September 17, 2025 • 37 mins
Chuck Zodda and Paul Lane explain why interest rates aren't the most important aspect of the economy. The two-speed economy is back as low-income Americans give up gains. Todd Lutsky joins the show for his weekly segment, Ask Todd. This week, Todd explains beneficiary designations on IRAs.
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Speaker 1 (00:00):
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(00:42):
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donation today. This is the Financial Exchange with Chuck Zada
(01:06):
and Paul.
Speaker 2 (01:06):
Lane, Chuck, Paul, and Tucker with you here on a
FED day. The Federal Reserve Open Market Committee has been
meeting since yesterday. They don't actually just like meet at
two pm and vote quickly. We get the results of
(01:29):
what they decided to do at two pm. But Jay
Powell and the gang have been meeting. Lisa Cook is there,
Stephen Moran is there. So it's one of the most
not to get like all Bachelor on you, but it's
the most dramatic season of the FED ever, Paul, and
(01:51):
that's what we have as we enter today's FED meeting.
It's wide. We expected that the Federal Reserve is going
to cut interest rates by a quarter percent. Outside chance
that they cut by half a percent, but I would
say that would be very surprising if if they move
forward in that direction. Also very likely that you have
(02:13):
at least a couple of descents to the fifty basis
point side of things. The open question, I think is
do you get one or two descents to the other side,
maybe saying, hey, keep rates steady because we're concerned about inflation.
I don't know if we're going to see that, but
we might other things that are going to be very interesting.
We get a summary of economic projections today. The step
(02:35):
which is also referred to as the dot plot basically
where do FED officials think unemployment, GDP, growth, interest rates,
and inflation are going to be by the end of
this year, the end of next year, and in the
long run, and so it all adds up to the
(02:56):
most dramatic season in FED history. Your thoughts fall.
Speaker 3 (03:02):
The meeting today, The biggest focus is going to be
more on the drama like you would see on The
Bachelor or other reality shows out there, and less road
less than what is actually going to what are the
results going to be from the meeting, because we know
it's very telegraphed, or rather telegraph that we're going to
(03:23):
see that quarter of a percent cut, But a lot
more of the discussion points are going to be around
the descents or the quarterly economic productions, and what do
these new appointees in Steven Miriam's case, perhaps you know,
what what feedback do we are we able to parse
out from from his appointment, as well as any of
(03:46):
the quarterly economic projections that deviate from perhaps consensus. And
then you know, as you alluded to, the dissenting piece
that really is going to be the major focus with
those quarterly economic projections because we are so close to
the end of the year. Any sort of projections as
to where interest rates are gonna end this year by
(04:07):
the FED members is going to be really heavily considered
because there's only a couple of months left in the year.
So you're gonna we're gonna have a really good sense
for what the FED feels like they need to do
over the course of the next couple of meetings. Of course,
those projections are always subject to change, but right now
we have it where it's it's three rate cuts that
they're projected by the end of the year, right.
Speaker 2 (04:29):
So that's what the that's what the Chicago mark No
Exchange has right now. So I think this step is
going to be the most interesting part of this because
quite honestly, like all of the noise about like, oh,
how many descents are they're gonna be in this, Like
I don't care, like the drama stuff I'm talking about,
Yeah exactly. So you know, look, do I think it
(04:51):
would be great if we actually had you know, a
FED big brother, you know, for like I would stick
them all in a house for two days and like
have camp on the whole time and see what happens. Yes,
like here, have a few beers. J Powell like do
your thing. Oh like here, you know, Steve, you're new
to the house. Like here's your little hat with the
propeller on it, like like, yes, I'd love to see
(05:12):
these things. But ultimately it's not what matters to the economy.
What actually matters is what the FED guides at, what
the Fed says they're going to do, and how they
guide they're going to in the future. And so Tucker,
can you get the time machine queued up for us?
We don't have to go back too far, so you
don't need to, you know, get the thing, you know
too jacked up. But there we go.
Speaker 4 (05:35):
All right, we're.
Speaker 2 (05:36):
Going back to June of twenty twenty five. It's kind
of warm, but it's also been a really rainy spring
and so no one really likes it around here very much.
Speaker 3 (05:44):
All these weekends are ruined.
Speaker 2 (05:46):
Every weekend's been ruined for thirteen weekends straight, and people
are just hoping that it's really dry the rest of
the summer, which it is. Here's what we had in
the March step from the Fed. They thought ge this
year will be one point seven percent. They then downgraded
it in the June one to one point four slower growth.
(06:06):
They also thought the PCE inflation in March was gonna
come into two seven with core at two eight. They
upgraded those to three zero three one, respectively. So basically
what the Fed told us was, Hey, we're gonna have
slower growth this year and more inflation. But the FED
funds rate projection for year end was three point nine
percent unchanged. The Fed basically saying we are willing to
(06:30):
accept for this year slower growth and higher inflation. We're
not gonna cut rates into that. That's what they told us.
So what's gonna be interesting for me is the guidance
to the end of this year. I'm kind of interested in,
but look, it's three months away and it's not gonna
make a huge difference either way. I think, Look, if
(06:52):
we're gonna be completely honest about this, the difference between
a quarter percent and a half percent rate cut is nothing.
When we talk about like Feds that make mistakes like
the nineteen seventies, or even you want to talk about
like early twenty twenty two, it's the ones that are
off by like two or three percent in the wrong direction,
(07:12):
and you're like, guys, what are we doing here? You're
raising rates a quarter percent when inflation's at nine Come on,
pick up the pace here, like Jay, Arthur, what are
we doing here?
Speaker 4 (07:24):
Guys?
Speaker 2 (07:25):
Like this is the problem. So if the FED is
directionally wrong by an extra quarter percent, it doesn't matter. Like,
I'm not gonna ever criticize the FED for going like
a quarter percent too far because it doesn't matter to
the real economy, meaning in a meaningful enough way.
Speaker 3 (07:42):
No, the only reason that it would be something that's
noteworthy is that, jeez, does the FED know something that
we don't? Is the labor market even worse than we
anticipated if they were, for example, to go half percent today.
Speaker 2 (07:54):
And this is why I think that the twenty twenty
six guidance which they do give is gonna be really interesting.
Here's what they guided in September. This is for next
year twenty twenty six. They thought real GDP was gonna
come in at one point six percent, unemployment rate four
point five PCEE, inflation two four core PCE two four,
(08:15):
So basically saying, hey, GDP is gonna accelerate a little
bit from twenty twenty five, inflation's gonna cool and we
think because inflation's cooling and GDP still isn't where we
want it to be, fed FUNDRA at the end of
next year three point six percent. So the interesting piece
(08:35):
here is going to be what they tell us about
their path next year and where they think they're gonna
because honestly, if they're off by like a quarter percent
by the end of this year, doesn't matter. If they
tell us, hey, we think unemployment is gonna be four
six or four seven, and GDP growth is gonna be
(08:58):
one two and PCE is gonna be two three. Now
they're telling you, yeah, we think there's a problem in
the economy that's gonna materialize, and we got a cut
in order to get in front of it. The interesting
one to me, given all the talk about the labor market,
and not just labor demand but labor supply. We've talked
about this a ton the last couple months, in that
(09:20):
the combination of baby boomer retirements and immigrant deportations is
creating a labor force that is growing at a much
slower rate than last year, or potentially even shrinking very
slightly this year. And so could you end up with
like something weird where the Fed says, hey, GDP growth
next year is gonna be you know, one to six. Still,
(09:43):
the unemployment rate we think is gonna be four to
two pc. Inflation's gonna be like two seven, so hotter
than they thought. But we're still gonna cut because we
can't control labor supply and we see real risk to
labor demand if we don't cut. Like these are some
of the just weird things that we have to consider
(10:05):
right now because the labor market is quite honestly in
a place where we have never seen it as Americans before.
