning and
31:42
nursing home planning perspective. Pretty new stuff here. Get the
31:46
guide eight six six eight four eight five six nine
31:51
nine or Legal Exchange Show dot com again eight six
31:54
six eight four eight five six nine nine or Legal
31:59
Exchange Show dots.
32:00
Speaker 2: Todd, I got another one qu'ed up for you here.
32:02
Let's go to Bob in Wooster Bob, you are on
32:05
with Todd Lutsky.
32:07
Speaker 7: Hi, Tod, good morning. I'm considering putting my rental property
32:11
in a trust with a spendthrift provision that states something
32:15
to the effect that the assets shall not be subject
32:18
to sale or transfer in any manner. Is this going
32:20
to make it difficult for my beneficiaries to eventually sell
32:25
the property at some point down the road.
32:27
Speaker 6: Well, I think you're comparing apples and oranges, right. So
32:31
the trusts have language in it regarding what the trust's
32:35
powers are, the trustees powers are. I don't mind having
32:38
the spendthrift language in there. That's certainly a great idea
32:40
to put in your trust. I may suggest that the
32:43
rental property go into an LLC first, and then the
32:48
shares go into your trust. That way, in case there's
32:51
a lawsuit, you are going to have credit or protection
32:55
from that tenant rather than being sued personally, you would
32:59
be sued that LLC would be sued, and your other
33:02
assets would not be at risk. To your point, again,
33:06
selling when the beneficiaries get it. If the trust says, hey,
33:10
pay it out to your kids and let them do
33:12
what they want with it, then there's absolutely no restriction
33:15
on selling it, even if you hold the asset in trust.
33:18
Again forgetting the spendthrift language, that doesn't really impact this.
33:22
You simply have language in there that says hold it
33:25
in trust for my kids for their life, to give
33:28
them credit or protection and divorce protection. The trust would
33:32
still generally have the ability to sell the property or
33:35
not sell the property. So I don't think that's going
33:38
to be a problem. I hope that that helps a little. Todd,
33:41
I've got another one here for you. Let's go to
33:43
Linn in Springfield, Linn. You are on with Todd Lutsky.
33:48
Speaker 4: Hey, Toad, good morning, Thank you for taking my fall.
33:51
I have a problem. It's a very good problem, but
33:54
it's a problem downe the less.
33:56
Speaker 6: Okay, we like problems.
33:59
Speaker 4: Well, here's a good one for you to work on.
34:01
I am sixty one, almost sixty two. I'm retired I've
34:04
been retired for a couple of years. I've been drawing
34:07
off of my four oh one K. My four oh
34:10
one K currently has about a million dollars in it,
34:14
and what I've drawn down i've made back up because
34:17
the stock market's been doing pretty good.
34:19
Speaker 1: Okay.
34:21
Speaker 4: I have about another half million dollars in cash, a property,
34:26
a parcel of land that's worth about a half million,
34:29
and a home that's worth about another million. So I
34:31
have ample means. And this is before four oh one K,
34:35
before I'm in social Security and a small pension.
34:38
Speaker 6: Are you single?
34:40
Speaker 4: I'm single, okay, and I have one child. Okay, So
34:43
I have a lot of stuff, a lot of moving pieces,
34:46
and I know that as and I live very simply, okay,
34:51
So now.
34:52
Speaker 6: Try to ask the question. Just ask the question.
34:55
Speaker 4: I'm just trying to figure out how to best minimize
34:58
my income tact the future when I start drawing off
35:01
a social Security and continuing to pull out of my
35:05
four oh one K, and then minimize my estate tax
35:09
for my child when I pass my assets along.
35:13
Speaker 6: So a couple of things, and I know we don't
35:15
have a lot of time left, but a couple of
35:16
things to point out here one. You know, from an
35:22
income tax perspective, there's not really a lot of planning
35:24
to do there. Maybe sitting with your accountant, maybe sitting
35:27
with a financial advisor might help you. But as you
35:29
withdraw money from your qualified plan, it's always taxable, and
35:33
you know, your other investments, if you invested in like,
35:35
you know, income tax free municipal bonds or something, might
35:38
reduce your income. But I can't really address the income
35:42
tax side of that equation. But on the estate tax side,
35:46
we can. I guess if I ran the numbers correctly,
35:49
you're somewhere around you know, three million ish, maybe a
35:52
little more in total assets. Good news is, federally you
35:57
don't have any estate tax. I don't even see it
36:00
being a problem in twenty twenty six, when the exemption
36:04
drops back down to seven million, give or take, I
36:08
think you'll be fine. And even in Massachusetts if you know,
36:11
I assume you live here, So if you're in Massachusetts,
36:14
it's also not a really big problem because the exemption
36:19
went up to two million. So yeah, you're over a
36:21
little bit. But you know, do we want to start
36:23
thinking about lifetime gifting And by the way, under the
36:27
new estate tax legislation, there's no more cliff rules, so
36:32
we're able to make gifts and be able to still
36:35
get a credit and reduce our our Massachusetts.
36:39
Speaker 2: A state tax.
36:40
Speaker 6: So yeah, there might be a way to do some gifting,
36:43
but we'd have to balance that, of course with the
36:46
idea of a loss of a step up in basis.
36:49
But most importantly, maybe you want a trust if it's
36:52
not revocable, you want to add some nursing home protection
36:55
to protect some of the non qualified assets and focus
36:59
on living off of the qualified assets so that you
37:02
can now add nursing home protection at the same time.
37:05
Speaker 2: Mister Lutsky, thank you so much for joining us today.
37:08
Speaker 6: Always a pleasure.
37:10
Speaker 1: This has been Asked Odd on the Financial Exchange Radio network.
37:13
Ask Todd with Todd Lutsky has been presented by Cushing
37:16
and Dolan, serving Massachusetts and New England for more than
37:19
thirty years, helping families with the state and tax planning,
37:22
medicaid planning, and probate law. Call eight hundred and three
37:24
ninety three four thousand and one or visit Cushingdolan dot com.
37:28
The views expressed in this segment are solely those of
37:30
Cushing and Dolan. Armstrong advisor. He does not provide any
37:33
legal or tax advice. Please consult with your legal or
37:35
tax advisor on such matters. Cushing and Armstrong do not
37:37
endorse each other and are not affiliated.