October 1, 2025 • 37 mins
Chuck Zodda and Marc Fandetti discuss what to expect from the latest government shutdown. How do markets trend during government shutdowns? Shotdown puts a divided Fed in a perilous position. Todd Lutsky joins the show to share his expertise on making the most of gifting assets.
Mark as Played
Transcript
Episode Transcript
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Speaker 1 (00:00):
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(00:42):
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(01:05):
Zada and Mark Fandetti.
Speaker 2 (01:15):
Chuck, Mark and Chucker with you today and us not
being government employees, we are working regular hours and chugging along,
just as I'm sure most of you are. But as
of twelve oh one am Eastern time, federal government is
shut down. Now, does this mean that your dollars are
(01:39):
no good anywhere? No, it doesn't mean that. Does it
mean that we have to use the metric system instead
of the imperial system, No, it doesn't mean that either.
What it does mean is that for about seven hundred
and fifty thousand government employees, they are furloughed and not
getting paid while the shutdown goes on, and the work
(02:00):
that they do deemed non essential is not being done
during that time as well. Generally, most of these things,
to the vast majority of people, are not overly disruptive.
But some of the stuff can be disruptive to small constituencies,
and we can get into that. But the big things,
so security continues to operate as it previously has, Medicare
(02:23):
continues to operate as it previously as, Medicaid continues to operate,
So any of those big programs are generally up and running.
The US Treasury is not allowed to disperse payments to
the agencies, but any money that they've given to agencies
can be used by them, So you generally what you
have is money is dispersed in advance to allow for
(02:43):
agencies to continue as normal operations as they can. But
as it relates to our show and the financial world
as a whole, one of the disruptions that we will
see is the lack of government data releases, the biggest
one being the jobs report that is expected to come
out on Friday. If we are still shut down as
(03:06):
of Friday, there will be no non farm payroll report
that we receive for the month of September.
Speaker 3 (03:13):
Your thoughts, Mark, Yeah, it's natural to wonder any market
impact historically, and we can talk about the economic impact obviously.
Speaker 2 (03:22):
I have the market impact data if you'd like to.
Speaker 1 (03:24):
Oh, yeah, go ahead.
Speaker 3 (03:25):
We have our own internal version.
Speaker 2 (03:27):
But yeah, I have the external version. Yeah, I guess
the internal version is not shared.
Speaker 3 (03:32):
My internal I mean mine, so yours has probably been vetted.
Speaker 2 (03:35):
So you didn't even share this with me, madam. Just disappointed.
Here's what I have. So if you look at us
government shutdowns and the day that I have here is
going back to nineteen seventy six. There have been twenty
since then. The average length of a government shutdown is
eight days, though if you will be the last four,
which happened in ninety five, twenty thirteen, and twice in
(03:57):
twenty eighteen, three of those four went over fifteen days,
so you can make a case for hey. In recent years,
the last thirty they have tended to be on the
longer side, whereas from nineteen eighty one through nineteen early
ninety five there was not a single one over five
days in length, and there was only one over fifteen
(04:18):
days in length prior to that, which was in nineteen
seventy eight. If you look at the S and P
five hundred return during the prior week, so the week
heading up to the shutdown, it returned negative point one
percent during that on average. Now, the range varies greatly.
In twenty eighteen we had the worst performance heading into
(04:41):
a shutdown down seven point one percent. In nineteen eighty
seven we had the best up five point nine. So
there's a pretty wide range that you see there, and
again twenty's a pretty small sample size, especially when the
average shutdown is eight days. It's like, what would I
even do with this is that a business days? No,
it's actually you know, eight day days SP five hundred
return during shutdowns the best that we've ever seen. Well
(05:04):
in twenty eighteen, remember it was really bad before the shutdown,
SMP returned ten point three percent during the thirty four
percent thirty four day shutdown, the worst.
Speaker 3 (05:14):
Way different than what I got. I'm glad you used yours.
Speaker 2 (05:17):
This is data from Truest that they put this together. Okay,
you have different days.
Speaker 3 (05:22):
Well, price change for the eighteen nineteen event which lasted
the twenty one days using the rule that I used
to calculate these, I just looked at the modern era,
I have a total price change in the S and
P for that twenty one day period of twelve point
four percent.
Speaker 2 (05:39):
This is ten point three okay, maybe during I don't
know if.
Speaker 3 (05:43):
Any different definition they.
Speaker 2 (05:45):
Might have done, like the day that it ended is
not included in it, or is like it's all kind.
Speaker 3 (05:50):
Is not really an intuitive response. No, we're never freaked
out by shutdowns in the modern era because they know
they're going to end.
Speaker 2 (05:56):
Nineteen seventy nine, which was an eleven day shutdown, had
the worst performance during a shot down with the SMP
down four point four percent.
Speaker 3 (06:02):
Who knows what else was going on in nineteen seventy.
Speaker 2 (06:04):
Nine, correct, no idea. You know, there could have been
you know, haircuts and mustaches and all kinds of stuff
going on back then. Don't know if that stuff affects
the market, but whatever. And in the week after a
government shutdown was resolved, the best performance that we've seen
in the S and P five hundred was in the
first shutdown of nineteen eighty two. There were two of them.
(06:27):
They lasted accumulative four days, but during the first one,
the SP five hundred returned seven percent for a single day,
which is kind of well, again, like, who knows what
was going on? Then, the worst performance that we've seen
the week after I'm sorry, no, that was the week after.
The worst performance for the week after a government shutdown
(06:47):
was in nineteen ninety where the S and P returned
three point seven percent in that week. Ultimately, you will
get all this, and the historical data says government shutdowns
are any either positive nor negative for the S and
P five hundred. They tend to have no meaningful impact.
Speaker 3 (07:06):
Yeah.
Speaker 2 (07:07):
The good piece that I do think we have to
pay attention to is the length of the shutdown, just
because I do think hey, longer once potentially can have
more of an economic impact, which, given some of where
we are economically, could be you know, the straw that
breaks the camel's back. Do I think that's likely? Not? Really?
Based on some of the labor market data that we've
(07:28):
been getting the last week or so, obviously not the
government jobs report, it is clear to me that the
labor market is cracking, but it might be doing so
at income levels that are so low that they don't
matter to the broader economic statistics because so much of
the US population has effectively been priced out of mattering
(07:48):
to the broad economy, which is kind of a like,
really bad way to think about it, but it might
be true.
Speaker 3 (07:56):
Also, yeah, yeah, I've heard that possibility raised a lot
spending being driven by higher income cohorts and unemployment being
affected by similar dynamics underlying labor force dynamics. I don't know.
The federalize on the FED. The policymaking of the Federal Reserve,
(08:19):
which controls the money supply, which in turn dictates short
term interest rates, relies on many of the same economics.
Series that we do. Is investment, folks, and as many
in the private sector do so to an extent, they'll
be flying blind as well.
Speaker 2 (08:36):
They do have you know, they will look at other
you know, pure data plenty. But and this I think
is something that is important to talk about when it
comes to the like why do we care about the
BLS Jobs Report as opposed to what we get from ADP.
And there are a couple of reasons. The first is
(08:58):
the overall scope of what you get from government data
tends to be broader. And the best example I've seen
of this is if you talk about, you know, changes
in things like rent growth. Just as an example, your
big you know, you know apartments dot apartment list, dot
com and whatever that put out these rent growth numbers.
(09:19):
Oftentimes they are capturing large landlords that are listing on them,
and that's how they get their data. The federal government,
through its surveys, may survey smaller landlords that don't you know,
use you know, payment systems that are you know, networked
in and this and that that you know, they might
still pay their renters, might still pay by check instead
(09:41):
of you know, having everything flowing through a bank. And
so because of that, you can get access to parts
of the economic data that you don't necessarily get through
private surveys and things like that. This morning we got
ADP payroll data, and if you look at you know
who ad serves, it's a certain subset of businesses. It's
(10:04):
not capturing the data from businesses that aren't using their services.
