Is the Fed going to make another mistake today?

Chuck Zodda and Paul Lane preview the upcoming Fed meeting and Jerome Powell's speech and wonder if the Fed is going to make a repeated mistake. Why are companies suddenly finding ways to cut debt? Todd Lutsky joins the show to discuss common mistakes people make when starting their estate planning process.

Episode Transcript

(00:00):
The Financial Exchanges produced by Money MattersRadio and is hosted by employees of the
Armstrong Advisory Group, a registered investmentadvisor that provides investment advisory services. All
opinions expressed are solely those of thehosts, do not reflect the opinions of
Armstrong Advisory or anyone else, anddo not guarantee profit. Investments can lose
money. This program does not offerany specific financial or investment advice. Please

(00:21):
consult your own financial, tax,and estate planning advisors before making any investment
decisions. Armstrong and Money Matters Radiodo not compensate each other for referrals and
are not affiliated. This is TheFinancial Exchange, with Chuck Zada and Paul
Lane, your exclusive look at businessand financial news affecting your day, your

(00:41):
city, your world. Stay informedand up to date about economic and market
trends, plus break in business newsevery day. The Financial Exchange is a
proud partner of the Disabled American VeteransDepartment of Massachusetts. Help us support our
great American heroes by visiting DAV fiveK dot Boston and making a donation today.
The DAV five K Boston is presentedby Veterans Development Corporation This is the

(01:07):
Financial Exchange with Chuck Zutta and PaulLane. A very happy fed Day to
those of you who celebrate. It'sChuck, Paul, and Tucker with you.
And at two pm today, theFederal Reserve is going to announce their
latest interest rate decision. Expectations basedon the Chicago market will Exchange is FED

(01:29):
Fund's futures market suggesting in ninety sevenpoint five percent chances they leave rates unchanged,
So markets are not really expecting toomuch in the way of any immediate
shift. But I think, Paul, the question is and it's it's it's
brutal that this is the question thatwe have to deal with. What does

(01:49):
Jay Powell say after and what doesit mean? Help me understand, Paul,
We're gonna have to parse through everysingle word that comes out of j
Powell's mouth at two thirty. Iwould imagine that the messaging Chuck would be
more reinforcement on keeping rates higher forlonger, rather than striking a hawkish tone,

(02:09):
but also reinforcing the need to sortof look through upcoming economic reports.
I mean to me, that's themost measured way to present your messaging.
I'm curious if you think if heneeds to deviate from that message or just
kind of keep it as status quo. In terms of the messaging that has
echoed from the FEDS over the lastthe FED chair the last couple of weeks

(02:31):
here, well, I think they'vethey've kind of boxed themselves into looking not
smart. And that's the problem isthat the Powell, the Powell Fed,
has a history of doing these kindsof things. And what I mean by
this is if you look back,excuse me, if you look back at

(02:53):
some of the mistakes that the PowellFed has made, they're largely when they
start talking, I know that wecan talk about their actions too. Bullets.
Twenty eighteen, end of the year, things are starting to get a
little bit dicey in markets, andPowell says, hey, we're a long

(03:15):
way from neutral. Remember the Fedhad been raising interest rates in twenty eighteen,
and everyone was saying, oh,like they're gonna hike you know,
all these times. In twenty nineteen, the market broke at the end of
the year and almost fell into bearmarket territory, to the point where Steve
Nusian, who was Treasury Secretary atthe time, comes out and says,
hey, guys, there's no financialstress in the banking system. You don't

(03:37):
have to worry about it, Andof course no one was. But now
you hear that and you're like,wait, is there something we need to
be worried about? Powell never hikedagain in that cycle. Twenty nineteen,
they revise their inflation framework again.They're writing about this. They're like,
oh, we're gonna target average inflation, you know, blah blah, and
it completely blew up in their facebecause then they didn't have a strict enough

(04:00):
work for dealing with the explosion ofinflation in twenty twenty one and twenty two
during that time. Might add communicationproblems. Hey we still think inflation is
transitory. Remember that whole debacle.Sure, remember that whole thing. So
you have all of that that you'redoing, and then sticking with the communication
side of things. December twenty twentythree, well this is the big four