There's never been a time when we've had good economic
data where we've been able to say, hey, there are
real questions about labor supply as a limiting factor in
the job market.
Speaker 3 (10:24):
No, it's a subject that's never you've never really think about.
Speaker 2 (10:27):
America did not exist when the bubonic plague was you know,
a big thing, and we didn't have economic statistics that
were reliable back then either.
Speaker 3 (10:35):
And it's it seems like, unless I've missed something, is
there really a good statistic to track the supply pieces?
Speaker 2 (10:42):
Not really like all estimates, we have no idea what's
actually going on with labor supply. The estimates that we've
seen that I've seen personally are that anywhere between three
hundred thousand and one point five million mcgrants are no
longer in the labor force now. But that's a wide range.
(11:04):
I mean, that's almost one percent of the total working
population that you're talking about there in that range of estimates.
And so there are vastly different things that that means,
depending on you know how you know how how the
labor market and the economy progresses. So no one has
a really good handle on it. I don't profess to,
(11:25):
and anyone who does, I kind of say, okay, like,
what'd you do? Go and interview three hundred and thirty
million people?
Speaker 3 (11:30):
And no, Like, it's we should eventually get the retirement data.
Doesn't the Dallas Fed do a sort of gauge onto
how many people have left the work force? Obviously that
they'll do two.
Speaker 2 (11:41):
Years, Like we're gonna get into like twenty twenty seven
and be like, oh, that's what happened with like retirements
this year. Great, like, but yeah, it's it's messy and
no one has a great handle on this stuff. So
let's take a quick break here. When we come back
let's talk a little bit about what we're seeing in
the economy right now, because we're really seeing an extension
of what was talked about a couple of years ago
(12:02):
with this this idea of a K shaped economy. How
do you make an economy look like a K? We'll
tell you in a bit. Okay.
Speaker 1 (12:13):
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Speaker 2 (13:21):
Piece in the Wall Street Journal, the two speed economy
is back as low income Americans give up gains. And
this is something that you know, is starting to become
very apparent in the economic data that we've been getting
this year, which is that, hey, if you look at
you know, whether you're looking at broad economic data or
companies that are reporting earnings, there's a clear divergence where
(13:44):
just as an example, yesterday, United CEO comes out and says, yeah,
like we're seeing a real resurgence and a real like
growth in high end bookings, but main cabin is still
flat to down. And basically what that tells you is, hey,
if someone has the money to be booking you know,
first class or business class or those kinds of seats,
they're doing it now, and they're doing it in higher
(14:04):
numbers than they were previously. If you are sitting in
the back of the plane with everyone else and saying, hey,
how come you know, I'm not getting you know, eight
blankets and forty two pillows and stuff like that. Yeah,
those bookings are down because the average American is struggling
(14:24):
at this point with wage growth that is slowing, price
growth that is increasing, and it's it's pretty uncomfortable for
most folks out there.
Speaker 3 (14:36):
Yeah, it's it's been really fascinating to watch. What you
saw coming out of the pandemic era is the lower
income earners actually did get a substantial amount of wage
gains during that period of time from call it you know,
twenty nineteen to twenty twenty four, where we saw about
fifteen percent growth in real hourly wages over that five
year span of nineteen to twenty four for those lower
(14:57):
income earners. What we've seen more recently is the lower
income earner growth has not kept up with the earnings
growth of the top third of the economy. The salary
growth that those lower earner income or lower income earners
have seen is about one percent year over year as
of August, compared to three and a half plus percent
(15:18):
for those in the top third of income earnings. And
we've covered this on yesterday's show, but really from a
spending perspective. We had the retail sales report that came
out yesterday that was a little bit stronger than anticipated.
Some of that due to inflationary pressure, but overall showed
a resilient consumer. It continues to be these higher income
consumers that are keeping this economy going. This share of
(15:41):
spending done by those making over two hundred and fifty thousand,
which is the top ten percent of household earners out
there in this country, is up to fifty percent. And
so that's a statistic that we've talked about a lot,
but continues to show a trend that those high income
earners are really carrying a lot of water for this economy.
Speaker 2 (16:00):
Me other things that I look at in terms of
what can potentially, you know, accelerate the economy and get
it moving again. One of the things that we saw
this morning. Quite honestly, I don't know if you had
a chance to look at the UH mortgage data for
last week. Bufis were up big, refis up sixty percent
in the week.
Speaker 3 (16:19):
Hard it's easy to be up sixty percent when you're
at like zero probably before.
Speaker 2 (16:22):
But yeah, so it's it's not at a great level,
but it's not you know, awful. So to put it
in perspective heading into this week, reefis we're running at
about twenty percent of what they were in early twenty one.
But remember early twenty one was like the biggest REFI
boom in history because you didn't do it then, hey,
(16:43):
like everyone's sitting there and it's like, wait, you're telling
me I can borrow three hundred thousand dollars for thirty
years at two point seventy five percent? Yes, where do
where do I sign up? Like? What do I do
in order to do so? REFI activity was all So
if you want to compare it to like twenty four
was running about double what it was last year, but
(17:04):
obviously last year was you know, dramatically slowed down. So
this is a big jump. It's just one week. But
this happens with you know, mortgage rates coming down into
the six and a quarter range on thirty year fixed
and if you're willing to take the adjustment risk, if
you look at adjustables now you're into the high fives.
And so if you're someone who bought in the last
(17:25):
couple of years at you know, seven seven in a quarter,
you sit there and say, look, I can shave you know,
ten to fifteen percent off my payment potentially. Yeah, like that.
That's something that people are starting to look into. And
so the plus side of this is twofold number one.
It could allow even for some cash out refinances depending on,
you know, the situation. If you bought in the last
(17:47):
couple of years, you might not have enough equity there
depending on where and exactly when you bought, so that
that could be a question. But hey, if you're picking
up an extra couple hundred bucks a month in cash
flow because you're you know, mortgage monthly payment is going
from twenty seven hundred down to twenty five hundred, Okay,
it's a couple hundred bucks more that can be spent
in the economy, but it's by people who already own homes,
(18:10):
who typically have higher levels of wealth than those who don't,
and so it kind of magnifies this k shaped economy
feel that we have here.
Speaker 3 (18:18):
Plus, you're gonna have the tax reform package going through.
I mean it's gone through, but you're gonna start to
feel the impacts of that, where a lot of people
are gonna be probably pleasantly surprised in terms of what
they see when they file their taxes in April because
of some of the changes that had been made in
the big beautiful Bill.
Speaker 2 (18:36):
Yeah, so you've got those things that are you know,
kind of feeding into this as well here and also
this story that again just kind of messhes with it.
Credit scores are following at the fastest pace since the
Great Recession. So first of all, obviously that framing is
designed to make you terrified that we're going to have
another Great recession, man, which is really unlikely. I mean,
(19:00):
I could see a recession being possible. Do I see
like a two thousand and eight style event happening, Paul,
Is there anything on your BNGO card that looks anything
like two thousand and eight?
Speaker 3 (19:08):
It would be a total shock. We wouldn't see it coming.
I didn't see that coming, no, exactly.
Speaker 2 (19:14):
So the average FICO score did drop by two points
this year, that is the most since two thousand and nine.