And where could those businesses possibly reside? You know, what
types of industries do those influence? So this is why
when we talk about, hey, can you make this up
with the private data that's out there, you can get
a lot of it, and generally, if it's all moving directionally,
(10:25):
you know, in the same fashion, you can still get
a pretty good picture, but it's not as robust and
as complete, simply because these private sources all have limitations
that while the government data does have limitations as well,
the scope that it captures tends to be broader than
any of these private sources, simply because they are private
(10:45):
in nature, they're smaller, they don't get everywhere in the economy.
Let's take a quick break on this when we return,
why don't we talk a little bit about the FED
and kind of where they are now and what we're
seeing based on the data that we've gotten to this
(11:06):
point and you know, kind of previewing their meeting that
will be I think it's at the end of this month.
I believe it's the twenty ninth is when it's held.
We'll talk a little bit about that when we return.
Speaker 1 (11:17):
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Speaker 4 (11:48):
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(12:12):
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Speaker 2 (12:20):
Mark, We've got a FED meeting that happens four weeks
from today, on October twenty ninth, and as of right now,
the market is pricing in a one hundred percent probability
of a rate cut, with a ninety nine percent chance
of an additional quarter percent cut, And as of today,
for the first time, we are seeing a one percent
chance priced in of a half percent cut. Good luck
(12:41):
to that person out there. So I think when we
look at this, my question is is pretty simple. If
we have a if this government shutdown turns out to
be very short in nature, which most of them are,
if we're sitting here a week from today and federal
(13:02):
government is reopened, I think it's business as usual for
the FED. Yes, they might not have that September jobs report,
but I think they can make do without it given
the other data that they'll be getting. The question is,
what if this is a repeat of the second shutdown
that we saw in twenty eighteen, where it lasted thirty
(13:24):
four days. What if we're sitting here and it's November fifth,
and we're sitting here on the twenty ninth, and we
haven't gotten a job report, We're not getting weekly jobless claims,
we're not getting CPI data, we're not getting the retail
sales data. How does the FED go about making a
(13:45):
decision during that meeting. If they haven't gotten a lot
of the key inputs that they normally put into it,
you know, they will not have gotten PPI data, housing starts,
and building permits. They will not have gotten and you know,
how do they go about figuring this.
Speaker 3 (14:02):
Out if they try to, well, they could estimate those
missing data points and then plug the estimates into their
model and adjust, and that will spit out values for
what Fed funds should be, etc. It just increases the
uncertainty associated with the right federal funds rate, the so
called neutral federal funds rate, which I guess they want
(14:25):
to get to. They believe rates are currently restrictive, more
likely to hold back economic activity, that is, then hold
back than suppress inflation, so they could estimate them. Chuck,
I'm not sure if that's well. There are economists there
who need to do something, so they will be doing
those estimates. They will be running their models. The models
will just have a greater band of uncertainty associated with them.
(14:50):
The other option is just to go with the current trajectory.
Speaker 2 (14:53):
If you believe the.
Speaker 3 (14:54):
Trend in employment is down, and as you suggested in
the last segment, there are plenty of signs of weakness
in the labor market, none of them suggesting any great
catastrophe is imminent. And maybe it's just a normalization following
the frantic expansion in joures that we saw in the
(15:15):
few years following the COVID recession. I don't know, but
if you assume that's the trajectory whereon, it's unlikely one
month would change your opinion of that short term trend.
So if they wanted to ease last week, to continue
to ease, that is, if the Fed wanted to continue
to lower short term interest rates, they're probably going to
be similarly inclined in.
Speaker 2 (15:34):
A few weeks.
Speaker 5 (15:36):
Now.
Speaker 3 (15:37):
You could say, well, what if it's a huge employment
swing one way or the other, wouldn't that influence them?
It might, it might not, depending on how strongly they
feel about the trend.
Speaker 2 (15:47):
And in terms of might or might not, I think
what you're getting at there is, Look, it's still ultimately
would be you know, single data points that are subject
to you know, meaningful revisions, and as such, Hey, do
you want to necess necessarily put all your eggs in
that basket? Is that kind of what you're getting out?
Speaker 3 (16:03):
Yeah, I'm sorry, I was very very vague. If you
believe you're in the camp, and I'm not, but I
get it. If you're in the camp that the labor
market is sucking wind and that portends broader economic problems.
We haven't really seen it show up and spending yet,
but as you said earlier today, internally it will if
(16:23):
indeed that is what's happening. If you believe that a
couple of weeks ago, it would probably take a big
jobs gain just to oversimplify here, to move you off
that view.
Speaker 2 (16:35):
And even then you might still say, well, that's one
positive job prop port. I need to see another one
to confirm this wasn't a one off.
Speaker 1 (16:41):
Yeah.
Speaker 3 (16:41):
Yeah, I think we all get committed to views that
we hold, and we look for evidence that confirms them,
and people who are in the we need more ease
in camp. FED funds is restrictive. I don't buy that necessarily,
but there are plenty of good, honest arguments in favor
of that point of view. They're unlikely to be moved
off that position, or to want to be moved off
that position by, as you said, just a couple of
a couple of reports.
Speaker 2 (17:01):
When we look at the broader data. Talking about consumer spending,
to my knowledge, the recessions that we have had since
World War Two, there has not been a single one
that has been caused by a drop in consumer spending
in advance of said recession. Correct.
Speaker 3 (17:17):
Well, it's part of GDP, so it would be considered
you'd see it fall coincident.
Speaker 2 (17:21):
With correct but you never see it before. So like
you can never if you're looking for consumer spending to
crack and then be like, oh, now we're in recession.
It's like, Okay, well it's kind of too late at this.
Speaker 3 (17:32):
Way, But it's really because of the way we define recessions,
and the FED has been the proximate cause of every
recession with the accept with a few big exceptions in
the post war period. And the FED works on the
economy by cooling it by slowing overall demand, thus i e.
Slowing spending.
Speaker 2 (17:52):
So I think that the question here is labor tends
to be somewhat of a lagging indicator simply because consumption
leads investment in labor. If you don't have sales, you say, okay,
now it's time for me to lay people off. If
sales are growing rapidly, you say Okay, now it's time
for me to hire. So that's why you have that
mechanism where labor's a lagging indicator. So I think the
(18:14):
question that you get at is one where if you
look at kind of this broad range of labor data,
not government based, you can look at ADP paychecks and indeed,
and I think you get a pretty good sense of
what's going on in the labor market. ADP came out
this morning and said, hey, you lost thirty two thousand
jobs for the month of September. That continues, you know,
a downward trend that you're on in that data set.
(18:37):
If you look at paychecks, they have a small business
hiring index that printed a minus point three to one
percent for September. Corresponds to what you're seeing on the
ADP data. If you look at INDEED and job openings,
you're seeing a very you know, consistent trend down in
the number of job openings. That also, by the way,
(18:57):
correlates really well with the JOLT data. And so I
think in a pinch, you can use that INDEED job
openings index as a proxy for what you'll get on jolts.
And so ultimately I think you get to a position,
and this is kind of where I've gotten back to
over the last month or two. Yeah, the labor market
is worstening at a clip that, in my opinion, is
(19:20):
faster than how badly the inflation situation's worstening. And I
think you're completely justified in cutting given that overall prognosis.
Quick break here. When we come back, We're joined by
Todd Lutsky for Ask Todd. We've also got Wall Street
Watch right after this.
Speaker 1 (19:40):
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 Radio Network.