(04:23):
months ago. This is the bigone. They there's no need to They
don't quite have a parade. Butthere might as well have been balloons in
Jay Powell's press conference because it wasbasically like, hey, we beat this,
we whipped it. It's done,and now the question is, what

(04:45):
are you going to say. Butthe other piece that I think you have
to focus on it when it comesto this, is at what point do
we stop caring what the Fed saysbecause what they've been saying has been wrong
in a lot of cases. It'sa fair point to make. I mean,
certainly you can point to what wesaw in December. To me,

(05:06):
what blew me away was the market'sreaction to that, because I think we
reaction was right. If the Fedsays they're going to cut no, it's
just how emphatic it was. Youknow, we saw markets rise eight or
nine percent over the course of themuddle, and that was coinciding with that
looser FED policy. But we sathere and thought, gee, it seems

(05:29):
like this is a little ahead ofschedule to be declaring victory or totally very
close to victory on inflation. Andthe markets took them at face value,
the words at face value, andwe saw significant run up in assets from
there on out, and that momentumhas transitioned throughout this year. But at
this point in time, it isa fair point to make, why should

(05:49):
we put any stock because ultimately,in what Japal was going to say,
because ultimately what's going to dictate iseconomic reports at their actions. So why
are we putting so much weight intohis words? Perhaps thinking that he has
a better view, a better crystalball than the investor community, but I
don't think that's the case. It'sclearly not. Probably ever watched the movie

(06:12):
Pacific rim No, Tucker, whatabout you? Nope? Fantastic film twenty
thirteen, Germo del Toro. Itis giant robots piloted by humans fighting monsters
from another dimension. It's everything youwant in a movie. It's just it's
it's great. I'm gonna spoil somethings, but it's been eleven years so
it's okay. So Charlie Huntum,who is the main character of the movie,

(06:38):
his brother is killed at the beginningbecause they think they've killed one of
these monsters and in fact they haven't, and it comes back and kills his
brother, who's piloting the robot withhim. About two thirds of the way
through the movie, the robots areclosing in on I think it's Hong Kong
and they get him and his newcopile get in a fight with another monster

(07:00):
and they kill it and they startmoving on. They're like, wait,
no, we need to go backand make sure it's dead before we go
and fight the next one. Andthey come back and like just stop the
thing, like they make sure it'sdead. This is what the FED needs
to do with inflation. Is youdon't just leave the monster bleeding and say,
well, we think it's dead,because that's kind of what they did.

(07:23):
Like they did a good job ofgetting the monster down and out,
but it's not dead yet. Andyou have to with inflation. I can't
say this enough. You have tojust pound it into oblivion. You have
to make sure that it's dead beforeyou take your foot off the accelerator,
because if you don't, it comesback and kills your brother. That's what

(07:47):
inflation does. I did not expecta specific rim analogy to the FED policy
and inflation, but definitely landed theplan on. I'm not going to knock
you for that. It's Giermo delToro at his best. I'll even add,
and this is not just a youknow, this is not just me

(08:07):
saying this. Seventy fresh on rottentomatoes. Pretty good for a movie about
giant robots fighting monsters from another dimension. Great cast, too, might add,
has Charlie Days in it, notIdris elbra Idris Elba, Ron Perlman.
You know, great cast, sofantastic one. If you want to

(08:28):
check it out in inflation adjusted terms, it's probably available for minimal cost and
most streaming services, I would imagine, I would imagine. So this is
where we sit as as we headinto another FED day. It's are you
going to be able to finish thejob? And the thing that you have
to look at now in light ofa disappointing GDP report that you had last
quarter, is, hey, howdo you try to balance the potential risk

(08:54):
of a slowdown compared to inflationary bounding. It gets a little challenging to do.
So the FED is now in aposition where they've got a really tough
needle to thread, and it's kindof of their own doing because they let
inflation creep back in through their talking. And that's why, ultimately my thought
was just keep it with the verybland messaging of you know, we're just

(09:18):
gonna continue keep rates where they are. We feel they're in a good place.
We'll continue to digest that as itcomes out. It's like, you
know, coaches and athletes after thegames, the press conferences, the real
boring speak where they just say abunch of cliches that ultimately mean nothing.
That's probably the best approach here,and Mike said it best yesterday saying,
quoting Paul Rudd and forgetting Sarah Marshall, just do less. He nailed it.