But then the caveat is credit scores remained significantly higher
than during the Great Recession. Where you start matters, not
just I know, we always say it's how you finish
that matters, but you also have to pay attention to
where he started. Let's take a quick break. When we
(19:35):
come back, it's Wall Street Watch and ask ta da
da da da da da da da change.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Markets are a little changed in a mixed territory on
FED meeting day, where all expectations are anticipating in a
quarter percentage interest rate cut from the Central Bank at
the conclusion of their meeting at two o'clock. FED Chairman
Jerome Powel will speak during a press conference at two thirty.
Right now, the Dow is down excuse me, up by
(20:22):
about half a percent, s and P five hundred dipping
five points lower. Nasdaq is down four tenths of one percent,
Russell two thousand is up seven tenths of one percent,
Tenure Treasure reeled currently at four point zero two six percent,
and crude oil flat today, trading at sixty four dollars
and forty eight cents of barrel. Some more news as
(20:43):
it relates to Nvidia in China this morning. According to
the Financial Times, China's Internet regulator has banned the country's
largest tech firms from buying in Nvidia's AI chips, increasing
China's efforts to lift its domestic industry and compete with
the U U and Video. Stock is down nearly three
percent on that news. Along the same lines, Chinese state
(21:06):
media reported that Ali Baba won a major customer, China
Unicom for its AI chips. Ali Baba shares are up
almost two percent. Meanwhile, Lift soaring thirteen percent higher following
news that Weimo has partnered with the ride hailing company
for the first time in a commercial deal to enter
Nashville next year. Elsewhere, Eli Lilly Sedik's experimental pill outperformed
(21:29):
Novo Norda's own oral drug in the first head to
head study comparing the two medicines in patients with type
two diabetes. ELI shares are up one percent workday, jumping
after activist investor Elliott Management disclosed a two billion dollar
stake in the human resources software provider. That stock is
up eight percent, and Loop Capital upgraded Netflix to buy
(21:53):
from hold, with The firm said the streaming giant has
won the streaming wars with its strong content and has
higher long term margin assumptions as its content generates more revenue.
Netflix shares are up nearly two percent. I'm Tucker Silvan.
That is Walstree.
Speaker 2 (22:09):
Watch.
Speaker 1 (22:10):
This is Ask Todd on the Financial Exchange Radio network.
If you have an existing estate plan 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 a state and tax planning, Medicaid planning, and probate law.
(22:32):
Visit Cushingdolan dot com. Now here's Todd Lutsky.
Speaker 2 (22:37):
Todd Lutsky does join us now from the law firm
of Cushing and Dolan. The segment here is Ask Todd,
and this is your chance to ask Todd your state
planning questions live on air right now. Phone lines are
open at eight eight eight two zero five two two
sixty three. Get calling early and often if you want
(22:58):
to ask Todd your state planning questions, because we do
have limited space on those phone lines. Again, eight eight
eight to zero five two two sixty three is the
number one more time that is eight eight eight two
zero five two two sixty three. And this is your
opportunity to ask Todd your state planning questions. Mister Lutsky,
(23:20):
how are you doing today?
Speaker 4 (23:22):
I am never better? How are you doing?
Speaker 2 (23:25):
I'm good? I uh. I was pretty intrigued by that
story over the weekend about the uh duck that robbed
the bank.
Speaker 4 (23:31):
All right, I must have missed that story.
Speaker 2 (23:33):
Yeah, he quacked the safe.
Speaker 4 (23:34):
Well, that's that's true.
Speaker 2 (23:35):
Yeah, pretty impressive stuff.
Speaker 4 (23:37):
Todd.
Speaker 2 (23:38):
I want to talk to you about beneficiary designations on
iras and specifically, how does it let me ask you this?
I guess is there a conflict or a question in
terms of potentially naming a trust as a beneficiary of
(23:59):
an IRA right in order to help manage estate taxes
in the future with trying to navigate the tenure withdraw
rule that you have when that trust is named to
beneficiary and perhaps ending up with your bennies paying more
(24:20):
in taxes than they would otherwise.
Speaker 4 (24:22):
In income taxes.
Speaker 2 (24:23):
Correct, more income taxes than a state taxes that they
would have paid.
Speaker 6 (24:26):
I think you got a great question there, because there's
a lot of balls in the air, right, So one
would be you know, we haven't when you're dealing.
Speaker 2 (24:33):
And someone asked me this the other day and I said,
I don't know, but I have an estate planning attorney.
I'm going to ask. So this is, you know, a
real question that I got from someone.
Speaker 6 (24:41):
Real life stuff. That's what we do, real life stuff.
And iras are complicated, right, because they do have as
you are alluding to, Chuck, they have both the income
tax component built into it and as many people forget,
an estate tax component built into it, even like with
Ross they think, oh well there are rots are income
tax free, Yeah, but they're estate taxable. And so you
(25:05):
got to remember that they have those two components built
in it. Now, first and foremost, when we're talking about
naming a trust, a beneficiary, or in general dealing with
an IRA in your estate plan, let's start primary beneficiary.
If you're marriage should probably always be I don't want
to say always, there's never an always, but mostly be
(25:25):
surviving spouse.
Speaker 2 (25:26):
Why wouldn't you do the trust in that case because
that's specifically kind of what this is looking at.
Speaker 6 (25:30):
Yeah, so generally you want it to be the surviving
spouse because of that RMD, the required minimum distribution rules, right,
spouses are one of the few special beneficiaries under the
Secure Act when the Secure Act changed. So example, if
I leave, if I name my spouse the designated beneficiary,
(25:53):
and my spouse, let's say when I die is seventy five,
my spouse gets to take it out over her her
life expectancy. If you look at a table, her life
expectancy could be twelve, thirteen years, fourteen years. So that's
a nice payout, better than if I name my children
the beneficiary. It's going to come out over ten years
(26:14):
most of the time, unless the child is a minor
or disabled, So mostly this is going to come out
over ten years. So there's a ten year rule, not
a lifetime rule. The old rule used to be yeah,
I would come out over the kid's life expectancy, but
no more so. Now it comes out over ten years.
So that's why the primary beneficiary is usually the spouse.
(26:37):
Now that said, what if I'm the surviving spouse. Now
who should the primary beneficiary be? Well, I need to
look to my revocable trust. Let's say, if that's what
I've done. Well, if my trust, which holds a bunch
of my assets, says I leave everything equally to my kids,
but held in trust for their life, divorce proof, creditor protected,
(26:58):
generation skipping tax planning, all built in. Well, maybe I
don't want my million dollar IRA going out to my kids,
so I probably wouldn't name the kids. I would name
the trust as the beneficiary if I'm now the surviving
spouse are single, and that way it gets into the trust,
sheltering it from all of those negative creditors tax or
(27:20):
creditor issues and even generation skipping tax problems. But to
your point, Chuck, not causing a problem with the ten
year payout, so no conflict with the ten year payout.
It's still gonna come out over ten years. No better,
but no worse.
Speaker 2 (27:36):
Talking with Todd Lutsky from Cushing and Dolan. If you've
got a question for Todd, this is your chance to
ask it. Eight eight eight two zero five two two
sixty three is the number to call. We do still
have a little bit of room on the phone lines,
so called eight eight eight to zero five two two
six three to ask Todd your estate planning questions. That
(27:56):
number again is eight eight eight to zero five two
two six three. We're gonna take a quick break here,
but when we come back it is going to be
right to your questions with Todd. That phone number one
more time is eight eight eight two zero five two
two six three.
Speaker 1 (28:14):
Ask Todd with Todd Lutsky every Wednesday at ten thirty
only here on the Financial Exchange Radio Network. Todd Letsky
answers your questions about a state and elder life planning
every Wednesday at ten thirty right here on the Financial
Exchange Radio Network.
