March 19, 2025 • 37 mins
Chuck Zodda and Paul Lane discuss the Fed's wait-and-see outlook obscures a bigger strategy shift. As debt ceiling looms, the Fed considers tweaking its portfolio runoff. Does the Fed share the stock market's worry about the economy? Todd Lutsky joins the show for his weekly segment, Ask Todd. This week, Todd explains the benefits and downsides of life estates.
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Speaker 1 (00:00):
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(01:03):
This is the Financial Exchange with Chuck Zada and Paul Lane.
Speaker 2 (01:10):
Pretty big day here on the Financial Exchange. It's Chuck,
Tucker and Paul with you. I don't know why I
put Tucker in front of Paul. I think I was
just looking at him. But sorry, Paul, didn't mean to
do that. My apologies.
Speaker 3 (01:21):
Uh.
Speaker 2 (01:22):
In any case, big day today. At seven am, the
Mortgage Bankers Association announced the average thirty year fixed rate
mortgage for last week and it came in at six
point seven two percent. So this is obviously our top
story of the day.
Speaker 4 (01:36):
I was like, what what is he killing with this?
Speaker 2 (01:39):
Now? Really, We've got a FED meeting happening at two
pm today, and so all eyes were going to be
on the FED and quite honestly, all eyes on the
FED for the first time probably in about I gotta say,
at least four months or so. The last time I
think people were this focused on the FED was probably
the November meeting, just because it came after or September
(02:00):
where you had that half percent cut in interest rates.
The question was are they gonna go half percent or
a quarter? They basically went quarter quarter the rest of
the way out during the November and December meetings, and
so you know, the December one was kind of a
foregone conclusion, and then January was happening. I don't remember
the exact date of the January meeting, but it was
(02:21):
right around the inauguration, so like, quite honestly, no one
was really paying attention to the January FED meeting, and
this one, I think people are interested just to see,
not anything in terms of a policy shift, because quite honestly,
what you're gonna hear from j. Powell during his press
conference over and over is we still have significant uncertainty
(02:42):
about the direction of policy with the new administration. We're
gonna wait for more clarity before we make any definitive moves.
Like you'll hear sixteen different variations of that. But what
I am interested to see. What I am interested to
see is the dot from the Federal Reserve and effectively
(03:05):
what the dot plot is, by the way, so this
is their summary of economic projections, the step as it's
referred to, and what that tells you is basically where
they think growth, inflation, and the FED funds rate are
going to be over various terms in the future. And
(03:26):
the last one that we got on this was on
the December eighteenth meeting, and here's what it showed for
twenty twenty five. Because this is setting the stage for
how they view the economy to be evolving. They thought
that this year twenty twenty five change in GDP would
be two point one percent. They thought the unemployment rate
would rise very, very slightly to four point three percent.
(03:49):
They thought PCE inflation would still be running a little
bit hot at two and a half percent, and core
PCEE inflation still running a little bit hot at two
and a half percent as well, with the Fed funds
rate falling from about four and a half down to
four percent called three point nine is what they put there.
So that's what they thought would be happening this year.
(04:11):
Their longer run projections, quite honestly, don't really matter. The
only one that is kind of interesting is where they
think the long run Fed funds rate is going to be,
because from there you can build in the idea of okay,
where do they think, like this neutral interest rate is?
But even that is just like you know, counting, you
know how many angels can dance on the head of
a pin. The answer is whatever you want it to
(04:33):
be ultimately, and no one really knows. So I think
that this year, Like, let's look at those big components,
because this is where the meat of this FED meeting
is going to be. Do we think the Fed is
going to say that the change in real GDP is
going to likely be greater or less than two point
one percent this year? I'm gonna take the under in
(04:53):
terms of where they guide, I don't know how much.
Maybe it comes in at like one to nine, maybe
it comes in at two one eight. They're not gonna
be like, hey, GDP growth is going to zero.
Speaker 4 (05:03):
Like give two point four.
Speaker 2 (05:04):
Like they don't just look at you know, the Atlanta
Fed and say, well it's gonna be that. No, they're
they're a little bit more measured in this stuff. So
I would take the under on that. Likewise, if you
think GDP growth is going to come in under, would
it also follow that they probably think the unemployment rate
is going to go up?
Speaker 1 (05:22):
Yes.
Speaker 2 (05:22):
Higher. Now again, higher doesn't mean five or six percent.
I'm not expecting because if if they start saying, look,
the unemployment rate's gonna be you know, five percent, then
they better have a projected FED funds rate of zero,
because it's basically saying, hey, there's gonna be a recession. Coming,
and like, I don't think they're gonna say that. So
maybe they think the unemployment rate by year end is
(05:42):
four to four, four five, you know, something like that.
PCE inflation, given all of the different models of tariff
impacts and this and that, it's hard to imagine that
they're gonna come in and say anything other than hey,
PC inflation is gonna be again, probably higher, maybe two six,
two seven, two eight. You know that they're not gonna
(06:03):
say PC inflation is gonna be four Like, I don't
think they're going there. But yeah, most of the stuff
that I've seen is that the estimates from the tariffs
currently imposed probably adds somewhere around point two too point
four percent UH to annual inflation. And given that those
tariffs are now imposed, we'd say, okay, like the FED
might say, yeah, PC inflation's gonna come in at two
(06:24):
seven this year instead of two five. Core PCE maybe
doesn't move as much, maybe goes from like two five
to two six or something like that. I mean, that's
kind of the magnitude of changes that that I expect
to see. But overall, I think the expectation on this
and maybe I'm off base, but I don't know. I
seem to, you know, think I have a decent handle
(06:44):
on how the Fed's gonna view these things. They're gonna
expect that because of things like tariffs, there's gonna be
some slower growth in the US and higher inflation. Is
that a fair read on what what we should expect
to see from them.
Speaker 4 (07:00):
Yeah, I'm trying not to get clouded by because every
piece you read now is hidden all of those check marks,
you know, And then so much and we've talked about
this in the show before. There's so much sentiment out
there that's negative, and if we play that against what
type of hard data that we have in place that
would back the negative sentiment, you know, it almost clouds
(07:22):
my judgment a little bit where you're just so you're
just so absorbed in reading all these pieces about poor
sentiment that you almost think as if we're there and
we've seen significant deterioration in the economy and we're not
in terms of a hard data perspective. But that is
really what the importance of this meeting comes down to
for me today is not anything with policy and the rates.
(07:42):
We know that those are going to stay unchanged, and
it's likely that they'd probably stay unchanged at least for
the moment through the next meeting at the beginning of May,
at least looking at some of the CME futures. It
really is this is time where so much of the
FED speak is just rightfully so I'm not, you know,
criticizing this for this at all, but it's just cliches
and hey, we'll wait and see. We got to see
(08:03):
what the data comes back in. But this, to your point,
they have to put numbers where you know, they got
to put their money where their mouth is to a sense,
just by putting out this doplet. So that's why there
will be interesting data pieces to parse from this. But
I would envision that they trend in the direction that
you just mentioned, cutting down economic growth, boosting up unemployment
estmens a little bit, and adjusting inflation. And that's all
(08:27):
playing off of the tariffs that we've seen discuss but
no one really knows how long are they going to
be in place, for what type of impact that they'll
have from a pricing perspective. So that's what makes this
so challenging to parse out.
Speaker 2 (08:40):
Yeah, so I think that again, some modest shifts in
how they're projecting things like they're not going to be
it's not going to be that whole sky is falling,
you know. Thing that the last couple of weeks where
you know, people were asking like, hey, are we already
in recession and stuff like this, Like we've said on
the show multiple times, let's pump the brakes. I mean,
it's it's it's pretty far to get from where we
(09:03):
are to recession. It can still happen quickly, but it's
it's not something that's that's even in the conversation right now.