Speaker 4 (20:00):
Government shut down is officially underway, and markets are dipping
slightly into negative territory at the moment. Right now, the
Dow is mostly flat, dipping by seventeen points S and
P five hundred, down a tenth of one percent or
seven points lower. RUSS excuse me, Nasdaq is down a
tenth of a percent as well, or twenty points lower.
RUSS two thousand dipping as well, mostly flat. Tenure Treasury
(20:22):
yeld down four basis points at four point one zero
eight percent, and crude oil down nearly nine tenths of
one percent, trading at sixty one dollars in eighty four
cents a barrel. Nike stock climbing over four percent higher
after the athletic retailer posted a surprise sales increase for
the previous quarter, but raised its tariff cost forecast to
(20:42):
one and a half billion dollars this fiscal year. Nike
he also warned that sales could slide this holiday season. Meanwhile,
shares in Lithium America's soaring twenty one percent after the
Department of Energy said it would take a five percent
stake in both the Canadian company and its Nevada mining project.
Elsewhere As shares surging nearly fourteen percent after The Financial
(21:05):
Times reported that Blackrock owned Global Infrastructure Partners is in
late stage talks to acquire the renewable and thermal power producer.
According to The Wall Street Journal, Warren Buffett's Berkshire Hathaway
is in talks to buy Occidental Petroleums petrochemical business for
around ten billion dollars. Sun run up by eight percent
after Jeffreys upgraded the solar panel maker to buy from
(21:28):
hold Site in the company's strong cast cash generation. Ford
saw sales of its evs and large SUVs climb eight
point two percent in the previous quarter. Forward up by
one percent, and Peloton announced it's revamping its product assortment,
launching a new commercial equipment line and raising prices for
both subscriptions and hardware ahead of the holiday season. Peloton
(21:51):
down by seven percent. I'm Tucker Silva and that is
Wall Street Watch.
Speaker 1 (21:57):
This is Askedd on the Financial Exchange Radio Network. If
you have an existing estate planning or in the market
for one, Todd Letsky is here to answer your questions
and help you plan for a later life. Ask Todd
is presented by Cushing and Dolan, serving Massachusetts and New
England for more than thirty five years, helping families with
estate and tax planning, medicaid planning, and probate law. Visit
(22:19):
Cushingdolan dot com. Now here's Todd Lutsky and.
Speaker 2 (22:24):
We've got Todd Lutsky joining us now for Ask Todd.
It's your opportunity to ask Todd your estate planning questions.
Phone lines are wide open at eight eight eight to
zero five two two sixty three, so get calling early
and often. We can usually get through two to three
questions with Todd. So make sure that you get in
(22:44):
line again. That phone number is eight eight eight to
zero five two two six three. One more time, it
is eight eight eight to zero five two two six three.
That's the number to call to ask Todd your estate
planning questions, live on air right now, mister Lutsky, How
are you doing today?
Speaker 6 (23:04):
I am never better?
Speaker 2 (23:07):
How's that? Is that good?
Speaker 5 (23:09):
Right?
Speaker 2 (23:09):
It's good. I'm struggling atle bit fell for a scam
at the florist the other day.
Speaker 6 (23:16):
At the florist.
Speaker 2 (23:17):
Yeah, it was a pansy scheme. Oh yeah, well yeah,
it just totally took me for a ride. But hey,
you live and learn and you move on. Todd. I
want to talk a little bit about gifting, if you
don't mind, because we're rapidly approaching the holiday season, and
Tims the season to talk about gifting. Yes, when we
look at the annual gifting limits that are in place
(23:38):
for twenty twenty five, what is that threshold?
Speaker 6 (23:41):
So there's two different thresholds really to think about. One
would be what we call a present interest gift exclusion.
And this is what I like to call the freebie.
It's complete freebie, meaning you can do it, make the transfer,
make the gift, and there is no filing requirement for
(24:03):
a gift tax return, and no reporting whatsoever. Freebe how
much nineteen thousand per person per year. So it's if
you are married and you want to give to your child,
(24:23):
you and your spouse can give nineteen each to that child.
So it'sbout thirty eight thousand. So that's a good a
good amount, and you can do it for every single kid,
every grandkid. And remember it's also not limited to family.
So in case you want to send Chuck some money,
you can just nineteen thousand, no reporting, So excellent way
(24:48):
of gifting. And it's just an outright freebee. Now what
happens if you go one dollar over that? Like, what
happens if I write a check?
Speaker 2 (24:58):
Just like I'm like, hey, look at me, I'm doing
nineteen thousand and one dollars dollars? What do I do
with that? What happens because of that extra dollar?
Speaker 6 (25:05):
So and again, whether it's an extra dollar, which is
your example, or an extra million dollars, same event, you
now technically have a taxable gift, Okay, a taxable gift
taxable to whom I know, I know it's it's crazy,
but I'd like to always say that no good deed
goes unpunished. Right, Guess who pays the gift tax? The giver, well,
(25:29):
not the recipient, say it, it's so not the recipient,
it's the giver. And it makes sense in the grand
scheme of things, right, because if you have an estate tax,
and you could say, hey, right before I die, I'll
just give everything away to avoid the estate tax, and
you didn't have a gift tax, then the estate tax
would have no teeth.
Speaker 2 (25:44):
So I get why.
Speaker 6 (25:45):
They do it, but it does sound funny that the
giver has to pay the tax.
Speaker 2 (25:49):
So the giver pays tax.
Speaker 6 (25:50):
Last exemption fifteen million come January one, twenty twenty six.
Right now it's thirteen nine. It's gonna be fifteen million
in as your federal estate tax exemption. It's also your
gift tax exemption. So if you start making taxable gifts
and going over this nineteen grand. So like, for example,
(26:13):
if I file a million dollar, let's just make it
easy numbers. I file a million, I pay, I make
a gift of a million dollars, and let's say I
could shelter the first twenty as a freebe that would
make eight eight one hundred thousand dollars taxable.
Speaker 5 (26:27):
Right.
Speaker 6 (26:27):
No, I'm sorry more than that. Right, If you twenty
thousand would be a milli, it would be it would
be a nine eighty thousand dollars taxable sure, because you
can only shelter the first twenty or nineteen in this case. Right,
So you have a nine hundred and eighty thousand dollars
gift taxable gift, need to file a Form seven h
nine gift tax return to report the amount over the
(26:50):
nineteen thousand. That's the piece, that's the taxable gift. You
get to back out the nineteen file the gift tax return.
The only good news here is when I say this
is an exemption, you then eat into your million dollar
exemption by the taxable gift amount and you end up
paying no tax.
Speaker 2 (27:07):
But you got a file talking with Todd Lutsky from
the law firm of Cushing and Dolan. You got questions
for Todd. He's got answers eight eight eight to zero
five two two sixty three is the phone number, so
you can ask Todd your estate planning questions live on
air right now. That number is eight eight eight to
zero five two two six three. We're gonna take a
(27:30):
quick break here, but when we return, we're gonna get
to your questions with Todd right after the break. Again,
it's eight eight eight to zero five two two six three.
Speaker 1 (27:41):
One.
Speaker 2 (27:41):
Last time, that number is eight eight eight to zero
five two two sixty three.
Speaker 1 (27:47):
Ask Todd with Todd Lutsky every Wednesday at ten thirty
only here on the Financial Exchange Radio Network. You're listening
to Ask Todd with Todd Lutsky on the Financial She'll
Exchange Radio Network.
Speaker 2 (28:16):
If you've got a question for Todd, Lutsky's still room
on the phone lines at eight eight eight to zero
five two two sixty three. That is eight eight eight
to zero five two two sixty three. Let's go to
Mic from Boston. Michael, you are on with Tom Lutsky.
Speaker 5 (28:34):
Good morning. I had a question about the cost of
an irrevocable trust. Uh. There never seems to be any
uh talk or referral to what that cost is. Sure,
hear a lot about it. I've done some research myself.