Speaker 2 (28:38):
Still a little bit of room on the phone lines
if you've got a question for Todd Lutsky. Eight eight
eight to zero five two two sixty three is the
number again, it is eight eight eight to zero five
two two six three. Let's go now to Bob in Charlestown. Bob,
what's your question for Todd?
Speaker 7 (28:58):
Good morning, Mike. Question concerns the income tax aspects of
the four oh one K when it goes through the
testamentary trust. So if there's no surviving spouse and the
four oh one K is the beneficiary, is the estate
got it and none of the will it passes into
(29:19):
the testamentary trust. So now I presume the trust will
now own the four oh one k. And since the
beneficiaries of the children and not a surviving spouse. Is
the trust required to pay out that money to the
kids in the tenure SIP frame as if it had
never gone to the trust.
Speaker 6 (29:38):
So we have to sort of clarify your question because
the question you're answering is one that I likely would
never suggest. Okay, So when I talk about naming the
estate the beneficiary, that's when you are married, you do that.
Speaker 4 (29:58):
Okay.
Speaker 6 (29:59):
So if you're married, and so we got husband and wife, right,
and they both have you're saying for a one K.
But let's say they've retired and they've rolled there four
a one K into an IRA. It's the same deal, right,
And so now we're married, and I've got this iras
sitting there, and I'm over seventy three years of age
or or seventy three Okay, unless the IRA is small
(30:22):
enough that a five year payout doesn't matter. But let's
say it's large enough that I don't want a five
year payout. So I got to make sure I'm seventy
three years of age or or older. That's the first requirement,
and that makes it payable over the ghost life expectancy
of the participant, so that that's huge. So now I
(30:44):
don't have a negative income tax consequences. Then I die well,
then the estate it would flow into a testamentary trust
for the benefit of who my spouse right first and foremost.
If my spouse has already died well, then I usually
get a call from the surviving spouse saying I lost
(31:06):
my spouse. What do I do We update their estate
plan because they're now single after all, and we need
to make some changes to their plan. And one of
those changes would be okay, well, we now need to
rethink your designated beneficiary because you're single. So as a
single person, I probably would go back to the idea
of what Chuck and I were talking about a minute ago,
(31:27):
and that is I would probably not name the estate
the beneficiary. Well, why because I don't have a spouse, right.
The whole point of naming the estate the beneficiary is
so that I can provide for my spouse, just like
I could if I named her the beneficiary. But at
(31:48):
the same time, instead of naming her as the beneficiary,
I am allowing her to not only enjoy it, but
if she gets sick, it's immediately protected from the nursing
home for her. To me, that's the big reason for
doing this. Yeah, there's some mistate tax benefits as well,
but to me, that's a really big reason, you know,
for doing this. So if I don't have that spouse,
(32:10):
well I'm not so worried about it, right because it's mine,
and if I get sick, it's outside the trust, it's
subject to the nursing home. If I die, I wanted
to go probably to my trust for the benefit of
my kids, divorce, prove credit or protection and whatever other
kind of controls I want to put over it to them.
Now that's set. So my answer, so I think your
(32:31):
point is that you're hypothetical. I would never do so
if I was single, I wouldn't be naming my estate
the beneficiary in which the testamentary trust would be the children.
Now having said that, I guess the question could be,
what if we've done this, my wife's alive, it flows
into this testamentary trust, then my wife dies, Well, well
(32:54):
that's different. Well that that could happen. So so, Bob,
I just wanted to help everybody understand that different and
how this could not generally be set up that way,
but it could end up that it's now for the kids.
The required minimum distributions will come out and hit the
trust over the ten year rule that we talked about.
So now the kids are the beneficiaries. If this trust
(33:16):
says paid out to the kids, divided equally and paid
out to the kids, well, then as the money comes
into the trust, it comes out to the kids. The
kids pick it up on their income tax return and
that's the end of it. If it's completely a payout,
then the whole entire ira could technically just flow through
and go right to the kids, and then they can
take it out over ten years at tax at their rate.
(33:37):
If it's held in divorce proof credit or protection language
like hold it in trust for the benefit of the kids,
and you know, let them have income and principle and
the trustees sole discretion, which I like. Well, then you
have to make a decision. And you're absolutely right about this, Bob,
that if that money comes out the minimum distribution you
reach in, take it out, put it in the trust.
(33:58):
That's a taxable event to the trust. If the trust
then distributes out that income to the beneficiary, well then
they can carry an income distribution deduction and have a
tax at the kids level. If the kid's going through
a divorce and we don't want the money to come out. Well,
then you know what, we're going to have to pay
the tax at the trust level. So yes, you could
(34:20):
have that issue, but it's kind of optional. So great question, Bob.
Lots going on in that question. Sorry it was such
a long winded answer, but it's important because it really
does deal with what this guide is talking about this month, right.
Speaker 4 (34:35):
This guide is saying how do.
Speaker 6 (34:37):
You name your IRA the beneficiary? Not only how do
you do it? When do you do it? Why do
you do it right? And same thing with life insurance.
You can make the life insurance the beneficiary and age
is not an issue, but with an IRA, as we saw,
the age should be at least the required required beginning
date of seventy three.
Speaker 4 (34:55):
That's all laid out in the guide.
Speaker 6 (34:56):
It explains the Testamentary Trust, how it's connected with these assets,
and will then help you do estate tax planning. It
will protect it from the nursing home without a five
year waiting period and all without causing adverse income tax consequences,
which I hope I just explained in this in this
(35:17):
to Bob, in this in this call eight six six
eight four eight five six nine nine is the guide folks,
or a legal Exchange show dot com. This guide explains
all of those things and how they work together. Call
and Get It eight six six eight four eight five
six nine nine or Legal Exchange Show dot com.
Speaker 2 (35:37):
Todd just kind of looking at that situation that we
outlined earlier, any other considerations, just for you know, how
someone goes about making the decision for naming beneficiaries on
retirement accounts given the complexities that we went through.
Speaker 6 (35:54):
Yeah, I'd say a couple of things. One, the size
of the IRA. Right, So if someone's trying to do
planning and they say, what, you know, I got one
hundred thousand dollars in my IRA. Well one, you know,
maybe I don't care about trying to protect that from
the nursing home. Maybe it's small enough that I'll just
leave my spouse the beneficiary and I don't need to
go to probate for that. So that could be or
(36:14):
the size could be you know, one hundred, two hundred,
even three hundred thousand dollars. You know, if I got
to pay that out over five years, that's not a
huge income tax hit, right, you know, I'm not taking
out a ton of money if I've got three hundred
thousand over five years. That's not going to blow me
into a higher income tax bracket. So maybe I don't
need to wait until I'm seventy three. I can just
(36:36):
set that up right away. So those are some options.
And I think if you're not doing nursing home planning,
certainly we're never going to be doing a testamentary trust
if we're not doing nursing home planning. But I still
might name the estate. I still might name the trust
the beneficiary on a revocable trust, I would say you
would do that primarily only if the way you're leaving
(36:57):
the assets to the spouse to the kids is to
pre detective from divorces and generation skipping tax purposes.
Speaker 2 (37:03):
Otherwise, probably just name the kids. Mister Wutski, thank you
so much for joining us today.
Speaker 4 (37:07):
Always a pleasure.
Speaker 1 (37:09):
This has been Asked Odd on the Financial Exchange Radio network.
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(37:29):
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heroes by visiting DAV five K Boston and making a
donation today. This is the Financial Exchange with Chuck Zada
(01:06):
and Paul.