Given the data we've been getting. And so again, maybe
the FED says, yeah, GDP growth is gonna be one
to nine this year instead of two to one. Unemployment
we thought it would be four to three. Maybe it's
gonna be four four four five pc inflation. Yeah, it's
gonna come into the high twos instead of in the
(09:24):
mid twos. You know, that's kind of the magnitude that
I think they're comfortable projecting right now.
Speaker 4 (09:29):
Because why would you have no incentive to be more
aggressive with it?
Speaker 2 (09:32):
Why would you, Yeah, why.
Speaker 4 (09:33):
Why would you send that messaging when you and I
don't know and they don't really know how this is
gonna trend So why would you be overly you know, emotional,
not emotional, but you why would you be overly pessimistic
about some of the projections, make some tweaks, but like
you said, don't go crazy with it.
Speaker 2 (09:47):
So that's again gonna be the big thing that we're
watching this afternoon. The FED meeting is gonna They're gonna
release the interest rate decision at two pm, and then
Powell is gonna be on from two thirty onwards. So
I know where I'll be at two thirty watching j Powell?
Speaker 4 (10:05):
Any uh?
Speaker 2 (10:06):
Anyone have uh any guesses as to tie color for Jay?
With purple? I don't watch that is it?
Speaker 4 (10:14):
I know you?
Speaker 2 (10:15):
Purple?
Speaker 4 (10:15):
It never changes, always purple, Jay, JB A little Carria.
Speaker 2 (10:21):
Purple is the color of royalty, and I think Jay,
it's as close as we have to American royalty. Am
I wrong? No tie? I am wrong? You could be wrong.
I am wrong? No tie, Cash Powell. I like oka
couple buttons Chester. If Powell wears Here's what I'll say
to this, Tucker. If if Powell wears no tie today,
(10:43):
I will eat a tie tomorrow. All Right, you heard
it here first? Okay? If Power wears a purple tie.
Speaker 4 (10:50):
If any of our listeners have any connection to J. Powell,
please get mustard on his tie.
Speaker 2 (10:56):
Can he text the Minutien see if he's got a
line to Powell? Sure? See, Let's see what goes on there.
Let's take a quick break here. When we come back,
Oh good, we get to talk about the debt ceiling
right after this.
Speaker 1 (11:09):
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only here on the Financial Exchange Radio Network.
Speaker 5 (11:31):
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Speaker 2 (12:14):
All right, so let's talk about this piece here from
the Wall Street Journal. As debt ceiling looms, the FED
considers tweaking its portfolio runoffs. So a couple things. Yes,
that is correct. We are, you know, getting back to
having to discuss the debt ceiling because I don't know
what if they've specified like the X date as to
(12:34):
when they exactly expect to see this pop up, but
I believe it's sometime this spring. I don't have the
exact detail. I was poking around for it this morning.
I couldn't find anything meaningful on it. But here's here's
the thing. The FED. One of the things that they
have been doing is reducing the size of their balance sheet,
(12:55):
and effectively, what this means is that during times of crisis,
the FED has bought up a whole bunch of different bonds,
predominantly US treasuries, but also some mortgage backed securities and
things like that, to the point where in the middle
of twenty twenty two, it peaked around eight point nine
trillion dollars of bonds that the FED held on its
balance sheet. It's now down to around six point seven
(13:17):
trillion dollars worth of bonds that it holds on its
balance sheet, and they've been running them off at a
pace of I think it's like one hundred and twenty
billion dollars a month, somewhere in that range. And so
the question is going to be, Hey, what what are
you going to do with that? Because you know, there
are some signs that are pointing to hey, you've kind
of you know, gotten to the point where most excess
(13:39):
reserves are probably exhausted from the system, and you don't
necessarily need to, you know, be continuing to reduce the
size of your balance sheet. Uh, And so effectively, the
question is, Okay, when do they you know, make a
change here? And the thought is pretty soon. And this
comes back to something happened at the end of twenty
(14:01):
nineteen into early twenty eight the end of twenty eighteen
into early twenty nineteen, where J Powell famously at the
end of twenty eighteen, the FED was in balance sheet
runoff mode there as well, and said, yeah, the balance
sheet is you know, on autopilot, and about oh gee,
I don't know. Within like six weeks he had to
(14:22):
pivot and be like, yeah, we're actually gonna halt balance
sheet runoff because we started, you know, experiencing some dodginess
in the financial system, and the FED never hiked interest
rates again in that part of the cycle, and that
was basically it. So I think that Powell, having gone
through that, I think he was somewhat spooked by it,
and I think this is something that informs his view
(14:43):
on how he conducts monetary policy generally, and so as such,
I think they're probably gonna take the approach of, hey,
even though we could run the balance sheet off further,
there's no real need to do so, and as such,
maybe we can avoid you know, some volatility associated with
bank reserves too low and call it a day here.
Speaker 4 (15:03):
Yeah, it seems like they just don't want any interference
with that debt limit conversation and the runoff of the
balance sheet. It can cause overnight lending issues in the
market if you do durrain those money reserves from the
banking system too quickly, and you know, that seems to
be really the whole hold up the issue. You summarized
it pretty well, like you kind of alluded to before
(15:24):
the break on the debt ceiling front. There's only so
much that can really be covered. But it seems like
they should be able to navigate this reasonably well by
perhaps pausing some of the bond runoff for the time being.
Speaker 2 (15:37):
Yeah, and the debt sealing stuff, it's not something like
it's not going to be an urgent thing that we're discussing.
Quite honestly, we should never discuss it because it shouldn't exist.
But that's neither here nor there. This is something that
is going to be coming up probably June, July, August.
Like it'll it'll be a fun summer thing that we
get to do alongside of barbecues.
Speaker 4 (15:55):
I thought, I thought, I read August. Yeah, as to
when it might come up, Yeah.
Speaker 2 (15:59):
Burger's and debt sealing. It's a great way to spend
a summer. If if you're asking me New York Times piece,
does the FED share the stock markets worry about the economy. Well,
let's let's define what the stock markets worry about the
economy is before we talk about what the whether the
FED shares or not. The S and P five hundred
is still trading like nineteen point nine times forward earnings,
(16:21):
which to me implies, Hey, we're not as exuberant as
we were before, but we're still pretty exuberant, and so
are worry At this point our being the markets can
best be described as, hey, there are things that give
us pauses to whether or not stock should have some
of the highest valuations we've ever seen.
Speaker 4 (16:39):
Yeah, we've seen an eight point six percent sell off
from the record high that we reached. We're down about
four percent year to date on the S and P
five hundred, so we've covered certainly has been a sell
off over the course of the last month or so.
I think it's important to keep those numbers in context
that it is, you know, four percent year to date
that we are down, and this comes off the heels
(17:00):
of really good market years in twenty four in twenty three.
In terms of the Fed, obviously the stock market is
not something that is part of their core responsibilities. Now
what they do can influence the stock market we've seen
that over the course of the last couple of years.
But really what this comes down to is the FED
and their dot plot, which we alluded to in the
(17:21):
first segment of the show. What are they going to
see from a long term perspective, shorter term perspective for
the economy and things like that. There certainly has been
a lot of sentiment that's been negative. We've talked about
there's been some retailers and airlines that have come out
saying that consumption and sales have been weaker. So all
this factors into the issues that the FED will try
(17:42):
and sort out with its projections this afternoon.
Speaker 2 (17:46):
And here's one of a couple things. First, I don't
think the Fed's likely to overreact, just because generally, if
there's one thing you can say about the FED, they
typically underreact to most things. You know, the times when
they do overreact, I think, you know, get a little
bit embarrassing for them. But when inflation was, you know,
ratcheting up, did the FED overreact to inflation?
Speaker 4 (18:07):
Underreacted there? I would say you could say they overreacted
to the amount of stimulus that was needed to be
that was.
Speaker 2 (18:15):
You know, the FED didn't part is stimulus, right, that
was Congress doing that. Yeah, And then you know, did
they overreact.
Speaker 4 (18:21):
The bond buying the he's going for too long?
Speaker 2 (18:24):
Did the FED overreact when Silicon Valley Bank blew up? No,
they weren't like, oh gee, this means recessional's cut rates.