I've read a few. I guess she'd call them relatively simple. Uh.
(28:58):
But in nineteen teen, twenty pages roughly eighteen pages is
legal jargon. They were the same from trust to trust.
The only thing that changed was the names of the trustees,
the beneficiary, how he would receive his money or her money,
(29:21):
and any little other stipulations in there additional which took
about a page and a half or two What does
it cost to what I considered to be relatively simple,
the same from trust to trust. As far as the
work you put in the terminology seems to be the
(29:42):
same from trust to trust.
Speaker 6 (29:44):
Well, I'm going to beg to differ with you tremendously
on that front, because, first of all, there's many kinds
of irrevocable trusts out there. There's qualified personal residence trusts
that are irrevocable, their spousal lifetime access trust for high
net worth clients that are irrevocable when you give him away.
There are Medicaid income only trust the kind we talk
about a lot on the show when you give those away.
(30:05):
So you know, you know, there's there's gifting trust, there's
irrevocable life insurance trust. So when you say they're the same,
I'm not sure what you've read that makes you think
that one irrevocable trust should have the same language as
the other. And secondly that our trusts anyway, are but
they're not nineteen twenty pages. They're sixty or fifty, you know.
(30:27):
But that isn't what we don't charge based on the page.
That isn't. That isn't how you do it. It's it's
like someone thinks it's simple. But then so I have this.
It's a great question because I have a real life
story on it where I had the client come in
and say, well, I need to set up this irrevocable
trust and and I'm going to be giving assets away
to my to my family and and so how does
(30:48):
this work? And then I started asking them, well, do
you want it to be a completed gift for gift
tax purposes?
Speaker 2 (30:53):
Yes or no?
Speaker 6 (30:54):
Do you want it do you want to retain control
over it? Yes or no? Well what about for income
tax purposes? Do I want to make it a grand
tor trust for income tax purposes? Which means that while
I don't own it and it's out of my estate
for a state tax purposes, which is great, I don't
want to pay income tax on what's in there growing
at a much higher rate because remember taxation at the
(31:15):
trust level. After about fourteen thousand dollars is taxable at
the top rate, whereas humans we have a much bigger,
you know, rate structure, so we don't have to pay
tax like that. So the answer is you got to
make it a grand tour trust for income tax purposes.
So even though it's an irrevocable trust and out of
(31:37):
your estate, it can still be taxed in your estate
for income tax purposes.
Speaker 2 (31:41):
You know.
Speaker 6 (31:41):
Then you have to think about, well, do I want
it to be a gift so that it's protected from
perhaps like the nursing home and creditors. But I want
to keep control over it. I want to be able
to enjoy it. I want to be able to control it,
maybe get the income. Well that's important because if I
do that, then I'm including it in my estate and
I'm going to get a step up in basis for
capital gains tax purposes on the item that's in there,
(32:03):
say my home that might be worth a lot of money,
or a rental property that I put in there. Oh,
I certainly want to get to step up in basis
when I die so that I don't have capital gains
tax for my beneficiaries to pay when they get it.
But I also want to reduce my estate taxes, and
then you have to run those numbers and see what works.
So in terms of this simply being a simple thing
(32:26):
that somebody does is absolutely incorrect. And so there's a
lot to think about that goes in there, and the
way we draft it changes based on that. Now it
is true that there are some people, some attorneys that
go out and just buy a package off the internet
somewhere and then sell it. We don't do that. We've
(32:46):
drafted our document. So our intellectual property. Like when I
started our trust was twenty five pages long, it's now
fifty Why because we add to it. We put our
own intellectual property into it. As laws change, as revenue
ruling come out, as issues we see with clients in
terms of how they get it come out, how you
leave the assets to the children to prevent fighting. So
(33:08):
I think there's an awful lot involved in there and
when you're doing this, and so I think you need
to figure out all of that when you're trying to
come up with what the cost is. And that cost
is unfortunately going to vary. It's a flat fee at
least at our firm, but it's going to vary based
on what kind of trust you're doing. What you know,
whether it's a qu pert, whether it's an irrevocable life
(33:30):
insurance trust or a medicaid trust. So I think that's
the safest and from everybody listening, you should get a
flat fee from your attorney before you would go forward.
I think flat fees are the way to go. That
way you know exactly what you're getting into before you
would you would actually, you know, do this kind of trust.
So I hope that helps a little. But folks, the
(33:52):
newest guide that's out there that we're doing for this month,
which is not just about estate planning, it's more about gifting,
which is exactly what some of the issues we were
talking about with this caller, and that is that when
you're gifting assets, you know, do I want to gift it?
Do I want to make something a gift one way
or another? Do I want to give it outright to
(34:12):
my kids? Do I want to hold it in espousal
lifetime access trust so that I can enjoy what I
gave away? Remember I said, you got to figure out
how can I enjoy what I gave away and keep
it outside my estate first date taxes. So that's where
spousal lifetime access trust comes in. You always got to
think about what kind of asset you're giving away, high
basis assets versus low basis assets. Think about it from
(34:35):
a medicaid nursing home perspective. You know, if I own
an account jointly with a non spouse, is it half
protected already? Is it not half protected? If I own
my house with somebody that's a non spouse, is it
half protected? Is it not half protected? So you got
to think about it from every angle when you're gifting folks.
The guide Getting the most out of Gifting assets is
eight six six eight four eight five six nine to
(34:59):
nine or Legal Exchange Show dot com New Guide for
the Month eight six six eight four eight five six
nine nine or Legal Exchange Show dot com.
Speaker 2 (35:11):
Todd talking more about the gifting side of things there,
how does one make the decision on what are the
kind of good assets to gift versus poor ones?
Speaker 1 (35:22):
Like?
Speaker 2 (35:22):
How do you decide when it makes sense to gift
versus not? Yeah, and that's uh.
Speaker 6 (35:27):
And again I know with our caller, I gave a
lot of information really fast, but this would be break
it down. One of the things I was trying to
explain to the caller, was you know, okay, I do
want to make an irrevocable trust. Now I want to
know if that irrevocable trust is going to be a
completed gift or not a completed gift. And then once
we determined from your question, Chuck, that it is going
(35:47):
to be a completed gift, now we have to determine
what asset should we gift? Easy, easiest one.
Speaker 2 (35:54):
Cash.
Speaker 6 (35:55):
Cash is always good. Why because there's no basis problem
with cash. Cash is cash. There is no built in
gain that I need to worry about. Whereas, Oh, I've
got this rental property that I bought thirty years ago
and fully depreciated it over time, meaning my basis in
the property is now a zero because I've rented it
(36:18):
for more than twenty seven and a half years. If
I give that away, let's say it's a million dollar
property and my basis is zero, now I've trapped for
my family twenty eight point eight percent capital gain on
a million dollars. Not just twenty eight point eight percent,
but the depreciation piece of the gain is taxed at
(36:39):
ordinary income, So the rate is not just capital gain,
but the appreciation portion of the gain is taxed as
ordinary income. I mean it's tax as capital gain. So
then you have to figure out that the rate we're
trapping is actually higher than that. So great question, Chuck.
I think that's just the beginning the tip of the
gifting Iceberg, if you will well as to what you
(37:01):
need to think about before you make a gift.
Speaker 2 (37:04):
Mister Lutski, thank you so much for joining us today.
Speaker 6 (37:06):
Are always a pleasure.
Speaker 1 (37:08):
This has been asked Todd on the Financial Exchange Radio network.
Ask Todd with Todd Lutsky has been presented by Cushing
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The views expressed in this segment are solely those of
(37:29):
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(01:05):
Zada and Mark Fandetti.