(09:39):
Okay, First of all, Itold Mike about that we had a
whole do you remember what Paul Rud'sname was, and forget its quoted Paul
Rudd's name in that movie, Awhole thing about this. So I'm taking
credit for Mike saying that, well, he he leveraged it like it was
his own. Don't want to starta little bit of a I'm breuhaha here
between the two hosts, but I'mout for one and all my materials be

(10:01):
coupled co opted. It's just man, you think you know someone and then
they go and steal your kunu.Let's take a quick break here. When
we come back, why don't wetalk a little bit about what companies are
doing on the debt side of things. We've got higher yields and they're forcing
some changes in terms of how companiesapproach debt markets given those higher yields.

(10:26):
This is your home for the mostcomprehensive coverage of the economy and the trends
on Wall Streets the Financial Exchange RadioNetwork. The Financial Exchange Show podcast drops
every day on Apple, Spotify,and iHeartRadio. Hit that subscribe button and
leave us a five star review.You're listening to the Financial Exchange Radio Network.

(10:52):
This segment of The Financial Exchange isbrought to you in part by the
US Virgin Islands Department of Tourism.Visit the US Virgin Islands. Excuse me.
The US Virgin Islands is the perfectdestination for your next vacation at Joy
San Croix, Saint Thomas or SaintJohn and Joy Pristine Beaches, world class
dining and fall naturally in rhythm withthe heartbeat of the Islands. There's no

(11:13):
passport required or money to exchange.Go to visit USVII dot com and book
your trip today. That's visit USVIIdot Com headline from the Wall Street Journal.
Companies begin cutting debt due to highinterest Rate's Paul, what is going
on here? What we've seen,Chuck, is a lot of companies went
into this year, as we talkedabout in the first segment, anticipating perhaps

(11:37):
that the FED would cut rates threetimes this year. As we've well documented
on the show, that has notbeen the case. So they haven't been
at that path thus far through thefirst four months of the year. And
as a result, what we're seeingfrom these companies under the premise that perhaps
rates will remain higher for longer,is that they are really scrutinizing the debt
that they have in place. Whetherit's domestic companies here such as Newmont,

(12:00):
which is a gold mining company,a lot of these companies out there in
Europe as well are significantly de leveragingtheir balance sheets, particularly those that are
what are called investment grade, whichare companies that are rated high from a
credit perspective and have a very strongbalance sheet. Previously, they had been
issuing debt under very favorable terms inthe COVID era where interest rates were incredibly

(12:22):
low, and it was smart froma financing perspective to issue debt at these
low rates. Now with higher rates, you've got companies really scrutinizing their balance
sheet and taken some of the debtoff the books with the cash that they
have on hand. Here, Whenyou look at this, is this something
that you would expect to continue givenpersistently high rates that we're seeing right now.
Is this something that you think onceyou get through this initial wave,

(12:45):
it's kind of done, and anythoughts on it. I would think that
you continue to see this, particularlyfor those investment grade companies. It will
be a little bit different on thecompanies that are issuing higher yield bonds.
Those are typically companies of lower creditquality and perhaps could be you know,
some drilling or mining company out inthe West Texas station area and the energy

(13:05):
sector. You know, companies thatare not as well known and may have
more leverage balance sheets. They arein a different scenario where they kick the
can down the road on refinancing theirdebt, but ultimately it might reach a
point at the precipice where they're justgoing to have to reissue this debt and
that would allow for more issuance onthe high yield side of things, more

(13:26):
inventory on that side of things,but perhaps less on the investment great side
of things. I think this wholeyield conversation in general is going to come
up, whether we're talking about thecommercial real estate market and refinancing those loans.
A lot of people or a lotof companies have tried to delay those
decisions, but ultimately, the longeryou wait and the longer interest rates stay