Like they did nothing. And so I think most of
the time with the FED, the right answer is do less.
And I think they're they're actually kind of good at that.
And recently, you know, the last eighteen months, I think
they've done a nice job of doing less. I think
they've been good at doing less, which is good to see.
(18:47):
I think that the other piece is, you know, for
all of the chatter out there about you know, how
worried people are in this and that, I don't think
the stock market's overreacted either. No. You know, like a
ten percent pullback is something that we see on a
pretty regular basis. If the market has sold off like
twenty five percent in the last three weeks, then he'd
(19:09):
be like, Okay, like this is you know, even if
you know recession is definitely coming, which I'm not saying
it is, like this is probably too far given the
totality of what We've seen like an eight to ten
percent pullback.
Speaker 4 (19:19):
Based off a question more healthy, you know, based on
a market that was heavy in speculation and pretty overvalued.
Speaker 2 (19:25):
Yeah, let's take a quick break here. When we come back,
We're joined by Todd Lutsky for Ask Todd. We've also
got Wall Street Watch coming up as well.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch. A complete look at what's moving market so
far today, right here on the Financial Exchange Network.
Speaker 5 (20:00):
With all eyes on the FED. Markets today are well
into positive territory ahead of the conclusion of the Central
Banks meeting at two o'clock this afternoon, where rates are
expected to remain steady. Wall Street will be paying close
attention to FED Chairman Jerome Powell's press conference soon after
at two point thirty for any noteworthy remarks about the economy.
Speaker 2 (20:20):
At the moment, the.
Speaker 5 (20:20):
Dow up by two thirds of a percent, are two
hundred and fifty nine points, SMP five hundred also up
over two thirds of a percent, or thirty eight points,
and the Nasdaq is up nearly one percent higher one
hundred and sixty points, Russell two thousands up by about
seven tenths of a percent or fourteen points. Ten year
Treasure reeled up by two basis points at four point
(20:41):
three zero percent, and crude oil edging higher, trading just
below sixty seven dollars a barrel. General Mills reported earnings
ahead of the open this morning, where its fiscal third
quarter results were below internal expectations. The maker of Cheerios
and Bisquick also lowered its full year guidance a mid
consumer spending less on snacks. General Mills shares it down
(21:04):
about two percent. Meanwhile, Tesla shares up over two and
a half percent after the ev maker received approval from
the California Public Utilities Commission for a passenger transportation permit,
making it one step closer toward offering ride hailing services elsewhere,
and video shares are up over one percent after the
chip maker's CEO, Jensen Wang said at its flagship conferences
(21:28):
that continued advances in a I would require at least
one hundred times the computing needs believed even a year ago,
and Health Equity shares sinking by over twenty percent after
the health focused fintech company reported weaker than expected fourth
quarter earnings on Tucker Silva and that's Wall Street Watch.
Speaker 1 (21:49):
This is Asked Todd on the Financial Exchange Radio network.
If you have an existing estate plan or in the
market for one, Tod Letskey is here to answer your
questions and help you plan for later life. Ask Todd
is presented by Cushing and Dolan, serving Massachusetts and New
England for more than thirty five years, helping families with
a state and tax planning, Medicaid planning, and probate law.
(22:10):
Visit Cushingdolan dot com. Now here's Todd Lutsky.
Speaker 2 (22:15):
As promised, we are now joined by the one and
only Todd Lutsky for Ask Todd. It's your chance to
ask Todd your questions about your estate plan and we
got the phone lines wide open for you to give
him a call. Eight eight eight to zero five two
two sixty three. That is the number to call to
ask Todd your state planning questions live on air right now.
(22:39):
Usually get through two maybe three calls, so get calling
early and often in order to make sure your call
is uh taken. Here again eight eight eight to zero
five two two sixty three is the number. One more time.
It is eight eight eight to zero five two two
six three, Lotski. How are you doing today?
Speaker 6 (23:02):
I am never better?
Speaker 2 (23:03):
How are you good? Trying to plan some some summer
trips and stuff like that. Oh yeah, wife and I
are considering a trip to Mount Everest. She wants to
color her hair at the top of it. Yeah, she's
willing to die on that hill. Todd, I want to
talk a little bit about life estates. Okay, Let's say
(23:27):
that I am someone who has reserved a life estate
in a property. Okay, and I end up going into
a nursing home.
Speaker 6 (23:35):
All right, but not just a property on your home,
my home, on my home.
Speaker 2 (23:39):
What happens to my home in that case, as far
as leans against it, equity, you need to be used.
How does how do things work from that perspective?
Speaker 6 (23:49):
So, as we've said before, there are two ways to
sort of do a life estate. A right way and
a wrong way, is what I like to say, but
I should say one is less bad and one is bad.
So the way to do it is, in your example,
we're taking the house and we're putting it in the
hands of the children, and we're reserving the right to
(24:11):
live there, which is one way to do a life estate. Sure,
so there are benefits. I don't want to make it
sound like there's no benefits to doing a life estate.
There certainly is and are benefits, one of which is
what you said. Let's say you put this arrangement together
and you make it that five years. Remember that that's
that waiting period that you really there's only a very
(24:33):
few ways to ever avoid that. But so for the
most part, you're gonna have to wait five years in
order for it to be protected from the nursing home.
But if you set it up and get beyond that
waiting period and in your example, then need to go
to a long term care facility, the house will be
protected one hundred percent from the nursing home.
Speaker 2 (24:54):
What about on the other side of that transaction, what
happens if I've transferred the property to my kids, and
let's say that one of them runs into some kind
of legal situation where they have a creditor who's looking
for money from them, or let's say that you know,
they need liquidity because something went wrong in their business
(25:16):
and they need to sell that property. How do things
work if they run into financial trouble.
Speaker 6 (25:20):
Yeah, I think it's a great question, because you've got
to look at a life estate from all angles, right
from all sides of this equation, and the kids side
of this equation is where some of the problems come in.
While we just discussed a benefit, I think some of
the problems would be, you know, it is going to
technically be exposed to that kid's creditors right away. Why
(25:43):
because they do own it. You made a completed gift
of a future interest. Now, good news for the life tenant,
the life tenant that they can't move against the life tenant,
so they will have that confirmed right to live there.
They won't lose the house to that creditor. However, that
child will have to deal with that creditor. Let's say,
for an example, it's a divorce. If it's a divorce,
(26:06):
at that moment, that child going through the divorce might
have to say to the soon to be ex spouse, Okay,
I'll tell you what, here's the value of the home.
I'm going to keep the home to protect my mom,
and I'm going to pay you, you know the value,
your half of the value of that home. Sure, just
(26:26):
allocate asset so to me. It's still a problem for
the creditor. So I don't love it for that reason.
Speaker 2 (26:32):
Talking with Todd Watski from the law firm of Cushing
and Dolan. If you've got a question to ask Todd,
this is your opportunity, live on air right now, still
room on the phone lines at eight eight eight to
zero five two two sixty three. That is the number
to call to ask Todd your questions again. Eight eight
eight to zero five two two sixty three. We're going
(26:54):
to take a quick break here, but when we come back,
it is right to your questions with Todd. That number
one one more time is eight eight eight two zero
five two two six three.
Speaker 1 (27:06):
Ask Todd with Todd Lutsky every Wednesday at ten thirty
only here on the Financial Exchange Radio Network. Todd Letsky
answers your questions about a state and elder life planning
every Wednesday at ten thirty right here on the Financial
Exchange Radio Network.
Speaker 2 (27:33):
All right, let's get to your calls with Todd Lutsky.
First up, we've got Jimmy in Provincetown. Jimmy, what is
your question for Todd?
Speaker 3 (27:46):
Hi? Todd? How you doing? Never have a question in
regards to when we sell the property in the trust? Yeah,
the taxation isf you on the capitol games? Would the
trust pay it or do with the beneficiary pay it
after the assets are distributed?