Speaker 2 (01:15):
Chuck, Mark and Chucker with you today and us not
being government employees, we are working regular hours and chugging along,
just as I'm sure most of you are. But as
of twelve oh one am Eastern time, federal government is
shut down. Now, does this mean that your dollars are
(01:39):
no good anywhere? No, it doesn't mean that. Does it
mean that we have to use the metric system instead
of the imperial system, No, it doesn't mean that either.
What it does mean is that for about seven hundred
and fifty thousand government employees, they are furloughed and not
getting paid while the shutdown goes on, and the work
(02:00):
that they do deemed non essential is not being done
during that time as well. Generally, most of these things,
to the vast majority of people, are not overly disruptive.
But some of the stuff can be disruptive to small constituencies,
and we can get into that. But the big things,
so security continues to operate as it previously has, Medicare
(02:23):
continues to operate as it previously as, Medicaid continues to operate,
So any of those big programs are generally up and running.
The US Treasury is not allowed to disperse payments to
the agencies, but any money that they've given to agencies
can be used by them, So you generally what you
have is money is dispersed in advance to allow for
(02:43):
agencies to continue as normal operations as they can. But
as it relates to our show and the financial world
as a whole, one of the disruptions that we will
see is the lack of government data releases, the biggest
one being the jobs report that is expected to come
out on Friday. If we are still shut down as
(03:06):
of Friday, there will be no non farm payroll report
that we receive for the month of September.
Speaker 3 (03:13):
Your thoughts, Mark, Yeah, it's natural to wonder any market
impact historically, and we can talk about the economic impact obviously.
Speaker 2 (03:22):
I have the market impact data if you'd like to.
Speaker 1 (03:24):
Oh, yeah, go ahead.
Speaker 3 (03:25):
We have our own internal version.
Speaker 2 (03:27):
But yeah, I have the external version. Yeah, I guess
the internal version is not shared.
Speaker 3 (03:32):
My internal I mean mine, so yours has probably been vetted.
Speaker 2 (03:35):
So you didn't even share this with me, madam. Just disappointed.
Here's what I have. So if you look at us
government shutdowns and the day that I have here is
going back to nineteen seventy six. There have been twenty
since then. The average length of a government shutdown is
eight days, though if you will be the last four,
which happened in ninety five, twenty thirteen, and twice in
(03:57):
twenty eighteen, three of those four went over fifteen days,
so you can make a case for hey. In recent years,
the last thirty they have tended to be on the
longer side, whereas from nineteen eighty one through nineteen early
ninety five there was not a single one over five
days in length, and there was only one over fifteen
(04:18):
days in length prior to that, which was in nineteen
seventy eight. If you look at the S and P
five hundred return during the prior week, so the week
heading up to the shutdown, it returned negative point one
percent during that on average. Now, the range varies greatly.
In twenty eighteen we had the worst performance heading into
(04:41):
a shutdown down seven point one percent. In nineteen eighty
seven we had the best up five point nine. So
there's a pretty wide range that you see there, and
again twenty's a pretty small sample size, especially when the
average shutdown is eight days. It's like, what would I
even do with this is that a business days? No,
it's actually you know, eight day days SP five hundred
return during shutdowns the best that we've ever seen. Well
(05:04):
in twenty eighteen, remember it was really bad before the shutdown,
SMP returned ten point three percent during the thirty four
percent thirty four day shutdown, the worst.
Speaker 3 (05:14):
Way different than what I got. I'm glad you used yours.
Speaker 2 (05:17):
This is data from Truest that they put this together. Okay,
you have different days.
Speaker 3 (05:22):
Well, price change for the eighteen nineteen event which lasted
the twenty one days using the rule that I used
to calculate these, I just looked at the modern era,
I have a total price change in the S and
P for that twenty one day period of twelve point
four percent.
Speaker 2 (05:39):
This is ten point three okay, maybe during I don't
know if.
Speaker 3 (05:43):
Any different definition they.
Speaker 2 (05:45):
Might have done, like the day that it ended is
not included in it, or is like it's all kind.
Speaker 3 (05:50):
Is not really an intuitive response. No, we're never freaked
out by shutdowns in the modern era because they know
they're going to end.
Speaker 2 (05:56):
Nineteen seventy nine, which was an eleven day shutdown, had
the worst performance during a shot down with the SMP
down four point four percent.
Speaker 3 (06:02):
Who knows what else was going on in nineteen seventy.
Speaker 2 (06:04):
Nine, correct, no idea. You know, there could have been
you know, haircuts and mustaches and all kinds of stuff
going on back then. Don't know if that stuff affects
the market, but whatever. And in the week after a
government shutdown was resolved, the best performance that we've seen
in the S and P five hundred was in the
first shutdown of nineteen eighty two. There were two of them.
(06:27):
They lasted accumulative four days, but during the first one,
the SP five hundred returned seven percent for a single day,
which is kind of well, again, like, who knows what
was going on? Then, the worst performance that we've seen
the week after I'm sorry, no, that was the week after.
The worst performance for the week after a government shutdown
(06:47):
was in nineteen ninety where the S and P returned
three point seven percent in that week. Ultimately, you will
get all this, and the historical data says government shutdowns
are any either positive nor negative for the S and
P five hundred. They tend to have no meaningful impact.
Speaker 3 (07:06):
Yeah.
Speaker 2 (07:07):
The good piece that I do think we have to
pay attention to is the length of the shutdown, just
because I do think hey, longer once potentially can have
more of an economic impact, which, given some of where
we are economically, could be you know, the straw that
breaks the camel's back. Do I think that's likely? Not? Really?
Based on some of the labor market data that we've
(07:28):
been getting the last week or so, obviously not the
government jobs report, it is clear to me that the
labor market is cracking, but it might be doing so
at income levels that are so low that they don't
matter to the broader economic statistics because so much of
the US population has effectively been priced out of mattering
(07:48):
to the broad economy, which is kind of a like,
really bad way to think about it, but it might
be true.
Speaker 3 (07:56):
Also, yeah, yeah, I've heard that possibility raised a lot
spending being driven by higher income cohorts and unemployment being
affected by similar dynamics underlying labor force dynamics. I don't know.
The federalize on the FED. The policymaking of the Federal Reserve,
(08:19):
which controls the money supply, which in turn dictates short
term interest rates, relies on many of the same economics.
Series that we do. Is investment, folks, and as many
in the private sector do so to an extent, they'll
be flying blind as well.
Speaker 2 (08:36):
They do have you know, they will look at other
you know, pure data plenty. But and this I think
is something that is important to talk about when it
comes to the like why do we care about the
BLS Jobs Report as opposed to what we get from ADP.
And there are a couple of reasons. The first is
(08:58):
the overall scope of what you get from government data
tends to be broader. And the best example I've seen
of this is if you talk about, you know, changes
in things like rent growth. Just as an example, your
big you know, you know apartments dot apartment list, dot
com and whatever that put out these rent growth numbers.
(09:19):
Oftentimes they are capturing large landlords that are listing on them,
and that's how they get their data. The federal government,
through its surveys, may survey smaller landlords that don't you know,
use you know, payment systems that are you know, networked
in and this and that that you know, they might
still pay their renters, might still pay by check instead
(09:41):
of you know, having everything flowing through a bank. And
so because of that, you can get access to parts
of the economic data that you don't necessarily get through
private surveys and things like that. This morning we got
ADP payroll data, and if you look at you know
who ad serves, it's a certain subset of businesses. It's
(10:04):
not capturing the data from businesses that aren't using their services.
And where could those businesses possibly reside? You know, what
types of industries do those influence? So this is why
when we talk about, hey, can you make this up
with the private data that's out there, you can get
a lot of it, and generally, if it's all moving directionally,
(10:25):
you know, in the same fashion, you can still get
a pretty good picture, but it's not as robust and
as complete, simply because these private sources all have limitations
that while the government data does have limitations as well,
the scope that it captures tends to be broader than
any of these private sources, simply because they are private
(10:45):
in nature, they're smaller, they don't get everywhere in the economy.