(13:48):
where they are, then just themore likelihood that you're going to have to
make that decision and the activity pickup. One of the pieces that's kind of
interesting to me is that when youlook at a high yield spread, it's
effectively the difference in what you geton a high yield bond compared to you
know better, you know, higherrated debt. You haven't seen some of

(14:11):
the blowouts that we've seen previously,so the the the bad of the bad,
the triple C or below debt.There is a spread. I think
it's put out by Bank of America, maybe it's someone else, but it's
the US high yield triple C orbelow option adjusted spread, and basically it
corrects for you know, duration,things along those lines. During the tech

(14:33):
bubble, this spread blew out toalmost twenty five percent, meaning that on
the worst of the worst debt,even getting like twenty five percent compared to
above US Treasury rates, it's prettydarn impressive. During the Great Financial Crisis,
which once in a lifetime event hopefullyless than that. Quite honestly,

(14:56):
because I don't really want to evensee my kids have to go through or
something like that, that spread blueout to almost forty five percent during the
twenty sixteen oil pumping not fiasco,but basically Russia to decide they were gonna
pump a bunch of oil and withtriple C rated barwers. A lot of

(15:18):
them tend to be in the energysector, so you tend to see it
impacted by that kind of stuff.That spread blood to almost twenty percent nineteen
point seven two during the outbreak ofCOVID nineteen and early twenty twenty that spread
blood to eighteen point sixty one percent. It normally sits somewhere in the six

(15:39):
to ten percent range to eight pointeight two. As of the last date
that I have here, which isthe twenty ninth of April. To eight
point eight two, you're not seeingany signs of fear in the bond market.
So even though like companies are doingthis, and part of it might
be when you're in that high yieldspace, hey, you know, can

(16:00):
we figure out ways to refinance withit? You know, take you know,
pay a chunk of it down,but refinance the rest of it.
Are there things that we can dowhile yields look pretty attractive even you know,
even at higher nominal rates, you'restill low by historical terms. I
mean, it's something where if youlook at how bad things get when the

(16:21):
economy gets stressed, yes, youmight have to pay twelve or thirteen percent
for you know, financing your debt. Now, if you're a high yield
borrower during the tech bubble, youwere paying thirty percent. You know,
like it's again in Some of thesecompanies have seen that before. They've they've
been around the block a couple times. So I look at this and where
things are right now, and itis fascinating to me that there are almost

(16:47):
no signs of fear in the bondmarket of corporate defaults. So, even
with this being talked about as companiesare maybe trying to be proactive, there's
no fear at all in the bondmarket that's priced in right now. It
seems to ring true across all ofthe debt market in general, that the
impact of increased rates has and we'reseeing it with the inflationary data right and
everything from the economic set of things. There's always a lag to it,

(17:11):
right check, but it seems likeit's been a long lag or it just
seems like it's taken a long timeto really cause any sort of ripple effects.
And that's because a lot of companiesand households were locked in at lower
rates that we had preceding the inflationaryperiod in twenty twenty two. Here's the
other piece that I'll say on thisis that we haven't seen a period of

(17:33):
high inflation in the United States infifty years. Right, you gotta go
back to the seventies for the lasttime we saw anything meaningful. When you
have inflationary periods, Remember, debtis not priced based on inflation. It's
not priced in real terms. It'spriced nominally. So if I owe you

(17:53):
a billion dollars, and let's saythat my income in and in a given
years ten billion dollars as company acts, Okay, my debt service is ten
percent of that, I'm paying youa billion dollars a year on you know
that. That's what I was tryingto say. Let's say I'm paying you
a billion dollars an interest if inflationhappens, and now I'm making my margins

(18:15):
stay the same and everything. Butnow instead of making ten billion a year,
and now let's say I'm making twelve, I still only owe you a
billion. It's easier for me topay it just because of inflation, all
else being equal. Now that's notthe case in reality every time, because
all else isn't always equal. Sometimesother costs go up meaningfully, and so

(18:38):
maybe you don't make as much moneyin your business, or maybe you're running
your business badly, whatever it is. But when you have inflationary periods,
debt that you took out previously becomeseasier to pay off because it doesn't go
up by the rate of inflation.You still owe the same amount. What
these companies are trying to do isget ahead of Hey, if I need
to, you know, roll abunch of this over. Are my interest