Speaker 6 (28:03):
So so Jimmy remind me, just because there's lots of
Jimmy's are are you? Is this my trust that we
did or is it another person's irrevocable trust?
Speaker 3 (28:14):
Well, we did one for my mother, and then when
she passed away, we did a similar one for me
and my brothers and sisters. So I'm the trustee and
my brothers and sisters, uh beneficiary.
Speaker 6 (28:28):
And so okay, so what you're saying is you're my client. Yeah, okay,
I just needed to know that so that I can
you know, because then I know it's my trust. If
it was someone else's trust that I didn't draft, it
would be harder for me to answer the question. So
now that I can tell you that it's our trust,
and so your your portion of the property? Did you
(28:51):
you said your brothers and sisters inherited this property?
Speaker 3 (28:56):
We all did, so, y'all?
Speaker 6 (28:58):
Yeah, what percent do you you own?
Speaker 3 (29:02):
I have a forty percent interest, and.
Speaker 6 (29:04):
Your forty percent interest we put into an irrevocable trust
for you.
Speaker 2 (29:07):
Correct, I don't think so.
Speaker 3 (29:11):
I think it was just just just I don't know
if it was irreplicable or not. Oh so, can really
do a fleet trust like that?
Speaker 6 (29:19):
Oh so again, Jim, In order for me to answer
the question, I kind of need to know what kind
of trust we did for you. Just hard for me
to remember, right, you know, off the top of my head.
So I'm going to give you two answers. If we
did an estate plan together, I can assure you that
I would have transferred your interest in the property into
(29:39):
a trust. Okay, And and the ownership your only your interest,
though not not the other chill other siblings. I would
have transferred your interest into a trust. That trust would
have been either revocable or irrevocable, depending on what your
wishes were. So when we met, was one of your
(30:01):
wishes to protect assets from the nursing home in case
you got sick in the future.
Speaker 3 (30:07):
I don't think we did a trust for me.
Speaker 6 (30:09):
Oh so, then you're we're probably not a client then,
In other words, other than I did it for.
Speaker 3 (30:13):
Your mom, right, you did it for my mom? Yeah?
Speaker 6 (30:16):
Okay, so your mom passed and you got forty percent interest. Yeah,
so I'm trying to understand your question. So now you're
selling that property. Yeah, okay, so you you went, I'm sorry,
would you say.
Speaker 3 (30:31):
We're in the process of selling the property here on the.
Speaker 6 (30:34):
Cave right, So you and your siblings are selling the
property yep. And you and your siblings are signing any
purchase in sale agreement in your own name, correct. Yeah, okay,
So there's no trust involved here at all, because I
thought in the beginning you said you were selling it
from a trust and I might have misheard that. So
(30:55):
you're actually just selling it from your own name, correct, Yeah? Okay.
So the answer is on the date of your mom's passing.
That property was fully included in her estate for estate
tax purposes, So like, when did she pass.
Speaker 3 (31:12):
She passed in to sixteen, March fifteen to sixteen.
Speaker 6 (31:20):
So of twenty of, twenty twenty four, twenty twenty five.
Speaker 3 (31:27):
She passed in twenty sixteen.
Speaker 6 (31:29):
Oh, in twenty sixteen, okay, So if she passed in
twenty sixteen, now that was quite a while ago, so
I'm sure there's been some appreciation. But the basis, the
cost basis for you and your siblings will be whatever
the value of that property was on the date of
her death in twenty sixteen, So you've got to go
(31:50):
back and get a back dated appraisal for that, find
out what it was worth. Then that's your basis. Then
whatever it has grown to from that day, the difference
between what you sell it for today and what it
was worth in twenty sixteen, plus any capital improvements you
(32:12):
might have made or your siblings have made to the
property since twenty sixteen is your basis. So date of
death value plus improvements is basis minus what you sell
it for today capital gain. And if you don't live
there as your primary residence, you're not going to get
any capital gains exclusion. It'll just be the capital gains
(32:35):
tax associated with that. So you know, good news in
the sense that at least you got as much of
a basis step up as you possibly could have by
doing the planning, or that your mother did the planning.
It's just now a function of paying the gain on
the future growth. So hope that helps, and good luck
with the sale. So folks, you know, that's a great
(32:55):
question because capital gains come up all the time when
we talk about life states, and so if you've got
a life estate and you're wondering if you go to
sell it, what the tax ramifications are. Really need to
get the guide right, because this is one of those
things where you're going to find out that there are
sometimes negative capital gains tax consequences associated with selling a
(33:18):
home in a life estate arrangement, especially when the remaindermen
are the children. This guide not only talks about those issues,
it talks about the two ways to create a life
estate and other gift tax, income tax, estate tax, creditor
issues associated with loss of control. Another question associated with
(33:40):
these life life estates. So if you got one, or
you're thinking about doing one, call and get the guide
and learn what you're getting into. Eight six six eight
four eight five six nine nine or Legal Exchange Show
dot com again eight six six eight four eight five
six nine nine or Legal Exchange Show dot com toud.
Speaker 2 (34:02):
Before the break, we were talking about potential downsides to
you know, kind of what you might see in a
life estate if things go wrong. We covered a couple
examples there. Huh, what other potential issues are there with
the use of life estates in a state plan is
kind of like a core piece of one.
Speaker 6 (34:22):
Yeah, and I think maybe it's a great follow up
question really to Jimmy, who just called because I think
we probably should spend some time since he's selling a
piece of property, and I can kind of compare what
he did or what his mom did and what we
did for them versus a life estate situation. So he's
selling piece of property after mom passes, So that's a
(34:43):
little different, full step up. No problem in the gain
world except for the future growth. But if you're living right,
people set this stuff up and they could be sixty five,
you know, nine five years later they want to say,
you know, now I'm seventy and I want to move
to Florida. Oh well I want to sell my house.
Sure they should be allowed to do that, But if
you gave the house to the kids and reserved a
(35:07):
life estate, here are some steps that you have to
go through in order to sell it. First, you have
to ask the kids okay, well I don't want to
have to do that. That's problem number one. Number two.
Let's assume that they're nice kids and they say, yeah,
we're going to sell it. Now both people have to sign,
the children and the life tenant. Then we have to
(35:27):
go to an irs table based on the life tenant's
age in the month in which the life tenant is selling,
find the applicable federal interest rate in effect, so that
we can determine what percentage value of the proceeds from
the sale get allocated to the life tenant and what
percentage proceeds from the sale get allocated to the children.
(35:51):
I can assure you the older you get, the smaller
the percentage proceeds of the sale will be to the
life tenant. So if you're seventy five when you're selling this,
you might only get twenty twenty five percent of the money.
So if you sell the house and you only get
twenty twenty five percent of the money, I suspect you
don't have enough money to buy your new house in Florida.
(36:16):
So now you need to ask the children to give
you back money that they got. Well, that's not a
good place to be. In addition, what about the income tax? Oh,
I forget that for a minute. The kids might have
a gift tax when they give back the money to
mom and dad if they give it back, So that's
a problem. But more importantly, what's the capital gains tax? Well,
(36:39):
the life tenant would get to a capital gains exclusion
two fifty if you're married. I'm sorry if you're single
five hundred thousand if you're married, but the children don't
if they don't live there, they don't get a remainder interest,
or they don't get a capital gains exclusion. They're going
to have to pay higher capital gains tax than you
would if we got the whole capital gains exclusion for
(37:01):
mom and dad, folks. That's just one example of a
life estate issue.
Speaker 2 (37:06):
Mister Lutsky, thank you so much for joining us today.
Speaker 6 (37:09):
Always a pleasure.
Speaker 1 (37:11):
This has been Asked Odd on the Financial Exchange Radio network.
Ask Todd with Todd. Lutsky has been presented by Cushing
and Dolan, serving Massachusetts and New England for more than
thirty years, helping families with the state and tax planning,
Medicaid planning, and probate law. Call eight hundred and three
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The views expressed in this segment are solely those of
(37:31):
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(01:03):
This is the Financial Exchange with Chuck Zada and Paul Lane.