Let's take a quick break on this when we return,
why don't we talk a little bit about the FED
and kind of where they are now and what we're
seeing based on the data that we've gotten to this
(11:06):
point and you know, kind of previewing their meeting that
will be I think it's at the end of this month.
I believe it's the twenty ninth is when it's held.
We'll talk a little bit about that when we return.
Speaker 1 (11:17):
The Financial Exchange streams live on YouTube. Subscribe to our
page and stay up to date on breaking business news
all morning. Long Face is the Financial Exchange Radio Network.
The latest news on inflation, the FED, the economy, and
how the markets are reacting every morning right here on
the Financial Exchange Radio Network.
Speaker 4 (11:48):
This year's DAV five k is solved out, but you
can still help our great American heroes. The race is Saturday,
November eighth at Castle Island, and you can visit DAV
five k dot Boston to make a donation of any
amount to support our troops. Your gifts help fund free
rides to medical appointments for veterans, and the nation's first
dab laed housing initiative providing homes for single veterans and
(12:12):
veteran families. Go to DAV five k dot Boston and
make your donation today.
Speaker 2 (12:20):
Mark, We've got a FED meeting that happens four weeks
from today, on October twenty ninth, and as of right now,
the market is pricing in a one hundred percent probability
of a rate cut, with a ninety nine percent chance
of an additional quarter percent cut, And as of today,
for the first time, we are seeing a one percent
chance priced in of a half percent cut. Good luck
(12:41):
to that person out there. So I think when we
look at this, my question is is pretty simple. If
we have a if this government shutdown turns out to
be very short in nature, which most of them are,
if we're sitting here a week from today and federal
(13:02):
government is reopened, I think it's business as usual for
the FED. Yes, they might not have that September jobs report,
but I think they can make do without it given
the other data that they'll be getting. The question is,
what if this is a repeat of the second shutdown
that we saw in twenty eighteen, where it lasted thirty
(13:24):
four days. What if we're sitting here and it's November fifth,
and we're sitting here on the twenty ninth, and we
haven't gotten a job report, We're not getting weekly jobless claims,
we're not getting CPI data, we're not getting the retail
sales data. How does the FED go about making a
(13:45):
decision during that meeting. If they haven't gotten a lot
of the key inputs that they normally put into it,
you know, they will not have gotten PPI data, housing starts,
and building permits. They will not have gotten and you know,
how do they go about figuring this.
Speaker 3 (14:02):
Out if they try to, well, they could estimate those
missing data points and then plug the estimates into their
model and adjust, and that will spit out values for
what Fed funds should be, etc. It just increases the
uncertainty associated with the right federal funds rate, the so
called neutral federal funds rate, which I guess they want
(14:25):
to get to. They believe rates are currently restrictive, more
likely to hold back economic activity, that is, then hold
back than suppress inflation, so they could estimate them. Chuck,
I'm not sure if that's well. There are economists there
who need to do something, so they will be doing
those estimates. They will be running their models. The models
will just have a greater band of uncertainty associated with them.
(14:50):
The other option is just to go with the current trajectory.
Speaker 2 (14:53):
If you believe the.
Speaker 3 (14:54):
Trend in employment is down, and as you suggested in
the last segment, there are plenty of signs of weakness
in the labor market, none of them suggesting any great
catastrophe is imminent. And maybe it's just a normalization following
the frantic expansion in joures that we saw in the
(15:15):
few years following the COVID recession. I don't know, but
if you assume that's the trajectory whereon, it's unlikely one
month would change your opinion of that short term trend.
So if they wanted to ease last week, to continue
to ease, that is, if the Fed wanted to continue
to lower short term interest rates, they're probably going to
be similarly inclined in.
Speaker 2 (15:34):
A few weeks.
Speaker 5 (15:36):
Now.
Speaker 3 (15:37):
You could say, well, what if it's a huge employment
swing one way or the other, wouldn't that influence them?
It might, it might not, depending on how strongly they
feel about the trend.
Speaker 2 (15:47):
And in terms of might or might not, I think
what you're getting at there is, Look, it's still ultimately
would be you know, single data points that are subject
to you know, meaningful revisions, and as such, Hey, do
you want to necess necessarily put all your eggs in
that basket? Is that kind of what you're getting out?
Speaker 3 (16:03):
Yeah, I'm sorry, I was very very vague. If you
believe you're in the camp, and I'm not, but I
get it. If you're in the camp that the labor
market is sucking wind and that portends broader economic problems.
We haven't really seen it show up and spending yet,
but as you said earlier today, internally it will if
(16:23):
indeed that is what's happening. If you believe that a
couple of weeks ago, it would probably take a big
jobs gain just to oversimplify here, to move you off
that view.
Speaker 2 (16:35):
And even then you might still say, well, that's one
positive job prop port. I need to see another one
to confirm this wasn't a one off.
Speaker 1 (16:41):
Yeah.
Speaker 3 (16:41):
Yeah, I think we all get committed to views that
we hold, and we look for evidence that confirms them,
and people who are in the we need more ease
in camp. FED funds is restrictive. I don't buy that necessarily,
but there are plenty of good, honest arguments in favor
of that point of view. They're unlikely to be moved
off that position, or to want to be moved off
that position by, as you said, just a couple of
a couple of reports.
Speaker 2 (17:01):
When we look at the broader data. Talking about consumer spending,
to my knowledge, the recessions that we have had since
World War Two, there has not been a single one
that has been caused by a drop in consumer spending
in advance of said recession. Correct.
Speaker 3 (17:17):
Well, it's part of GDP, so it would be considered
you'd see it fall coincident.
Speaker 2 (17:21):
With correct but you never see it before. So like
you can never if you're looking for consumer spending to
crack and then be like, oh, now we're in recession.
It's like, Okay, well it's kind of too late at this.
Speaker 3 (17:32):
Way, But it's really because of the way we define recessions,
and the FED has been the proximate cause of every
recession with the accept with a few big exceptions in
the post war period. And the FED works on the
economy by cooling it by slowing overall demand, thus i e.
Slowing spending.
Speaker 2 (17:52):
So I think that the question here is labor tends
to be somewhat of a lagging indicator simply because consumption
leads investment in labor. If you don't have sales, you say, okay,
now it's time for me to lay people off. If
sales are growing rapidly, you say Okay, now it's time
for me to hire. So that's why you have that
mechanism where labor's a lagging indicator. So I think the
(18:14):
question that you get at is one where if you
look at kind of this broad range of labor data,
not government based, you can look at ADP paychecks and indeed,
and I think you get a pretty good sense of
what's going on in the labor market. ADP came out
this morning and said, hey, you lost thirty two thousand
jobs for the month of September. That continues, you know,
a downward trend that you're on in that data set.
(18:37):
If you look at paychecks, they have a small business
hiring index that printed a minus point three to one
percent for September. Corresponds to what you're seeing on the
ADP data. If you look at INDEED and job openings,
you're seeing a very you know, consistent trend down in
the number of job openings. That also, by the way,
(18:57):
correlates really well with the JOLT data. And so I
think in a pinch, you can use that INDEED job
openings index as a proxy for what you'll get on jolts.
And so ultimately I think you get to a position,
and this is kind of where I've gotten back to
over the last month or two. Yeah, the labor market
is worstening at a clip that, in my opinion, is
(19:20):
faster than how badly the inflation situation's worstening. And I
think you're completely justified in cutting given that overall prognosis.
Quick break here. When we come back, We're joined by
Todd Lutsky for Ask Todd. We've also got Wall Street
Watch right after this.
Speaker 1 (19:40):
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 Radio Network.