(19:00):
costs going to go up? Andthat's why maybe they're paying a little bit
of a down and then refinancing,you know, with haigh end at this
point. So I think these areall things that are informing what's going on
with corporate borrowing right now in termsof how these companies are approaching it and
what we're seeing out there in thebond market. To take a quick break

(19:23):
here, but when we come back, we got Wall Street watch, and
then we're gonna be joined by ToddLotski from Chushigan Dolan for Ask Todd.
Like us on Facebook and follow uson Twitter at TFE show. Breaking business

(19:48):
news is always first right here onthe Financial Exchange Radio Network. Time now
for Wall Street. Watch a completelook at what's moving markets so far today
right here on the Financial Exchange RadioNetwork. All lies are on the FED
today as Wall Street awaits the conclusionof their meeting, where no moves are
expected in terms of interest rates.However, investors will be glued to remarks

(20:14):
from FED Chairman Jerome Powell during hispress conference later at two thirty. Right
now, the Dow is up byforty nine points, SMP five hundred is
down by about a quarter percent,and the Nasdaq off by twenty seven points.
Russell two thousand is flat, tenyear Treasure Reel down by three basis
points, now at four point sixtyfive percent, and crude oil down nearly

(20:37):
one percent, trading at eighty onedollars and twenty two cents a barrel.
Amazon up by three percent after thetech and e commerce giant posted a strong
leap in first quarter sales, drivenby an AI boom in its cloud computing
units revenue jumped thirteen percent in thequarter to reach just north of one hundred

(20:57):
and forty three billion dollar, anall time first quarter high for the company.
Chuck and Paul will dive further intoAmazon in the second hour of today's
show. Meanwhile, Pfizer beat firstquarter revenue forecast and also hiked its full
year profit guidance, sending that stockup by two and a half percent.
Elsewhere, a CBS Health share isplunging by nineteen percent after the drug store

(21:22):
chain and health company posted weaker thanexpected first quarter earnings and revenue. Furthermore,
CBS slashed its full year profit outlook, citing higher medical costs. AMD
shares down by seven percent after thechip maker said it saw declining revenue in
its gaming graphics chips. And anotherchip maker, and super micro Computer,
saw its first quarter sales more thantriple but fell short of expectations. That

(21:48):
stock down by sixteen percent. I'mTucker Silvan, that's Wall Street Watch.
This is asked Todd on the FinancialExchange Radio Network. If you have an
existing estate place or in the marketfor one, Todd Letsky is here to
answer your questions and help you planfor a later life. Ask Todd is
presented by Cushing and Dolan, servingMassachusetts and New England for more than thirty

(22:10):
five years, helping families with estateand tax planning, Medicaid planning, and
probate law. Visit Cushingdolan dot com. Now here's Todd Lutzky as promise.
We're now joined by Todd Lutsky fromthe law firm of Cushing A. Dolan
for Ask Todd. It's your chanceto ask Todd your questions about your estate
planned, live on air right now. The phone number here for the studio

(22:33):
is eight eight eight two zero fivetwo two sixty three. That number again
is eight eight eight to zero fivetwo two six three. So get calling.
If you got a question about yourestate plan, or you're lack of
an estate plan, maybe want toask Todd about that. That phone number
again is eight eight eight to zerofive two two sixty three, and we've

(22:56):
got the phone lines open, Soget Dilan again at eight eight eight two
zero five two two six three.Mister Lutsky, how are you. I'm
never better on you. I'm doingokay, yeah, just okay. Well,
I uh, I had a secondjob as a human cannonball. You
did, I did how'd that gogot fired? Oh, well, that's
true, that's what happens. Yeah, problem Todd. Let's talk a little

(23:18):
bit about a basic will. Whatpercentage of families do you think can get
by with just using a will fortheir estate plan? You know, that's
just such a common question, anda good one. I mean, at
the end of the day, peoplethink that they'll come into the office and