Speaker 2 (01:10):
Pretty big day here on the Financial Exchange. It's Chuck,
Tucker and Paul with you. I don't know why I
put Tucker in front of Paul. I think I was
just looking at him. But sorry, Paul, didn't mean to
do that. My apologies.
Speaker 3 (01:21):
Uh.
Speaker 2 (01:22):
In any case, big day today. At seven am, the
Mortgage Bankers Association announced the average thirty year fixed rate
mortgage for last week and it came in at six
point seven two percent. So this is obviously our top
story of the day.
Speaker 4 (01:36):
I was like, what what is he killing with this?
Speaker 2 (01:39):
Now? Really, We've got a FED meeting happening at two
pm today, and so all eyes were going to be
on the FED and quite honestly, all eyes on the
FED for the first time probably in about I gotta say,
at least four months or so. The last time I
think people were this focused on the FED was probably
the November meeting, just because it came after or September
(02:00):
where you had that half percent cut in interest rates.
The question was are they gonna go half percent or
a quarter? They basically went quarter quarter the rest of
the way out during the November and December meetings, and
so you know, the December one was kind of a
foregone conclusion, and then January was happening. I don't remember
the exact date of the January meeting, but it was
(02:21):
right around the inauguration, so like, quite honestly, no one
was really paying attention to the January FED meeting, and
this one, I think people are interested just to see,
not anything in terms of a policy shift, because quite honestly,
what you're gonna hear from j. Powell during his press
conference over and over is we still have significant uncertainty
(02:42):
about the direction of policy with the new administration. We're
gonna wait for more clarity before we make any definitive moves.
Like you'll hear sixteen different variations of that. But what
I am interested to see. What I am interested to
see is the dot from the Federal Reserve and effectively
(03:05):
what the dot plot is, by the way, so this
is their summary of economic projections, the step as it's
referred to, and what that tells you is basically where
they think growth, inflation, and the FED funds rate are
going to be over various terms in the future. And
(03:26):
the last one that we got on this was on
the December eighteenth meeting, and here's what it showed for
twenty twenty five. Because this is setting the stage for
how they view the economy to be evolving. They thought
that this year twenty twenty five change in GDP would
be two point one percent. They thought the unemployment rate
would rise very, very slightly to four point three percent.
(03:49):
They thought PCE inflation would still be running a little
bit hot at two and a half percent, and core
PCEE inflation still running a little bit hot at two
and a half percent as well, with the Fed funds
rate falling from about four and a half down to
four percent called three point nine is what they put there.
So that's what they thought would be happening this year.
(04:11):
Their longer run projections, quite honestly, don't really matter. The
only one that is kind of interesting is where they
think the long run Fed funds rate is going to be,
because from there you can build in the idea of okay,
where do they think, like this neutral interest rate is?
But even that is just like you know, counting, you
know how many angels can dance on the head of
a pin. The answer is whatever you want it to
(04:33):
be ultimately, and no one really knows. So I think
that this year, Like, let's look at those big components,
because this is where the meat of this FED meeting
is going to be. Do we think the Fed is
going to say that the change in real GDP is
going to likely be greater or less than two point
one percent this year? I'm gonna take the under in
(04:53):
terms of where they guide, I don't know how much.
Maybe it comes in at like one to nine, maybe
it comes in at two one eight. They're not gonna
be like, hey, GDP growth is going to zero.
Speaker 4 (05:03):
Like give two point four.
Speaker 2 (05:04):
Like they don't just look at you know, the Atlanta
Fed and say, well it's gonna be that. No, they're
they're a little bit more measured in this stuff. So
I would take the under on that. Likewise, if you
think GDP growth is going to come in under, would
it also follow that they probably think the unemployment rate
is going to go up?
Speaker 1 (05:22):
Yes.
Speaker 2 (05:22):
Higher. Now again, higher doesn't mean five or six percent.
I'm not expecting because if if they start saying, look,
the unemployment rate's gonna be you know, five percent, then
they better have a projected FED funds rate of zero,
because it's basically saying, hey, there's gonna be a recession. Coming,
and like, I don't think they're gonna say that. So
maybe they think the unemployment rate by year end is
(05:42):
four to four, four five, you know, something like that.
PCE inflation, given all of the different models of tariff
impacts and this and that, it's hard to imagine that
they're gonna come in and say anything other than hey,
PC inflation is gonna be again, probably higher, maybe two six,
two seven, two eight. You know that they're not gonna
(06:03):
say PC inflation is gonna be four Like, I don't
think they're going there. But yeah, most of the stuff
that I've seen is that the estimates from the tariffs
currently imposed probably adds somewhere around point two too point
four percent UH to annual inflation. And given that those
tariffs are now imposed, we'd say, okay, like the FED
might say, yeah, PC inflation's gonna come in at two
(06:24):
seven this year instead of two five. Core PCE maybe
doesn't move as much, maybe goes from like two five
to two six or something like that. I mean, that's
kind of the magnitude of changes that that I expect
to see. But overall, I think the expectation on this
and maybe I'm off base, but I don't know. I
seem to, you know, think I have a decent handle
(06:44):
on how the Fed's gonna view these things. They're gonna
expect that because of things like tariffs, there's gonna be
some slower growth in the US and higher inflation. Is
that a fair read on what what we should expect
to see from them.
Speaker 4 (07:00):
Yeah, I'm trying not to get clouded by because every
piece you read now is hidden all of those check marks,
you know, And then so much and we've talked about
this in the show before. There's so much sentiment out
there that's negative, and if we play that against what
type of hard data that we have in place that
would back the negative sentiment, you know, it almost clouds
(07:22):
my judgment a little bit where you're just so you're
just so absorbed in reading all these pieces about poor
sentiment that you almost think as if we're there and
we've seen significant deterioration in the economy and we're not
in terms of a hard data perspective. But that is
really what the importance of this meeting comes down to
for me today is not anything with policy and the rates.
(07:42):
We know that those are going to stay unchanged, and
it's likely that they'd probably stay unchanged at least for
the moment through the next meeting at the beginning of May,
at least looking at some of the CME futures. It
really is this is time where so much of the
FED speak is just rightfully so I'm not, you know,
criticizing this for this at all, but it's just cliches
and hey, we'll wait and see. We got to see
(08:03):
what the data comes back in. But this, to your point,
they have to put numbers where you know, they got
to put their money where their mouth is to a sense,
just by putting out this doplet. So that's why there
will be interesting data pieces to parse from this. But
I would envision that they trend in the direction that
you just mentioned, cutting down economic growth, boosting up unemployment
estmens a little bit, and adjusting inflation. And that's all
(08:27):
playing off of the tariffs that we've seen discuss but
no one really knows how long are they going to
be in place, for what type of impact that they'll
have from a pricing perspective. So that's what makes this
so challenging to parse out.
Speaker 2 (08:40):
Yeah, so I think that again, some modest shifts in
how they're projecting things like they're not going to be
it's not going to be that whole sky is falling,
you know. Thing that the last couple of weeks where
you know, people were asking like, hey, are we already
in recession and stuff like this, Like we've said on
the show multiple times, let's pump the brakes. I mean,
it's it's it's pretty far to get from where we
(09:03):
are to recession. It can still happen quickly, but it's
it's not something that's that's even in the conversation right now.
Given the data we've been getting. And so again, maybe
the FED says, yeah, GDP growth is gonna be one
to nine this year instead of two to one. Unemployment
we thought it would be four to three. Maybe it's
gonna be four four four five pc inflation. Yeah, it's
gonna come into the high twos instead of in the
(09:24):
mid twos. You know, that's kind of the magnitude that
I think they're comfortable projecting right now.
Speaker 4 (09:29):
Because why would you have no incentive to be more
aggressive with it?
Speaker 2 (09:32):
Why would you, Yeah, why.