Speaker 4 (20:00):
Government shut down is officially underway, and markets are dipping
slightly into negative territory at the moment. Right now, the
Dow is mostly flat, dipping by seventeen points S and
P five hundred, down a tenth of one percent or
seven points lower. RUSS excuse me, Nasdaq is down a
tenth of a percent as well, or twenty points lower.
RUSS two thousand dipping as well, mostly flat. Tenure Treasury
(20:22):
yeld down four basis points at four point one zero
eight percent, and crude oil down nearly nine tenths of
one percent, trading at sixty one dollars in eighty four
cents a barrel. Nike stock climbing over four percent higher
after the athletic retailer posted a surprise sales increase for
the previous quarter, but raised its tariff cost forecast to
(20:42):
one and a half billion dollars this fiscal year. Nike
he also warned that sales could slide this holiday season. Meanwhile,
shares in Lithium America's soaring twenty one percent after the
Department of Energy said it would take a five percent
stake in both the Canadian company and its Nevada mining project.
Elsewhere As shares surging nearly fourteen percent after The Financial
(21:05):
Times reported that Blackrock owned Global Infrastructure Partners is in
late stage talks to acquire the renewable and thermal power producer.
According to The Wall Street Journal, Warren Buffett's Berkshire Hathaway
is in talks to buy Occidental Petroleums petrochemical business for
around ten billion dollars. Sun run up by eight percent
after Jeffreys upgraded the solar panel maker to buy from
(21:28):
hold Site in the company's strong cast cash generation. Ford
saw sales of its evs and large SUVs climb eight
point two percent in the previous quarter. Forward up by
one percent, and Peloton announced it's revamping its product assortment,
launching a new commercial equipment line and raising prices for
both subscriptions and hardware ahead of the holiday season. Peloton
(21:51):
down by seven percent. I'm Tucker Silva and that is
Wall Street Watch.
Speaker 1 (21:57):
This is Askedd on the Financial Exchange Radio Network. If
you have an existing estate planning or in the market
for one, Todd Letsky is here to answer your questions
and help you plan for a later life. Ask Todd
is presented by Cushing and Dolan, serving Massachusetts and New
England for more than thirty five years, helping families with
estate and tax planning, medicaid planning, and probate law. Visit
(22:19):
Cushingdolan dot com. Now here's Todd Lutsky and.
Speaker 2 (22:24):
We've got Todd Lutsky joining us now for Ask Todd.
It's your opportunity to ask Todd your estate planning questions.
Phone lines are wide open at eight eight eight to
zero five two two sixty three, so get calling early
and often. We can usually get through two to three
questions with Todd. So make sure that you get in
(22:44):
line again. That phone number is eight eight eight to
zero five two two six three. One more time, it
is eight eight eight to zero five two two six three.
That's the number to call to ask Todd your estate
planning questions, live on air right now, mister Lutsky, How
are you doing today?
Speaker 6 (23:04):
I am never better?
Speaker 2 (23:07):
How's that? Is that good?
Speaker 5 (23:09):
Right?
Speaker 2 (23:09):
It's good. I'm struggling atle bit fell for a scam
at the florist the other day.
Speaker 6 (23:16):
At the florist.
Speaker 2 (23:17):
Yeah, it was a pansy scheme. Oh yeah, well yeah,
it just totally took me for a ride. But hey,
you live and learn and you move on. Todd. I
want to talk a little bit about gifting, if you
don't mind, because we're rapidly approaching the holiday season, and
Tims the season to talk about gifting. Yes, when we
look at the annual gifting limits that are in place
(23:38):
for twenty twenty five, what is that threshold?
Speaker 6 (23:41):
So there's two different thresholds really to think about. One
would be what we call a present interest gift exclusion.
And this is what I like to call the freebie.
It's complete freebie, meaning you can do it, make the transfer,
make the gift, and there is no filing requirement for
(24:03):
a gift tax return, and no reporting whatsoever. Freebe how
much nineteen thousand per person per year. So it's if
you are married and you want to give to your child,
(24:23):
you and your spouse can give nineteen each to that child.
So it'sbout thirty eight thousand. So that's a good a
good amount, and you can do it for every single kid,
every grandkid. And remember it's also not limited to family.
So in case you want to send Chuck some money,
you can just nineteen thousand, no reporting, So excellent way
(24:48):
of gifting. And it's just an outright freebee. Now what
happens if you go one dollar over that? Like, what
happens if I write a check?
Speaker 2 (24:58):
Just like I'm like, hey, look at me, I'm doing
nineteen thousand and one dollars dollars? What do I do
with that? What happens because of that extra dollar?
Speaker 6 (25:05):
So and again, whether it's an extra dollar, which is
your example, or an extra million dollars, same event, you
now technically have a taxable gift, Okay, a taxable gift
taxable to whom I know, I know it's it's crazy,
but I'd like to always say that no good deed
goes unpunished. Right, Guess who pays the gift tax? The giver, well,
(25:29):
not the recipient, say it, it's so not the recipient,
it's the giver. And it makes sense in the grand
scheme of things, right, because if you have an estate tax,
and you could say, hey, right before I die, I'll
just give everything away to avoid the estate tax, and
you didn't have a gift tax, then the estate tax
would have no teeth.
Speaker 2 (25:44):
So I get why.
Speaker 6 (25:45):
They do it, but it does sound funny that the
giver has to pay the tax.
Speaker 2 (25:49):
So the giver pays tax.
Speaker 6 (25:50):
Last exemption fifteen million come January one, twenty twenty six.
Right now it's thirteen nine. It's gonna be fifteen million
in as your federal estate tax exemption. It's also your
gift tax exemption. So if you start making taxable gifts
and going over this nineteen grand. So like, for example,
(26:13):
if I file a million dollar, let's just make it
easy numbers. I file a million, I pay, I make
a gift of a million dollars, and let's say I
could shelter the first twenty as a freebe that would
make eight eight one hundred thousand dollars taxable.
Speaker 5 (26:27):
Right.
Speaker 6 (26:27):
No, I'm sorry more than that. Right, If you twenty
thousand would be a milli, it would be it would
be a nine eighty thousand dollars taxable sure, because you
can only shelter the first twenty or nineteen in this case. Right,
So you have a nine hundred and eighty thousand dollars
gift taxable gift, need to file a Form seven h
nine gift tax return to report the amount over the
(26:50):
nineteen thousand. That's the piece, that's the taxable gift. You
get to back out the nineteen file the gift tax return.
The only good news here is when I say this
is an exemption, you then eat into your million dollar
exemption by the taxable gift amount and you end up
paying no tax.
Speaker 2 (27:07):
But you got a file talking with Todd Lutsky from
the law firm of Cushing and Dolan. You got questions
for Todd. He's got answers eight eight eight to zero
five two two sixty three is the phone number, so
you can ask Todd your estate planning questions live on
air right now. That number is eight eight eight to
zero five two two six three. We're gonna take a
(27:30):
quick break here, but when we return, we're gonna get
to your questions with Todd right after the break. Again,
it's eight eight eight to zero five two two six three.
Speaker 1 (27:41):
One.
Speaker 2 (27:41):
Last time, that number is eight eight eight to zero
five two two sixty three.
Speaker 1 (27:47):
Ask Todd with Todd Lutsky every Wednesday at ten thirty
only here on the Financial Exchange Radio Network. You're listening
to Ask Todd with Todd Lutsky on the Financial She'll
Exchange Radio Network.
Speaker 2 (28:16):
If you've got a question for Todd, Lutsky's still room
on the phone lines at eight eight eight to zero
five two two sixty three. That is eight eight eight
to zero five two two sixty three. Let's go to
Mic from Boston. Michael, you are on with Tom Lutsky.