Speaker 2 (01:06):
Lane, Chuck, Paul, and Tucker with you here on a
FED day. The Federal Reserve Open Market Committee has been
meeting since yesterday. They don't actually just like meet at
two pm and vote quickly. We get the results of
(01:29):
what they decided to do at two pm. But Jay
Powell and the gang have been meeting. Lisa Cook is there,
Stephen Moran is there. So it's one of the most
not to get like all Bachelor on you, but it's
the most dramatic season of the FED ever, Paul, and
(01:51):
that's what we have as we enter today's FED meeting.
It's wide. We expected that the Federal Reserve is going
to cut interest rates by a quarter percent. Outside chance
that they cut by half a percent, but I would
say that would be very surprising if if they move
forward in that direction. Also very likely that you have
(02:13):
at least a couple of descents to the fifty basis
point side of things. The open question, I think is
do you get one or two descents to the other side,
maybe saying, hey, keep rates steady because we're concerned about inflation.
I don't know if we're going to see that, but
we might other things that are going to be very interesting.
We get a summary of economic projections today. The step
(02:35):
which is also referred to as the dot plot basically
where do FED officials think unemployment, GDP, growth, interest rates,
and inflation are going to be by the end of
this year, the end of next year, and in the
long run, and so it all adds up to the
(02:56):
most dramatic season in FED history. Your thoughts fall.
Speaker 3 (03:02):
The meeting today, The biggest focus is going to be
more on the drama like you would see on The
Bachelor or other reality shows out there, and less road
less than what is actually going to what are the
results going to be from the meeting, because we know
it's very telegraphed, or rather telegraph that we're going to
(03:23):
see that quarter of a percent cut, But a lot
more of the discussion points are going to be around
the descents or the quarterly economic productions, and what do
these new appointees in Steven Miriam's case, perhaps you know,
what what feedback do we are we able to parse
out from from his appointment, as well as any of
(03:46):
the quarterly economic projections that deviate from perhaps consensus. And
then you know, as you alluded to, the dissenting piece
that really is going to be the major focus with
those quarterly economic projections because we are so close to
the end of the year. Any sort of projections as
to where interest rates are gonna end this year by
(04:07):
the FED members is going to be really heavily considered
because there's only a couple of months left in the year.
So you're gonna we're gonna have a really good sense
for what the FED feels like they need to do
over the course of the next couple of meetings. Of course,
those projections are always subject to change, but right now
we have it where it's it's three rate cuts that
they're projected by the end of the year, right.
Speaker 2 (04:29):
So that's what the that's what the Chicago mark No
Exchange has right now. So I think this step is
going to be the most interesting part of this because
quite honestly, like all of the noise about like, oh,
how many descents are they're gonna be in this, Like
I don't care, like the drama stuff I'm talking about,
Yeah exactly. So you know, look, do I think it
(04:51):
would be great if we actually had you know, a
FED big brother, you know, for like I would stick
them all in a house for two days and like
have camp on the whole time and see what happens. Yes,
like here, have a few beers. J Powell like do
your thing. Oh like here, you know, Steve, you're new
to the house. Like here's your little hat with the
propeller on it, like like, yes, I'd love to see
(05:12):
these things. But ultimately it's not what matters to the economy.
What actually matters is what the FED guides at, what
the Fed says they're going to do, and how they
guide they're going to in the future. And so Tucker,
can you get the time machine queued up for us?
We don't have to go back too far, so you
don't need to, you know, get the thing, you know
too jacked up. But there we go.
Speaker 4 (05:35):
All right, we're.
Speaker 2 (05:36):
Going back to June of twenty twenty five. It's kind
of warm, but it's also been a really rainy spring
and so no one really likes it around here very much.
Speaker 3 (05:44):
All these weekends are ruined.
Speaker 2 (05:46):
Every weekend's been ruined for thirteen weekends straight, and people
are just hoping that it's really dry the rest of
the summer, which it is. Here's what we had in
the March step from the Fed. They thought ge this
year will be one point seven percent. They then downgraded
it in the June one to one point four slower growth.
(06:06):
They also thought the PCE inflation in March was gonna
come into two seven with core at two eight. They
upgraded those to three zero three one, respectively. So basically
what the Fed told us was, Hey, we're gonna have
slower growth this year and more inflation. But the FED
funds rate projection for year end was three point nine
percent unchanged. The Fed basically saying we are willing to
(06:30):
accept for this year slower growth and higher inflation. We're
not gonna cut rates into that. That's what they told us.
So what's gonna be interesting for me is the guidance
to the end of this year. I'm kind of interested in,
but look, it's three months away and it's not gonna
make a huge difference either way. I think, Look, if
(06:52):
we're gonna be completely honest about this, the difference between
a quarter percent and a half percent rate cut is nothing.
When we talk about like Feds that make mistakes like
the nineteen seventies, or even you want to talk about
like early twenty twenty two, it's the ones that are
off by like two or three percent in the wrong direction,
(07:12):
and you're like, guys, what are we doing here? You're
raising rates a quarter percent when inflation's at nine Come on,
pick up the pace here, like Jay, Arthur, what are
we doing here?
Speaker 4 (07:24):
Guys?
Speaker 2 (07:25):
Like this is the problem. So if the FED is
directionally wrong by an extra quarter percent, it doesn't matter. Like,
I'm not gonna ever criticize the FED for going like
a quarter percent too far because it doesn't matter to
the real economy, meaning in a meaningful enough way.
Speaker 3 (07:42):
No, the only reason that it would be something that's
noteworthy is that, jeez, does the FED know something that
we don't? Is the labor market even worse than we
anticipated if they were, for example, to go half percent today.
Speaker 2 (07:54):
And this is why I think that the twenty twenty
six guidance which they do give is gonna be really interesting.
Here's what they guided in September. This is for next
year twenty twenty six. They thought real GDP was gonna
come in at one point six percent, unemployment rate four
point five PCEE, inflation two four core PCE two four,
(08:15):
So basically saying, hey, GDP is gonna accelerate a little
bit from twenty twenty five, inflation's gonna cool and we
think because inflation's cooling and GDP still isn't where we
want it to be, fed FUNDRA at the end of
next year three point six percent. So the interesting piece
(08:35):
here is going to be what they tell us about
their path next year and where they think they're gonna
because honestly, if they're off by like a quarter percent
by the end of this year, doesn't matter. If they
tell us, hey, we think unemployment is gonna be four
six or four seven, and GDP growth is gonna be
(08:58):
one two and PCE is gonna be two three. Now
they're telling you, yeah, we think there's a problem in
the economy that's gonna materialize, and we got a cut
in order to get in front of it. The interesting
one to me, given all the talk about the labor market,
and not just labor demand but labor supply. We've talked
about this a ton the last couple months, in that
(09:20):
the combination of baby boomer retirements and immigrant deportations is
creating a labor force that is growing at a much
slower rate than last year, or potentially even shrinking very
slightly this year. And so could you end up with
like something weird where the Fed says, hey, GDP growth
next year is gonna be you know, one to six. Still,
(09:43):
the unemployment rate we think is gonna be four to
two pc. Inflation's gonna be like two seven, so hotter
than they thought. But we're still gonna cut because we
can't control labor supply and we see real risk to
labor demand if we don't cut. Like these are some
of the just weird things that we have to consider
(10:05):
right now because the labor market is quite honestly in
a place where we have never seen it as Americans before.
There's never been a time when we've had good economic
data where we've been able to say, hey, there are
real questions about labor supply as a limiting factor in
the job market.