Speaker 4 (09:33):
Why would you send that messaging when you and I
don't know and they don't really know how this is
gonna trend So why would you be overly you know, emotional,
not emotional, but you why would you be overly pessimistic
about some of the projections, make some tweaks, but like
you said, don't go crazy with it.
Speaker 2 (09:47):
So that's again gonna be the big thing that we're
watching this afternoon. The FED meeting is gonna They're gonna
release the interest rate decision at two pm, and then
Powell is gonna be on from two thirty onwards. So
I know where I'll be at two thirty watching j Powell?
Speaker 4 (10:05):
Any uh?
Speaker 2 (10:06):
Anyone have uh any guesses as to tie color for Jay?
With purple? I don't watch that is it?
Speaker 4 (10:14):
I know you?
Speaker 2 (10:15):
Purple?
Speaker 4 (10:15):
It never changes, always purple, Jay, JB A little Carria.
Speaker 2 (10:21):
Purple is the color of royalty, and I think Jay,
it's as close as we have to American royalty. Am
I wrong? No tie? I am wrong? You could be wrong.
I am wrong? No tie, Cash Powell. I like oka
couple buttons Chester. If Powell wears Here's what I'll say
to this, Tucker. If if Powell wears no tie today,
(10:43):
I will eat a tie tomorrow. All Right, you heard
it here first? Okay? If Power wears a purple tie.
Speaker 4 (10:50):
If any of our listeners have any connection to J. Powell,
please get mustard on his tie.
Speaker 2 (10:56):
Can he text the Minutien see if he's got a
line to Powell? Sure? See, Let's see what goes on there.
Let's take a quick break here. When we come back,
Oh good, we get to talk about the debt ceiling
right after this.
Speaker 1 (11:09):
This is your home for the most comprehensive coverage of
the economy and the trends on Wall Street. Face is
the Financial Exchange Radio Network. Wall Street Watch a full
update on the markets performance todate weekdays at ten thirty
only here on the Financial Exchange Radio Network.
Speaker 5 (11:31):
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Speaker 2 (12:14):
All right, so let's talk about this piece here from
the Wall Street Journal. As debt ceiling looms, the FED
considers tweaking its portfolio runoffs. So a couple things. Yes,
that is correct. We are, you know, getting back to
having to discuss the debt ceiling because I don't know
what if they've specified like the X date as to
(12:34):
when they exactly expect to see this pop up, but
I believe it's sometime this spring. I don't have the
exact detail. I was poking around for it this morning.
I couldn't find anything meaningful on it. But here's here's
the thing. The FED. One of the things that they
have been doing is reducing the size of their balance sheet,
(12:55):
and effectively, what this means is that during times of crisis,
the FED has bought up a whole bunch of different bonds,
predominantly US treasuries, but also some mortgage backed securities and
things like that, to the point where in the middle
of twenty twenty two, it peaked around eight point nine
trillion dollars of bonds that the FED held on its
balance sheet. It's now down to around six point seven
(13:17):
trillion dollars worth of bonds that it holds on its
balance sheet, and they've been running them off at a
pace of I think it's like one hundred and twenty
billion dollars a month, somewhere in that range. And so
the question is going to be, Hey, what what are
you going to do with that? Because you know, there
are some signs that are pointing to hey, you've kind
of you know, gotten to the point where most excess
(13:39):
reserves are probably exhausted from the system, and you don't
necessarily need to, you know, be continuing to reduce the
size of your balance sheet. Uh, And so effectively, the
question is, Okay, when do they you know, make a
change here? And the thought is pretty soon. And this
comes back to something happened at the end of twenty
(14:01):
nineteen into early twenty eight the end of twenty eighteen
into early twenty nineteen, where J Powell famously at the
end of twenty eighteen, the FED was in balance sheet
runoff mode there as well, and said, yeah, the balance
sheet is you know, on autopilot, and about oh gee,
I don't know. Within like six weeks he had to
(14:22):
pivot and be like, yeah, we're actually gonna halt balance
sheet runoff because we started, you know, experiencing some dodginess
in the financial system, and the FED never hiked interest
rates again in that part of the cycle, and that
was basically it. So I think that Powell, having gone
through that, I think he was somewhat spooked by it,
and I think this is something that informs his view
(14:43):
on how he conducts monetary policy generally, and so as such,
I think they're probably gonna take the approach of, hey,
even though we could run the balance sheet off further,
there's no real need to do so, and as such,
maybe we can avoid you know, some volatility associated with
bank reserves too low and call it a day here.
Speaker 4 (15:03):
Yeah, it seems like they just don't want any interference
with that debt limit conversation and the runoff of the
balance sheet. It can cause overnight lending issues in the
market if you do durrain those money reserves from the
banking system too quickly, and you know, that seems to
be really the whole hold up the issue. You summarized
it pretty well, like you kind of alluded to before
(15:24):
the break on the debt ceiling front. There's only so
much that can really be covered. But it seems like
they should be able to navigate this reasonably well by
perhaps pausing some of the bond runoff for the time being.
Speaker 2 (15:37):
Yeah, and the debt sealing stuff, it's not something like
it's not going to be an urgent thing that we're discussing.
Quite honestly, we should never discuss it because it shouldn't exist.
But that's neither here nor there. This is something that
is going to be coming up probably June, July, August.
Like it'll it'll be a fun summer thing that we
get to do alongside of barbecues.
Speaker 4 (15:55):
I thought, I thought, I read August. Yeah, as to
when it might come up, Yeah.
Speaker 2 (15:59):
Burger's and debt sealing. It's a great way to spend
a summer. If if you're asking me New York Times piece,
does the FED share the stock markets worry about the economy. Well,
let's let's define what the stock markets worry about the
economy is before we talk about what the whether the
FED shares or not. The S and P five hundred
is still trading like nineteen point nine times forward earnings,
(16:21):
which to me implies, Hey, we're not as exuberant as
we were before, but we're still pretty exuberant, and so
are worry At this point our being the markets can
best be described as, hey, there are things that give
us pauses to whether or not stock should have some
of the highest valuations we've ever seen.
Speaker 4 (16:39):
Yeah, we've seen an eight point six percent sell off
from the record high that we reached. We're down about
four percent year to date on the S and P
five hundred, so we've covered certainly has been a sell
off over the course of the last month or so.
I think it's important to keep those numbers in context
that it is, you know, four percent year to date
that we are down, and this comes off the heels
(17:00):
of really good market years in twenty four in twenty three.
In terms of the Fed, obviously the stock market is
not something that is part of their core responsibilities. Now
what they do can influence the stock market we've seen
that over the course of the last couple of years.
But really what this comes down to is the FED
and their dot plot, which we alluded to in the
(17:21):
first segment of the show. What are they going to
see from a long term perspective, shorter term perspective for
the economy and things like that. There certainly has been
a lot of sentiment that's been negative. We've talked about
there's been some retailers and airlines that have come out
saying that consumption and sales have been weaker. So all
this factors into the issues that the FED will try
(17:42):
and sort out with its projections this afternoon.
Speaker 2 (17:46):
And here's one of a couple things. First, I don't
think the Fed's likely to overreact, just because generally, if
there's one thing you can say about the FED, they
typically underreact to most things. You know, the times when
they do overreact, I think, you know, get a little
bit embarrassing for them. But when inflation was, you know,
ratcheting up, did the FED overreact to inflation?
Speaker 4 (18:07):
Underreacted there? I would say you could say they overreacted
to the amount of stimulus that was needed to be
that was.
Speaker 2 (18:15):
You know, the FED didn't part is stimulus, right, that
was Congress doing that. Yeah, And then you know, did
they overreact.
Speaker 4 (18:21):
The bond buying the he's going for too long?
Speaker 2 (18:24):
Did the FED overreact when Silicon Valley Bank blew up? No,
they weren't like, oh gee, this means recessional's cut rates.
Like they did nothing. And so I think most of
the time with the FED, the right answer is do less.
And I think they're they're actually kind of good at that.
And recently, you know, the last eighteen months, I think
they've done a nice job of doing less. I think
they've been good at doing less, which is good to see.