Speaker 5 (28:34):
Good morning. I had a question about the cost of
an irrevocable trust. Uh. There never seems to be any
uh talk or referral to what that cost is. Sure,
hear a lot about it. I've done some research myself.
I've read a few. I guess she'd call them relatively simple. Uh.
(28:58):
But in nineteen teen, twenty pages roughly eighteen pages is
legal jargon. They were the same from trust to trust.
The only thing that changed was the names of the trustees,
the beneficiary, how he would receive his money or her money,
(29:21):
and any little other stipulations in there additional which took
about a page and a half or two What does
it cost to what I considered to be relatively simple,
the same from trust to trust. As far as the
work you put in the terminology seems to be the
(29:42):
same from trust to trust.
Speaker 6 (29:44):
Well, I'm going to beg to differ with you tremendously
on that front, because, first of all, there's many kinds
of irrevocable trusts out there. There's qualified personal residence trusts
that are irrevocable, their spousal lifetime access trust for high
net worth clients that are irrevocable when you give him away.
There are Medicaid income only trust the kind we talk
about a lot on the show when you give those away.
(30:05):
So you know, you know, there's there's gifting trust, there's
irrevocable life insurance trust. So when you say they're the same,
I'm not sure what you've read that makes you think
that one irrevocable trust should have the same language as
the other. And secondly that our trusts anyway, are but
they're not nineteen twenty pages. They're sixty or fifty, you know.
(30:27):
But that isn't what we don't charge based on the page.
That isn't. That isn't how you do it. It's it's
like someone thinks it's simple. But then so I have this.
It's a great question because I have a real life
story on it where I had the client come in
and say, well, I need to set up this irrevocable
trust and and I'm going to be giving assets away
to my to my family and and so how does
(30:48):
this work? And then I started asking them, well, do
you want it to be a completed gift for gift
tax purposes?
Speaker 2 (30:53):
Yes or no?
Speaker 6 (30:54):
Do you want it do you want to retain control
over it? Yes or no? Well what about for income
tax purposes? Do I want to make it a grand
tor trust for income tax purposes? Which means that while
I don't own it and it's out of my estate
for a state tax purposes, which is great, I don't
want to pay income tax on what's in there growing
at a much higher rate because remember taxation at the
(31:15):
trust level. After about fourteen thousand dollars is taxable at
the top rate, whereas humans we have a much bigger,
you know, rate structure, so we don't have to pay
tax like that. So the answer is you got to
make it a grand tour trust for income tax purposes.
So even though it's an irrevocable trust and out of
(31:37):
your estate, it can still be taxed in your estate
for income tax purposes.
Speaker 2 (31:41):
You know.
Speaker 6 (31:41):
Then you have to think about, well, do I want
it to be a gift so that it's protected from
perhaps like the nursing home and creditors. But I want
to keep control over it. I want to be able
to enjoy it. I want to be able to control it,
maybe get the income. Well that's important because if I
do that, then I'm including it in my estate and
I'm going to get a step up in basis for
capital gains tax purposes on the item that's in there,
(32:03):
say my home that might be worth a lot of money,
or a rental property that I put in there. Oh,
I certainly want to get to step up in basis
when I die so that I don't have capital gains
tax for my beneficiaries to pay when they get it.
But I also want to reduce my estate taxes, and
then you have to run those numbers and see what works.
So in terms of this simply being a simple thing
(32:26):
that somebody does is absolutely incorrect. And so there's a
lot to think about that goes in there, and the
way we draft it changes based on that. Now it
is true that there are some people, some attorneys that
go out and just buy a package off the internet
somewhere and then sell it. We don't do that. We've
(32:46):
drafted our document. So our intellectual property. Like when I
started our trust was twenty five pages long, it's now
fifty Why because we add to it. We put our
own intellectual property into it. As laws change, as revenue
ruling come out, as issues we see with clients in
terms of how they get it come out, how you
leave the assets to the children to prevent fighting. So
(33:08):
I think there's an awful lot involved in there and
when you're doing this, and so I think you need
to figure out all of that when you're trying to
come up with what the cost is. And that cost
is unfortunately going to vary. It's a flat fee at
least at our firm, but it's going to vary based
on what kind of trust you're doing. What you know,
whether it's a qu pert, whether it's an irrevocable life
(33:30):
insurance trust or a medicaid trust. So I think that's
the safest and from everybody listening, you should get a
flat fee from your attorney before you would go forward.
I think flat fees are the way to go. That
way you know exactly what you're getting into before you
would you would actually, you know, do this kind of trust.
So I hope that helps a little. But folks, the
(33:52):
newest guide that's out there that we're doing for this month,
which is not just about estate planning, it's more about gifting,
which is exactly what some of the issues we were
talking about with this caller, and that is that when
you're gifting assets, you know, do I want to gift it?
Do I want to make something a gift one way
or another? Do I want to give it outright to
(34:12):
my kids? Do I want to hold it in espousal
lifetime access trust so that I can enjoy what I
gave away? Remember I said, you got to figure out
how can I enjoy what I gave away and keep
it outside my estate first date taxes. So that's where
spousal lifetime access trust comes in. You always got to
think about what kind of asset you're giving away, high
basis assets versus low basis assets. Think about it from
(34:35):
a medicaid nursing home perspective. You know, if I own
an account jointly with a non spouse, is it half
protected already? Is it not half protected? If I own
my house with somebody that's a non spouse, is it
half protected? Is it not half protected? So you got
to think about it from every angle when you're gifting folks.
The guide Getting the most out of Gifting assets is
eight six six eight four eight five six nine to
(34:59):
nine or Legal Exchange Show dot com New Guide for
the Month eight six six eight four eight five six
nine nine or Legal Exchange Show dot com.
Speaker 2 (35:11):
Todd talking more about the gifting side of things there,
how does one make the decision on what are the
kind of good assets to gift versus poor ones?
Speaker 1 (35:22):
Like?
Speaker 2 (35:22):
How do you decide when it makes sense to gift
versus not? Yeah, and that's uh.
Speaker 6 (35:27):
And again I know with our caller, I gave a
lot of information really fast, but this would be break
it down. One of the things I was trying to
explain to the caller, was you know, okay, I do
want to make an irrevocable trust. Now I want to
know if that irrevocable trust is going to be a
completed gift or not a completed gift. And then once
we determined from your question, Chuck, that it is going
(35:47):
to be a completed gift, now we have to determine
what asset should we gift? Easy, easiest one.
Speaker 2 (35:54):
Cash.
Speaker 6 (35:55):
Cash is always good. Why because there's no basis problem
with cash. Cash is cash. There is no built in
gain that I need to worry about. Whereas, Oh, I've
got this rental property that I bought thirty years ago
and fully depreciated it over time, meaning my basis in
the property is now a zero because I've rented it
(36:18):
for more than twenty seven and a half years. If
I give that away, let's say it's a million dollar
property and my basis is zero, now I've trapped for
my family twenty eight point eight percent capital gain on
a million dollars. Not just twenty eight point eight percent,
but the depreciation piece of the gain is taxed at
(36:39):
ordinary income, So the rate is not just capital gain,
but the appreciation portion of the gain is taxed as
ordinary income. I mean it's tax as capital gain. So
then you have to figure out that the rate we're
trapping is actually higher than that. So great question, Chuck.
I think that's just the beginning the tip of the
gifting Iceberg, if you will well as to what you
(37:01):
need to think about before you make a gift.
Speaker 2 (37:04):
Mister Lutski, thank you so much for joining us today.
Speaker 6 (37:06):
Are always a pleasure.
Speaker 1 (37:08):
This has been asked Todd 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 three nine
three four thousand and one or visit Cushingdolan dot com.
The views expressed in this segment are solely those of
(37:29):
Cushing and Dolan. Armstrong Advisory 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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