(23:38):
they'll say I pretty much have ant. No, they don't say I have
an estate planned. They say Iwant an estate plan, or they'll say
I need a will because that's myestate plan. They think the will is
their entire estate plan. That's usuallywhat I hear. And again, you
know, the new guide is aboutpotholes. This is certainly a pothole to
avoid in the estate planning world.Why let me let me start off by

(24:00):
saying, you know, a willis a won't. I know it sounds
funny, but a will it doessound funny. Yeah, a will won't
avoid probate. And you think itdoes, but it doesn't. It's the
only estate planning document that goes tothe probate court. A will will not
reduce your state tax liability. Sothat's a problem because mostly we want to

(24:22):
do that, so it won't avoidprobate, won't reduce the state taxes,
and won't protect assets from the nursinghome because it just doesn't. So,
folks, three major things that mostpeople want to accomplish when they do an
estate plan, the will won't accomplish. Now, having said that, if
you're going to do no other planning, I'm going to say, at least

(24:45):
do a will. At least it'sgoing to direct where your assets go when
you pass, so that your wisheswill be accomplished in terms of how your
family gets it. Because if youdon't at least do that, you are
going to be own into this thingcalled the intestate succession statue. That doesn't
sound fun. The heck is thatright? That is the government. Each

(25:08):
state has their own statute that tellsus where your assets go. If you
don't and it's not where you thinkit might go, It's like a big
plinko board where the ball falls downand says, Okay, if you died
and you left kids and a spouse, look here. If you left no
kids and just a spouse, lookhere. If you don't have either of

(25:30):
those, then go look over here. And it works. Its way down
the line into the next closest nextof kin, which is not how it
always how you always think it mightbe talking with Todd Letsky from the law
firm of Cushing A. Dolan ifyou've got a question that you'd like to
ask him about your estate plan.The studio line here is eight eight eight
two zero five two two sixty three. That is the number to call to

(25:53):
ask Todd your question right now,live on air again eight eight eight to
zero five. I've two two sixthree Todd. How often should a family
review in a state plan that they'vealready made? Great question? Another thing
that comes up right. There isno hard and fast rule, but I
think at a bare minimum. Youknow, if I've done it between ten

(26:17):
and fifteen years ago, I thinkyou need to dust it off right.
It depends how old you were whenyou did it. I get it,
and that's always important. Couple thistimetable I'm giving you with age, and
it matters because if I did thiswhen I was fifty and I'm now sixty
five, I probably did a revocabletrust. I'm sixty five now and I

(26:40):
need to revisit what my asset limitsare, what my assets have grown to
or failed to grow to, andthen figure out whether or not I'm concerned
about nursing homes, which I mightnot have been when I did my planning
initially. So that's just one reasonto review your estate plan. Frankly,

(27:00):
that's a big pothole to avoid.Don't just do your plan and forget about
it. You know, you sayset it and forget it. That's not
always the way to go. Talkingwith Todd Lutsky from the law firm of
Cushing and Dolan. Again, thestudio line here if you've got a question
for Todd is eight eight eight tozero five two two sixty three. We're
gonna take a quick break, butwhen we come back, it's right to

(27:21):
your calls with Todd Lutsky eight eighteight to zero five two two sixty three
Your calls when we return. AskTodd with Todd Lutsky every Wednesday at ten
thirty only here on the Financial ExchangeRadio Network. You're listening to Ask Todd
with Todd Lutsky on the Financial ExchangeRadio Network. As promised, let's get

(27:51):
right to your calls with Todd Lutsky. First up, we've got Mary Anne
in Spencer, Marianne what's your questionfor Todd? Hi? Hello, Hi,
thank you for all your wonderful information. You're welcome. I have five
accounts and you mentioned one which oneyou should use to pay your monthly bills?