(18:47):
I think that the other piece is, you know, for
all of the chatter out there about you know, how
worried people are in this and that, I don't think
the stock market's overreacted either. No. You know, like a
ten percent pullback is something that we see on a
pretty regular basis. If the market has sold off like
twenty five percent in the last three weeks, then he'd
(19:09):
be like, Okay, like this is you know, even if
you know recession is definitely coming, which I'm not saying
it is, like this is probably too far given the
totality of what We've seen like an eight to ten
percent pullback.
Speaker 4 (19:19):
Based off a question more healthy, you know, based on
a market that was heavy in speculation and pretty overvalued.
Speaker 2 (19:25):
Yeah, let's take a quick break here. When we come back,
We're joined by Todd Lutsky for Ask Todd. We've also
got Wall Street Watch coming up as well.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch. A complete look at what's moving market so
far today, right here on the Financial Exchange Network.
Speaker 5 (20:00):
With all eyes on the FED. Markets today are well
into positive territory ahead of the conclusion of the Central
Banks meeting at two o'clock this afternoon, where rates are
expected to remain steady. Wall Street will be paying close
attention to FED Chairman Jerome Powell's press conference soon after
at two point thirty for any noteworthy remarks about the economy.
Speaker 2 (20:20):
At the moment, the.
Speaker 5 (20:20):
Dow up by two thirds of a percent, are two
hundred and fifty nine points, SMP five hundred also up
over two thirds of a percent, or thirty eight points,
and the Nasdaq is up nearly one percent higher one
hundred and sixty points, Russell two thousands up by about
seven tenths of a percent or fourteen points. Ten year
Treasure reeled up by two basis points at four point
(20:41):
three zero percent, and crude oil edging higher, trading just
below sixty seven dollars a barrel. General Mills reported earnings
ahead of the open this morning, where its fiscal third
quarter results were below internal expectations. The maker of Cheerios
and Bisquick also lowered its full year guidance a mid
consumer spending less on snacks. General Mills shares it down
(21:04):
about two percent. Meanwhile, Tesla shares up over two and
a half percent after the ev maker received approval from
the California Public Utilities Commission for a passenger transportation permit,
making it one step closer toward offering ride hailing services elsewhere,
and video shares are up over one percent after the
chip maker's CEO, Jensen Wang said at its flagship conferences
(21:28):
that continued advances in a I would require at least
one hundred times the computing needs believed even a year ago,
and Health Equity shares sinking by over twenty percent after
the health focused fintech company reported weaker than expected fourth
quarter earnings on Tucker Silva and that's Wall Street Watch.
Speaker 1 (21:49):
This is Asked Todd on the Financial Exchange Radio network.
If you have an existing estate plan or in the
market for one, Tod Letskey is here to answer your
questions and help you plan for later life. Ask Todd
is presented by Cushing and Dolan, serving Massachusetts and New
England for more than thirty five years, helping families with
a state and tax planning, Medicaid planning, and probate law.
(22:10):
Visit Cushingdolan dot com. Now here's Todd Lutsky.
Speaker 2 (22:15):
As promised, we are now joined by the one and
only Todd Lutsky for Ask Todd. It's your chance to
ask Todd your questions about your estate plan and we
got the phone lines wide open for you to give
him a call. Eight eight eight to zero five two
two sixty three. That is the number to call to
ask Todd your state planning questions live on air right now.
(22:39):
Usually get through two maybe three calls, so get calling
early and often in order to make sure your call
is uh taken. Here again eight eight eight to zero
five two two sixty three is the number. One more time.
It is eight eight eight to zero five two two
six three, Lotski. How are you doing today?
Speaker 6 (23:02):
I am never better?
Speaker 2 (23:03):
How are you good? Trying to plan some some summer
trips and stuff like that. Oh yeah, wife and I
are considering a trip to Mount Everest. She wants to
color her hair at the top of it. Yeah, she's
willing to die on that hill. Todd, I want to
talk a little bit about life estates. Okay, Let's say
(23:27):
that I am someone who has reserved a life estate
in a property. Okay, and I end up going into
a nursing home.
Speaker 6 (23:35):
All right, but not just a property on your home,
my home, on my home.
Speaker 2 (23:39):
What happens to my home in that case, as far
as leans against it, equity, you need to be used.
How does how do things work from that perspective?
Speaker 6 (23:49):
So, as we've said before, there are two ways to
sort of do a life estate. A right way and
a wrong way, is what I like to say, but
I should say one is less bad and one is bad.
So the way to do it is, in your example,
we're taking the house and we're putting it in the
hands of the children, and we're reserving the right to
(24:11):
live there, which is one way to do a life estate. Sure,
so there are benefits. I don't want to make it
sound like there's no benefits to doing a life estate.
There certainly is and are benefits, one of which is
what you said. Let's say you put this arrangement together
and you make it that five years. Remember that that's
that waiting period that you really there's only a very
(24:33):
few ways to ever avoid that. But so for the
most part, you're gonna have to wait five years in
order for it to be protected from the nursing home.
But if you set it up and get beyond that
waiting period and in your example, then need to go
to a long term care facility, the house will be
protected one hundred percent from the nursing home.
Speaker 2 (24:54):
What about on the other side of that transaction, what
happens if I've transferred the property to my kids, and
let's say that one of them runs into some kind
of legal situation where they have a creditor who's looking
for money from them, or let's say that you know,
they need liquidity because something went wrong in their business
(25:16):
and they need to sell that property. How do things
work if they run into financial trouble.
Speaker 6 (25:20):
Yeah, I think it's a great question, because you've got
to look at a life estate from all angles, right
from all sides of this equation, and the kids side
of this equation is where some of the problems come in.
While we just discussed a benefit, I think some of
the problems would be, you know, it is going to
technically be exposed to that kid's creditors right away. Why
(25:43):
because they do own it. You made a completed gift
of a future interest. Now, good news for the life tenant,
the life tenant that they can't move against the life tenant,
so they will have that confirmed right to live there.
They won't lose the house to that creditor. However, that
child will have to deal with that creditor. Let's say,
for an example, it's a divorce. If it's a divorce,
(26:06):
at that moment, that child going through the divorce might
have to say to the soon to be ex spouse, Okay,
I'll tell you what, here's the value of the home.
I'm going to keep the home to protect my mom,
and I'm going to pay you, you know the value,
your half of the value of that home. Sure, just
(26:26):
allocate asset so to me. It's still a problem for
the creditor. So I don't love it for that reason.
Speaker 2 (26:32):
Talking with Todd Watski from the law firm of Cushing
and Dolan. If you've got a question to ask Todd,
this is your opportunity, live on air right now, still
room on the phone lines at eight eight eight to
zero five two two sixty three. That is the number
to call to ask Todd your questions again. Eight eight
eight to zero five two two sixty three. We're going
(26:54):
to take a quick break here, but when we come back,
it is right to your questions with Todd. That number
one one more time is eight eight eight two zero
five two two six three.
Speaker 1 (27:06):
Ask Todd with Todd Lutsky every Wednesday at ten thirty
only here on the Financial Exchange Radio Network. Todd Letsky
answers your questions about a state and elder life planning
every Wednesday at ten thirty right here on the Financial
Exchange Radio Network.
Speaker 2 (27:33):
All right, let's get to your calls with Todd Lutsky.
First up, we've got Jimmy in Provincetown. Jimmy, what is
your question for Todd?
Speaker 3 (27:46):
Hi? Todd? How you doing? Never have a question in
regards to when we sell the property in the trust? Yeah,
the taxation isf you on the capitol games? Would the
trust pay it or do with the beneficiary pay it
after the assets are distributed?
Speaker 6 (28:03):
So so Jimmy remind me, just because there's lots of
Jimmy's are are you? Is this my trust that we
did or is it another person's irrevocable trust?
Speaker 3 (28:14):
Well, we did one for my mother, and then when
she passed away, we did a similar one for me
and my brothers and sisters. So I'm the trustee and
my brothers and sisters, uh beneficiary.