Speaker 3 (10:24):
No, it's a subject that's never you've never really think about.
Speaker 2 (10:27):
America did not exist when the bubonic plague was you know,
a big thing, and we didn't have economic statistics that
were reliable back then either.
Speaker 3 (10:35):
And it's it seems like, unless I've missed something, is
there really a good statistic to track the supply pieces?
Speaker 2 (10:42):
Not really like all estimates, we have no idea what's
actually going on with labor supply. The estimates that we've
seen that I've seen personally are that anywhere between three
hundred thousand and one point five million mcgrants are no
longer in the labor force now. But that's a wide range.
(11:04):
I mean, that's almost one percent of the total working
population that you're talking about there in that range of estimates.
And so there are vastly different things that that means,
depending on you know how you know how how the
labor market and the economy progresses. So no one has
a really good handle on it. I don't profess to,
(11:25):
and anyone who does, I kind of say, okay, like,
what'd you do? Go and interview three hundred and thirty
million people?
Speaker 3 (11:30):
And no, Like, it's we should eventually get the retirement data.
Doesn't the Dallas Fed do a sort of gauge onto
how many people have left the work force? Obviously that
they'll do two.
Speaker 2 (11:41):
Years, Like we're gonna get into like twenty twenty seven
and be like, oh, that's what happened with like retirements
this year. Great, like, but yeah, it's it's messy and
no one has a great handle on this stuff. So
let's take a quick break here. When we come back
let's talk a little bit about what we're seeing in
the economy right now, because we're really seeing an extension
of what was talked about a couple of years ago
(12:02):
with this this idea of a K shaped economy. How
do you make an economy look like a K? We'll
tell you in a bit. Okay.
Speaker 1 (12:13):
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Speaker 2 (13:21):
Piece in the Wall Street Journal, the two speed economy
is back as low income Americans give up gains. And
this is something that you know, is starting to become
very apparent in the economic data that we've been getting
this year, which is that, hey, if you look at
you know, whether you're looking at broad economic data or
companies that are reporting earnings, there's a clear divergence where
(13:44):
just as an example, yesterday, United CEO comes out and says, yeah,
like we're seeing a real resurgence and a real like
growth in high end bookings, but main cabin is still
flat to down. And basically what that tells you is, hey,
if someone has the money to be booking you know,
first class or business class or those kinds of seats,
they're doing it now, and they're doing it in higher
(14:04):
numbers than they were previously. If you are sitting in
the back of the plane with everyone else and saying, hey,
how come you know, I'm not getting you know, eight
blankets and forty two pillows and stuff like that. Yeah,
those bookings are down because the average American is struggling
(14:24):
at this point with wage growth that is slowing, price
growth that is increasing, and it's it's pretty uncomfortable for
most folks out there.
Speaker 3 (14:36):
Yeah, it's it's been really fascinating to watch. What you
saw coming out of the pandemic era is the lower
income earners actually did get a substantial amount of wage
gains during that period of time from call it you know,
twenty nineteen to twenty twenty four, where we saw about
fifteen percent growth in real hourly wages over that five
year span of nineteen to twenty four for those lower
(14:57):
income earners. What we've seen more recently is the lower
income earner growth has not kept up with the earnings
growth of the top third of the economy. The salary
growth that those lower earner income or lower income earners
have seen is about one percent year over year as
of August, compared to three and a half plus percent
(15:18):
for those in the top third of income earnings. And
we've covered this on yesterday's show, but really from a
spending perspective. We had the retail sales report that came
out yesterday that was a little bit stronger than anticipated.
Some of that due to inflationary pressure, but overall showed
a resilient consumer. It continues to be these higher income
consumers that are keeping this economy going. This share of
(15:41):
spending done by those making over two hundred and fifty thousand,
which is the top ten percent of household earners out
there in this country, is up to fifty percent. And
so that's a statistic that we've talked about a lot,
but continues to show a trend that those high income
earners are really carrying a lot of water for this economy.
Speaker 2 (16:00):
Me other things that I look at in terms of
what can potentially, you know, accelerate the economy and get
it moving again. One of the things that we saw
this morning. Quite honestly, I don't know if you had
a chance to look at the UH mortgage data for
last week. Bufis were up big, refis up sixty percent
in the week.
Speaker 3 (16:19):
Hard it's easy to be up sixty percent when you're
at like zero probably before.
Speaker 2 (16:22):
But yeah, so it's it's not at a great level,
but it's not you know, awful. So to put it
in perspective heading into this week, reefis we're running at
about twenty percent of what they were in early twenty one.
But remember early twenty one was like the biggest REFI
boom in history because you didn't do it then, hey,
(16:43):
like everyone's sitting there and it's like, wait, you're telling
me I can borrow three hundred thousand dollars for thirty
years at two point seventy five percent? Yes, where do
where do I sign up? Like? What do I do
in order to do so? REFI activity was all So
if you want to compare it to like twenty four
was running about double what it was last year, but
(17:04):
obviously last year was you know, dramatically slowed down. So
this is a big jump. It's just one week. But
this happens with you know, mortgage rates coming down into
the six and a quarter range on thirty year fixed
and if you're willing to take the adjustment risk, if
you look at adjustables now you're into the high fives.
And so if you're someone who bought in the last
(17:25):
couple of years at you know, seven seven in a quarter,
you sit there and say, look, I can shave you know,
ten to fifteen percent off my payment potentially. Yeah, like that.
That's something that people are starting to look into. And
so the plus side of this is twofold number one.
It could allow even for some cash out refinances depending on,
you know, the situation. If you bought in the last
(17:47):
couple of years, you might not have enough equity there
depending on where and exactly when you bought, so that
that could be a question. But hey, if you're picking
up an extra couple hundred bucks a month in cash
flow because you're you know, mortgage monthly payment is going
from twenty seven hundred down to twenty five hundred, Okay,
it's a couple hundred bucks more that can be spent
in the economy, but it's by people who already own homes,
(18:10):
who typically have higher levels of wealth than those who don't,
and so it kind of magnifies this k shaped economy
feel that we have here.
Speaker 3 (18:18):
Plus, you're gonna have the tax reform package going through.
I mean it's gone through, but you're gonna start to
feel the impacts of that, where a lot of people
are gonna be probably pleasantly surprised in terms of what
they see when they file their taxes in April because
of some of the changes that had been made in
the big beautiful Bill.
Speaker 2 (18:36):
Yeah, so you've got those things that are you know,
kind of feeding into this as well here and also
this story that again just kind of messhes with it.
Credit scores are following at the fastest pace since the
Great Recession. So first of all, obviously that framing is
designed to make you terrified that we're going to have
another Great recession, man, which is really unlikely. I mean,
(19:00):
I could see a recession being possible. Do I see
like a two thousand and eight style event happening, Paul,
Is there anything on your BNGO card that looks anything
like two thousand and eight?
Speaker 3 (19:08):
It would be a total shock. We wouldn't see it coming.
I didn't see that coming, no, exactly.
Speaker 2 (19:14):
So the average FICO score did drop by two points
this year, that is the most since two thousand and nine.
But then the caveat is credit scores remained significantly higher
than during the Great Recession. Where you start matters, not
just I know, we always say it's how you finish
that matters, but you also have to pay attention to
where he started. Let's take a quick break. When we
(19:35):
come back, it's Wall Street Watch and ask ta da
da da da da da da da change.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Markets are a little changed in a mixed territory on
FED meeting day, where all expectations are anticipating in a
quarter percentage interest rate cut from the Central Bank at
the conclusion of their meeting at two o'clock. FED Chairman
Jerome Powel will speak during a press conference at two thirty.