(28:15):
I have Social Security, a pensionplan, a four oh one k
IRA, and savings account. Whichaccount should I take money out to pay
my monthly bills? Well, Iassume all these accounts that you're mentioning are
in your own name, are they? Yes? So I would just say

(28:37):
that your whatever your savings and checkingaccount is that that you have where you
get your direct deposits, social Securitycheck and pension check, et cetera.
Into I mean, it would seemto me that that would make the most
sense just to use that money topay your bills regularly, and then as
you need additional money to live on, I would always spend the IRA first
as a general rule, simply becauseleaving iras to family members when you die

(29:00):
under the Secure Act isn't always themost tax efficient way to go. That's
number one, because they have totake it out over ten years. And
number two, you know it's certainlynot protected from the cost of long term
care, so that would be goodmoney to spend when you need, like
extra money to spend. But Iwould think if you're able to live off
of your your Social Security and pensionchecks and your required minimum distributions that end

(29:23):
up into your personal checking and savingsaccount, I just pay my bills right
out of there. That would seemto make the most sense. So hopefully
that was helpful, and certainly thanksfor the call. And folks, you
know, let me tell you aboutour new guide. Since it's the beginning
of the month and it is anew guide, it's estate planning potholes to

(29:44):
avoid right. It deals with thingsthat you need to think about, like
don't sit back and say I'm relyingon my will, I have an estate
plan, I'm done, I gota nominee realty trust. I'm in good
shape. You know. No,those are all bad things to think about,
right, Learn why they're bad andexplain what you these. This guy
will explain why those are bad andwhat you can do to not to correct

(30:06):
that problem. You know, I'vedone my estate plan ten years ago.
I'm all set. Maybe not,you should take a look at it.
Don't think your estate's too small.I I got no reason to do this
right, No, you should readthis and find out why it too small
is no reason not to plan,and maybe even what is too small?
Right, So there's plenty of notonly the potholes, but the reasons and
how to fix the potholes. Soif you've done your estate plan in the

(30:30):
past, great for you. Youcan learn and check it and see if
you need to upgrade. And ifyou haven't done your estate plan, really
gives you some ideas to get startedand how to avoid what you might be
doing when you do your estate plan. Call and get the guide new for
the month, Estate Planning Potholes toAvoid eight six six eight four eight five
six nine nine or Legal Exchange Showdot Com again eight six six eight four

(30:56):
eight five six nine nine or LegalExchange Show and learn how to avoid your
estate planning potholes. Todd, I'vegot another one for you here. Let's
go to Dave in Attleborough. Dave, you are on with Todd Lutsky.
Good morning, Todd, Good morning. I have a situation where about nineteen
years ago, my parents sold metheir primary residence, their house, for

(31:18):
a dollar. We put it intoa revocable family trust that we have some
other properties in recently, my fatherthe last one passed away, and now
we have possession of his house.And what I would like to know is
we're going to sell our primary residence, which we've been in for thirty years,
so we've got pretty good most basison that. But should I establish

(31:40):
his house as my primary residency fortwo years to avoid a big capital gains
tax bill? So which house areyou selling? You made it sound like
you were selling your primary residence?Are you selling the one that he gave
you nineteen years ago? No,I'm selling my primary residence right now.
Okay, So a couple of problemshere that I see. So One,

(32:00):
you didn't just get possession of thehouse. You've had possession of the house
since nineteen years ago when he gaveit to you. Now, my only
question that I might have is didhe reserve the right to live there?
Or did he just give you thehouse? Outright now? He reserved the
right to live there? Ah,big difference, big difference. So thanks
for that peace. So because hereserved the right to live there. Again,

(32:23):
I don't love this approach, butit did work out. It sounds
like anyway it worked out for you, Dave. So what happens here is
and you need to know this whenyou go to sell this property. I
know we're talking about your primary residence, which you'll address in a minute,
But if you go to sell thisproperty, your father, because he kept
the right to live there, saysthat he gave something away, but he

(32:45):
reserved the right to enjoy what hegave away. So the government's going to
include that in his estate for astate tax purposes, thereby getting a step
up in basis. So if thatproperty is worth six hundred thousand on the
date of dad's death, it's asif you paid six hundred thousand dollars.
You can just sell it tomorrow andyou have zero capital gains tax liability on

(33:08):
that property because six hundred minus sixhundred is zero. So no need to
move in there and try to ownit and use it as your primary residence
for two years. If you're goingto be selling it sooner rather than later
because of the increased basis you gotall because of that reserved life estate versus