Speaker 6 (28:28):
And so okay, so what you're saying is you're my client. Yeah, okay,
I just needed to know that so that I can
you know, because then I know it's my trust. If
it was someone else's trust that I didn't draft, it
would be harder for me to answer the question. So
now that I can tell you that it's our trust,
and so your your portion of the property? Did you
(28:51):
you said your brothers and sisters inherited this property?
Speaker 3 (28:56):
We all did, so, y'all?
Speaker 6 (28:58):
Yeah, what percent do you you own?
Speaker 3 (29:02):
I have a forty percent interest, and.
Speaker 6 (29:04):
Your forty percent interest we put into an irrevocable trust
for you.
Speaker 2 (29:07):
Correct, I don't think so.
Speaker 3 (29:11):
I think it was just just just I don't know
if it was irreplicable or not. Oh so, can really
do a fleet trust like that?
Speaker 6 (29:19):
Oh so again, Jim, In order for me to answer
the question, I kind of need to know what kind
of trust we did for you. Just hard for me
to remember, right, you know, off the top of my head.
So I'm going to give you two answers. If we
did an estate plan together, I can assure you that
I would have transferred your interest in the property into
(29:39):
a trust. Okay, And and the ownership your only your interest,
though not not the other chill other siblings. I would
have transferred your interest into a trust. That trust would
have been either revocable or irrevocable, depending on what your
wishes were. So when we met, was one of your
(30:01):
wishes to protect assets from the nursing home in case
you got sick in the future.
Speaker 3 (30:07):
I don't think we did a trust for me.
Speaker 6 (30:09):
Oh so, then you're we're probably not a client then,
In other words, other than I did it for.
Speaker 3 (30:13):
Your mom, right, you did it for my mom? Yeah?
Speaker 6 (30:16):
Okay, so your mom passed and you got forty percent interest. Yeah,
so I'm trying to understand your question. So now you're
selling that property. Yeah, okay, so you you went, I'm sorry,
would you say.
Speaker 3 (30:31):
We're in the process of selling the property here on the.
Speaker 6 (30:34):
Cave right, So you and your siblings are selling the
property yep. And you and your siblings are signing any
purchase in sale agreement in your own name, correct. Yeah, okay,
So there's no trust involved here at all, because I
thought in the beginning you said you were selling it
from a trust and I might have misheard that. So
(30:55):
you're actually just selling it from your own name, correct, Yeah? Okay.
So the answer is on the date of your mom's passing.
That property was fully included in her estate for estate
tax purposes, So like, when did she pass.
Speaker 3 (31:12):
She passed in to sixteen, March fifteen to sixteen.
Speaker 6 (31:20):
So of twenty of, twenty twenty four, twenty twenty five.
Speaker 3 (31:27):
She passed in twenty sixteen.
Speaker 6 (31:29):
Oh, in twenty sixteen, okay, So if she passed in
twenty sixteen, now that was quite a while ago, so
I'm sure there's been some appreciation. But the basis, the
cost basis for you and your siblings will be whatever
the value of that property was on the date of
her death in twenty sixteen, So you've got to go
(31:50):
back and get a back dated appraisal for that, find
out what it was worth. Then that's your basis. Then
whatever it has grown to from that day, the difference
between what you sell it for today and what it
was worth in twenty sixteen, plus any capital improvements you
(32:12):
might have made or your siblings have made to the
property since twenty sixteen is your basis. So date of
death value plus improvements is basis minus what you sell
it for today capital gain. And if you don't live
there as your primary residence, you're not going to get
any capital gains exclusion. It'll just be the capital gains
(32:35):
tax associated with that. So you know, good news in
the sense that at least you got as much of
a basis step up as you possibly could have by
doing the planning, or that your mother did the planning.
It's just now a function of paying the gain on
the future growth. So hope that helps, and good luck
with the sale. So folks, you know, that's a great
(32:55):
question because capital gains come up all the time when
we talk about life states, and so if you've got
a life estate and you're wondering if you go to
sell it, what the tax ramifications are. Really need to
get the guide right, because this is one of those
things where you're going to find out that there are
sometimes negative capital gains tax consequences associated with selling a
(33:18):
home in a life estate arrangement, especially when the remaindermen
are the children. This guide not only talks about those issues,
it talks about the two ways to create a life
estate and other gift tax, income tax, estate tax, creditor
issues associated with loss of control. Another question associated with
(33:40):
these life life estates. So if you got one, or
you're thinking about doing one, call and get the guide
and learn what you're getting into. Eight six six eight
four eight five six nine nine or Legal Exchange Show
dot com again eight six six eight four eight five
six nine nine or Legal Exchange Show dot com toud.
Speaker 2 (34:02):
Before the break, we were talking about potential downsides to
you know, kind of what you might see in a
life estate if things go wrong. We covered a couple
examples there. Huh, what other potential issues are there with
the use of life estates in a state plan is
kind of like a core piece of one.
Speaker 6 (34:22):
Yeah, and I think maybe it's a great follow up
question really to Jimmy, who just called because I think
we probably should spend some time since he's selling a
piece of property, and I can kind of compare what
he did or what his mom did and what we
did for them versus a life estate situation. So he's
selling piece of property after mom passes, So that's a
(34:43):
little different, full step up. No problem in the gain
world except for the future growth. But if you're living right,
people set this stuff up and they could be sixty five,
you know, nine five years later they want to say,
you know, now I'm seventy and I want to move
to Florida. Oh well I want to sell my house.
Sure they should be allowed to do that, But if
you gave the house to the kids and reserved a
(35:07):
life estate, here are some steps that you have to
go through in order to sell it. First, you have
to ask the kids okay, well I don't want to
have to do that. That's problem number one. Number two.
Let's assume that they're nice kids and they say, yeah,
we're going to sell it. Now both people have to sign,
the children and the life tenant. Then we have to
(35:27):
go to an irs table based on the life tenant's
age in the month in which the life tenant is selling,
find the applicable federal interest rate in effect, so that
we can determine what percentage value of the proceeds from
the sale get allocated to the life tenant and what
percentage proceeds from the sale get allocated to the children.
(35:51):
I can assure you the older you get, the smaller
the percentage proceeds of the sale will be to the
life tenant. So if you're seventy five when you're selling this,
you might only get twenty twenty five percent of the money.
So if you sell the house and you only get
twenty twenty five percent of the money, I suspect you
don't have enough money to buy your new house in Florida.
(36:16):
So now you need to ask the children to give
you back money that they got. Well, that's not a
good place to be. In addition, what about the income tax? Oh,
I forget that for a minute. The kids might have
a gift tax when they give back the money to
mom and dad if they give it back, So that's
a problem. But more importantly, what's the capital gains tax? Well,
(36:39):
the life tenant would get to a capital gains exclusion
two fifty if you're married. I'm sorry if you're single
five hundred thousand if you're married, but the children don't
if they don't live there, they don't get a remainder interest,
or they don't get a capital gains exclusion. They're going
to have to pay higher capital gains tax than you
would if we got the whole capital gains exclusion for
(37:01):
mom and dad, folks. That's just one example of a
life estate issue.
Speaker 2 (37:06):
Mister Lutsky, thank you so much for joining us today.
Speaker 6 (37:09):
Always a pleasure.
Speaker 1 (37:11):
This has been Asked Odd on the Financial Exchange Radio network.
Ask Todd with Todd. Lutsky has been presented by Cushing
and Dolan, serving Massachusetts and New England for more than
thirty years, helping families with the state and tax planning,
Medicaid planning, and probate law. Call eight hundred and three
nine three four thousand and one or visit Cushingdolan dot com.
The views expressed in this segment are solely those of
(37:31):
Cushing and Dolan Armstrong Advisory. He does not provide any
legal or tax advice. Please consult with your legal or
tax advisor on such matters. Cushing and Armstrong do not
endorse each other and are not affiliated
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