Right now, the Dow is down excuse me, up by
(20:22):
about half a percent, s and P five hundred dipping
five points lower. Nasdaq is down four tenths of one percent,
Russell two thousand is up seven tenths of one percent,
Tenure Treasure reeled currently at four point zero two six percent,
and crude oil flat today, trading at sixty four dollars
and forty eight cents of barrel. Some more news as
(20:43):
it relates to Nvidia in China this morning. According to
the Financial Times, China's Internet regulator has banned the country's
largest tech firms from buying in Nvidia's AI chips, increasing
China's efforts to lift its domestic industry and compete with
the U U and Video. Stock is down nearly three
percent on that news. Along the same lines, Chinese state
(21:06):
media reported that Ali Baba won a major customer, China
Unicom for its AI chips. Ali Baba shares are up
almost two percent. Meanwhile, Lift soaring thirteen percent higher following
news that Weimo has partnered with the ride hailing company
for the first time in a commercial deal to enter
Nashville next year. Elsewhere, Eli Lilly Sedik's experimental pill outperformed
(21:29):
Novo Norda's own oral drug in the first head to
head study comparing the two medicines in patients with type
two diabetes. ELI shares are up one percent workday, jumping
after activist investor Elliott Management disclosed a two billion dollar
stake in the human resources software provider. That stock is
up eight percent, and Loop Capital upgraded Netflix to buy
(21:53):
from hold, with The firm said the streaming giant has
won the streaming wars with its strong content and has
higher long term margin assumptions as its content generates more revenue.
Netflix shares are up nearly two percent. I'm Tucker Silvan.
That is Walstree.
Speaker 2 (22:09):
Watch.
Speaker 1 (22:10):
This is Ask Todd on the Financial Exchange Radio network.
If you have an existing estate plan 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 a state and tax planning, Medicaid planning, and probate law.
(22:32):
Visit Cushingdolan dot com. Now here's Todd Lutsky.
Speaker 2 (22:37):
Todd Lutsky does join us now from the law firm
of Cushing and Dolan. The segment here is Ask Todd,
and this is your chance to ask Todd your state
planning questions live on air right now. Phone lines are
open at eight eight eight two zero five two two
sixty three. Get calling early and often if you want
(22:58):
to ask Todd your state planning questions, because we do
have limited space on those phone lines. Again, eight eight
eight to zero five two two sixty three is the
number one more time that is eight eight eight two
zero five two two sixty three. And this is your
opportunity to ask Todd your state planning questions. Mister Lutsky,
(23:20):
how are you doing today?
Speaker 4 (23:22):
I am never better? How are you doing?
Speaker 2 (23:25):
I'm good? I uh. I was pretty intrigued by that
story over the weekend about the uh duck that robbed
the bank.
Speaker 4 (23:31):
All right, I must have missed that story.
Speaker 2 (23:33):
Yeah, he quacked the safe.
Speaker 4 (23:34):
Well, that's that's true.
Speaker 2 (23:35):
Yeah, pretty impressive stuff.
Speaker 4 (23:37):
Todd.
Speaker 2 (23:38):
I want to talk to you about beneficiary designations on
iras and specifically, how does it let me ask you this?
I guess is there a conflict or a question in
terms of potentially naming a trust as a beneficiary of
(23:59):
an IRA right in order to help manage estate taxes
in the future with trying to navigate the tenure withdraw
rule that you have when that trust is named to
beneficiary and perhaps ending up with your bennies paying more
(24:20):
in taxes than they would otherwise.
Speaker 4 (24:22):
In income taxes.
Speaker 2 (24:23):
Correct, more income taxes than a state taxes that they
would have paid.
Speaker 6 (24:26):
I think you got a great question there, because there's
a lot of balls in the air, right, So one
would be you know, we haven't when you're dealing.
Speaker 2 (24:33):
And someone asked me this the other day and I said,
I don't know, but I have an estate planning attorney.
I'm going to ask. So this is, you know, a
real question that I got from someone.
Speaker 6 (24:41):
Real life stuff. That's what we do, real life stuff.
And iras are complicated, right, because they do have as
you are alluding to, Chuck, they have both the income
tax component built into it and as many people forget,
an estate tax component built into it, even like with
Ross they think, oh well there are rots are income
tax free, Yeah, but they're estate taxable. And so you
(25:05):
got to remember that they have those two components built
in it. Now, first and foremost, when we're talking about
naming a trust, a beneficiary, or in general dealing with
an IRA in your estate plan, let's start primary beneficiary.
If you're marriage should probably always be I don't want
to say always, there's never an always, but mostly be
(25:25):
surviving spouse.
Speaker 2 (25:26):
Why wouldn't you do the trust in that case because
that's specifically kind of what this is looking at.
Speaker 6 (25:30):
Yeah, so generally you want it to be the surviving
spouse because of that RMD, the required minimum distribution rules, right,
spouses are one of the few special beneficiaries under the
Secure Act when the Secure Act changed. So example, if
I leave, if I name my spouse the designated beneficiary,
(25:53):
and my spouse, let's say when I die is seventy five,
my spouse gets to take it out over her her
life expectancy. If you look at a table, her life
expectancy could be twelve, thirteen years, fourteen years. So that's
a nice payout, better than if I name my children
the beneficiary. It's going to come out over ten years
(26:14):
most of the time, unless the child is a minor
or disabled, So mostly this is going to come out
over ten years. So there's a ten year rule, not
a lifetime rule. The old rule used to be yeah,
I would come out over the kid's life expectancy, but
no more so. Now it comes out over ten years.
So that's why the primary beneficiary is usually the spouse.
(26:37):
Now that said, what if I'm the surviving spouse. Now
who should the primary beneficiary be? Well, I need to
look to my revocable trust. Let's say, if that's what
I've done. Well, if my trust, which holds a bunch
of my assets, says I leave everything equally to my kids,
but held in trust for their life, divorce proof, creditor protected,
(26:58):
generation skipping tax planning, all built in. Well, maybe I
don't want my million dollar IRA going out to my kids,
so I probably wouldn't name the kids. I would name
the trust as the beneficiary if I'm now the surviving
spouse are single, and that way it gets into the trust,
sheltering it from all of those negative creditors tax or
(27:20):
creditor issues and even generation skipping tax problems. But to
your point, Chuck, not causing a problem with the ten
year payout, so no conflict with the ten year payout.
It's still gonna come out over ten years. No better,
but no worse.
Speaker 2 (27:36):
Talking with Todd Lutsky from Cushing and Dolan. If you've
got a question for Todd, this is your chance to
ask it. Eight eight eight two zero five two two
sixty three is the number to call. We do still
have a little bit of room on the phone lines,
so called eight eight eight to zero five two two
six three to ask Todd your estate planning questions. That
(27:56):
number again is eight eight eight to zero five two
two six three. We're gonna take a quick break here,
but when we come back it is going to be
right to your questions with Todd. That phone number one
more time is eight eight eight two zero five two
two six three.
Speaker 1 (28:14):
Ask Todd with Todd Lutsky every Wednesday at ten thirty
only here on the Financial Exchange Radio Network. Todd Letsky
answers your questions about a state and elder life planning
every Wednesday at ten thirty right here on the Financial
Exchange Radio Network.
Speaker 2 (28:38):
Still a little bit of room on the phone lines
if you've got a question for Todd Lutsky. Eight eight
eight to zero five two two sixty three is the
number again, it is eight eight eight to zero five
two two six three. Let's go now to Bob in Charlestown. Bob,
what's your question for Todd?