(33:29):
having given it away outright. Withregard to your house, Dave, yeah,
you probably bought it a long timeago, probably have a very low
basis and are looking at a largecapital gain. However, if you're married,
and you've owned and used it asyour primary residence even though it's in
a revocable trust for two of thelast five years. You have got the

(33:51):
ability to shelter five hundred thousand dollarsof that gain because it's your primary residence,
and that should help soften the estate. Are the capital gains tax blow?
So hopefully that was helpful and hopefullywe've addressed all the issues. Todd,
I've got one more for you.We've got to be quick since we
only have a couple minutes, butlet's go to Mike in Westfield. Mike,
what's your question for Tom Lutsky?Todd, A very good question.

(34:15):
Are basically, we have a revocabletrust that was set up about five years
ago by Cushion Dolden, and Iwant to know basically, at what point
in time basically do we change orwe basically move it to an irrevocable trust.
My wife is sixty five, she'sretired, I'm sixty I'm sixty four,
but i'm sixty six, I'm stillworking. At what point in time?

(34:37):
I'm going to tell you that's agreat question. That's actually stuff that's
in our guide folks. So Theseare the kind of questions where you're answering
in the guide, so make sureyou get it. But great question on
your part is, hey, ifI've done my planning ten fifteen years ago,
i'm older, now this is thetime to do it. Right to
me, When you have done yourplanning a while ago and you're now older,

(34:59):
you should read, visit your situation, look at your net worth,
see how much it is. Imean, obviously, if it's up over
six seven million, you don't needto bother. But if it's if it's
down in you know, two threemillion dollar range, you say, you
know what. I'm older. Iwant to reduce mass estate tax, which
I can do, but I alsowant to protect these assets from the cost
of nursing home care, in whichI didn't care so much about before when

(35:23):
I did it. So sixty fiveis the rule of thumb. When clients
come in and I've never met them, right, if they're sixty sixty five
and over, one of the questionsI'm going to ask is is protecting assets
from the nursing home important? Sothat's the age I think about it.
So for you, Mike, sixtyfive and sixty four is the perfect age

(35:45):
to revisit your estate plan, determinewhether or not protecting assets from the nursing
home is even important to you,and if it is, then learn how
to make that change and how thoseirrevocable trusts work. So you're right on
schedule, I'd make the call,mister Watski. Thank you so much for
joining us today. We appreciate thetime. Always a pleasure. Thanks for
having me. This has been AskedTodd on the Financial Exchange Radio network.

(36:09):
Ask Todd with Todd. Lutsky hasbeen presented by Cushing and Dolan, serving
Massachusetts and New England for more thanthirty years, helping families with the state
and tax planning, Medicaid planning,and probate law. Call eight hundred and
three nine three four thousand and oneor visit Cushing Doolan dot com. The
views expressed in this segment are solelythose of Cushing and Dolan. Armstrong Advisory
does not provide any legal or taxadvice. Please consult with your legal or

(36:30):
tax advisor on such matters. Cushingand Armstrong do not endorse each other and
are not affiliated. Creating the rightestate plan to help secure your future takes
effort there are plenty of mistakes thatyou can make, any one of which
could have a dramatic and damaging effecton your financial strategy. Cushing and Dolan
are experts in estate planning. Theirbrand new guide is called Detour a Head

(36:51):
Estate Planning Blunders to Avoid. Init, you'll learn about these critical alayors
so that you can make the rightdecisions to always protect your assets. As
an example, if you've created atrust more than ten years ago and haven't
updated it since, you're setting yourselfup for problems. Cushing and Dolan's new
guide will help you address issues likethis. So call right now eight six
six eight four eight five six ninetnine and ask for your copy of our

(37:13):
new free guide called Detour Head EstatePlanning Blunders to Avoid. That's eight six
six eight four eight five six ninetnine, or requested online from their website
Legal Exchange Show dot com. That'sLegal exchange Show dot com. The proceeding
was paid for and the views expressedare solely those of Cushing and Dolan.
Cushing and Dolan and or Armstrong Advisorymay contact you offering legal or investment services.
Cushing and Armstrong do not endorse eachother and are not affiliated,