Speaker 7 (28:58):
Good morning, Mike. Question concerns the income tax aspects of
the four oh one K when it goes through the
testamentary trust. So if there's no surviving spouse and the
four oh one K is the beneficiary, is the estate
got it and none of the will it passes into
(29:19):
the testamentary trust. So now I presume the trust will
now own the four oh one k. And since the
beneficiaries of the children and not a surviving spouse. Is
the trust required to pay out that money to the
kids in the tenure SIP frame as if it had
never gone to the trust.
Speaker 6 (29:38):
So we have to sort of clarify your question because
the question you're answering is one that I likely would
never suggest. Okay, So when I talk about naming the
estate the beneficiary, that's when you are married, you do that.
Speaker 4 (29:58):
Okay.
Speaker 6 (29:59):
So if you're married, and so we got husband and wife, right,
and they both have you're saying for a one K.
But let's say they've retired and they've rolled there four
a one K into an IRA. It's the same deal, right,
And so now we're married, and I've got this iras
sitting there, and I'm over seventy three years of age
or or seventy three Okay, unless the IRA is small
(30:22):
enough that a five year payout doesn't matter. But let's
say it's large enough that I don't want a five
year payout. So I got to make sure I'm seventy
three years of age or or older. That's the first requirement,
and that makes it payable over the ghost life expectancy
of the participant, so that that's huge. So now I
(30:44):
don't have a negative income tax consequences. Then I die well,
then the estate it would flow into a testamentary trust
for the benefit of who my spouse right first and foremost.
If my spouse has already died well, then I usually
get a call from the surviving spouse saying I lost
(31:06):
my spouse. What do I do We update their estate
plan because they're now single after all, and we need
to make some changes to their plan. And one of
those changes would be okay, well, we now need to
rethink your designated beneficiary because you're single. So as a
single person, I probably would go back to the idea
of what Chuck and I were talking about a minute ago,
(31:27):
and that is I would probably not name the estate
the beneficiary. Well, why because I don't have a spouse, right.
The whole point of naming the estate the beneficiary is
so that I can provide for my spouse, just like
I could if I named her the beneficiary. But at
(31:48):
the same time, instead of naming her as the beneficiary,
I am allowing her to not only enjoy it, but
if she gets sick, it's immediately protected from the nursing
home for her. To me, that's the big reason for
doing this. Yeah, there's some mistate tax benefits as well,
but to me, that's a really big reason, you know,
for doing this. So if I don't have that spouse,
(32:10):
well I'm not so worried about it, right because it's mine,
and if I get sick, it's outside the trust, it's
subject to the nursing home. If I die, I wanted
to go probably to my trust for the benefit of
my kids, divorce, prove credit or protection and whatever other
kind of controls I want to put over it to them.
Now that's set. So my answer, so I think your
(32:31):
point is that you're hypothetical. I would never do so
if I was single, I wouldn't be naming my estate
the beneficiary in which the testamentary trust would be the children.
Now having said that, I guess the question could be,
what if we've done this, my wife's alive, it flows
into this testamentary trust, then my wife dies, Well, well
(32:54):
that's different. Well that that could happen. So so, Bob,
I just wanted to help everybody understand that different and
how this could not generally be set up that way,
but it could end up that it's now for the kids.
The required minimum distributions will come out and hit the
trust over the ten year rule that we talked about.
So now the kids are the beneficiaries. If this trust
(33:16):
says paid out to the kids, divided equally and paid
out to the kids, well, then as the money comes
into the trust, it comes out to the kids. The
kids pick it up on their income tax return and
that's the end of it. If it's completely a payout,
then the whole entire ira could technically just flow through
and go right to the kids, and then they can
take it out over ten years at tax at their rate.
(33:37):
If it's held in divorce proof credit or protection language
like hold it in trust for the benefit of the kids,
and you know, let them have income and principle and
the trustees sole discretion, which I like. Well, then you
have to make a decision. And you're absolutely right about this, Bob,
that if that money comes out the minimum distribution you
reach in, take it out, put it in the trust.
(33:58):
That's a taxable event to the trust. If the trust
then distributes out that income to the beneficiary, well then
they can carry an income distribution deduction and have a
tax at the kids level. If the kid's going through
a divorce and we don't want the money to come out. Well,
then you know what, we're going to have to pay
the tax at the trust level. So yes, you could
(34:20):
have that issue, but it's kind of optional. So great question, Bob.
Lots going on in that question. Sorry it was such
a long winded answer, but it's important because it really
does deal with what this guide is talking about this month, right.
Speaker 4 (34:35):
This guide is saying how do.
Speaker 6 (34:37):
You name your IRA the beneficiary? Not only how do
you do it? When do you do it? Why do
you do it right? And same thing with life insurance.
You can make the life insurance the beneficiary and age
is not an issue, but with an IRA, as we saw,
the age should be at least the required required beginning
date of seventy three.
Speaker 4 (34:55):
That's all laid out in the guide.
Speaker 6 (34:56):
It explains the Testamentary Trust, how it's connected with these assets,
and will then help you do estate tax planning. It
will protect it from the nursing home without a five
year waiting period and all without causing adverse income tax consequences,
which I hope I just explained in this in this
(35:17):
to Bob, in this in this call eight six six
eight four eight five six nine nine is the guide folks,
or a legal Exchange show dot com. This guide explains
all of those things and how they work together. Call
and Get It eight six six eight four eight five
six nine nine or Legal Exchange Show dot com.
Speaker 2 (35:37):
Todd just kind of looking at that situation that we
outlined earlier, any other considerations, just for you know, how
someone goes about making the decision for naming beneficiaries on
retirement accounts given the complexities that we went through.
Speaker 6 (35:54):
Yeah, I'd say a couple of things. One, the size
of the IRA. Right, So if someone's trying to do
planning and they say, what, you know, I got one
hundred thousand dollars in my IRA. Well one, you know,
maybe I don't care about trying to protect that from
the nursing home. Maybe it's small enough that I'll just
leave my spouse the beneficiary and I don't need to
go to probate for that. So that could be or
(36:14):
the size could be you know, one hundred, two hundred,
even three hundred thousand dollars. You know, if I got
to pay that out over five years, that's not a
huge income tax hit, right, you know, I'm not taking
out a ton of money if I've got three hundred
thousand over five years. That's not going to blow me
into a higher income tax bracket. So maybe I don't
need to wait until I'm seventy three. I can just
(36:36):
set that up right away. So those are some options.
And I think if you're not doing nursing home planning,
certainly we're never going to be doing a testamentary trust
if we're not doing nursing home planning. But I still
might name the estate. I still might name the trust
the beneficiary on a revocable trust, I would say you
would do that primarily only if the way you're leaving
(36:57):
the assets to the spouse to the kids is to
pre detective from divorces and generation skipping tax purposes.
Speaker 2 (37:03):
Otherwise, probably just name the kids. Mister Wutski, thank you
so much for joining us today.
Speaker 4 (37:07):
Always a pleasure.
Speaker 1 (37:09):
This has been Asked Odd on the Financial Exchange Radio network.
Ask Todd with Todd. Lutsky has been presented by Cushing
and Dolan, serving Massachusetts and New England for more than
thirty years, helping families with the state and tax planning,
Medicaid planning and probate law Call eight hundred and three
nine three four thousand and one or visit Cushingdolan dot com.
The views expressed in this segment are solely those of
(37:29):
Cushing and Dolan Armstrong Advisory. He does not provide any
legal or tax advice. Please consult with your legal or
tax advisor on such matters. Cushing and Armstrong do not
endorse each other and are not affiliated.
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