Guidance in choosing an institutional Trustee

[monicafaye]

I have a 22 year old son with special needs who works part-time and receives Social Security Disability and Medicare. He is high-functioning and should, in the next few years, be able to live independently with support. My will leaves money to him in a trust after my death. The money is invested in Vanguard Index Funds. I had thought about selecting a local bank as the trustee, but their annual fees are 1.2% on the first $1 million and .8% on the second million. I find that Vanguard Trust only charges .70% on the first $1 million and .35% on the second million. Over three-plus decades this adds up to a substantial difference, but either choice will involve a long-term fee on the funds balance. Does anyone have experience with Vanguard Trust? On the other hand I might be better off placing the money in a fund like Wellesley and teaching him how to get guidance from Vanguard on sustained annual withdrawals rather than leave it in trust. At this time Social Security Disability does not have a limit on an individual's assets, only on annual earnings, but who knows if that will be the case in the future. My goal is having the funds supplement him as long as possible as his job/earning abilities will be limited. Thank you for your input.

[bsteiner]

The local bank will give him a local trust officer (at least until the bank is taken over by a larger bank). They'll likely invest in individual securities. If they invest in their own mutual funds, they'll credit their management fee in the funds (but not the other fund expenses) against their trustee's commission. Vanguard won't do that. The expenses of their funds will be in addition to their trustee's commissions. Of course, the expenses of their funds are relatively low, so they'll still probably end up being less expensive. However, you may not get the same level of personal service.

Depending on what state you're in, the trust may pay state income taxes in that state in any event, or only if there is a trustee in that state. Many banks and trust companies have affiliates in other states (that either don't have a state income tax or that don't tax trusts based on the location of the trustees or the place of administration) so you can sometimes avoid state income tax that way.

You can provide in your Will that your son (or someone else) will have the power to change the corporate trustee, so if whichever choice you make turns out not to be working out, someone will be able to change it.

Another choice is to have one or more individuals as trustees, or one or more individuals together with a corporate trustee.

If you're considering banks or trust companies in your area, the lawyer who handles your estate planning should have good relationships with many of them, and should be able to introduce you to people at several of them.

[letsgobobby]

First decide if he needs a trust, whether special needs or Medicaid planning. Then decide which one. Vanguard seems so much cheaper.

[Eric]

Trustee responsibilities fall into three general areas: (i) administration (e.g., bookkeeping and tax filings), (ii) investments, and (iii) distributions (including direct expenditures on behalf of a beneficiary). I'm sure Vanguard's trust company would handle the first two areas well. My concerns are about the third area.

For distribution decisions, I would want to have a trustee which has personnel on the ground locally, and which is committed to the often high-cost, time- and labor-intensive job of investigating a beneficiary's needs, interacting with physicians and caretakers, hiring local service providers, etc. Especially for a special-needs beneficiary. I don't mean this as a knock on Vanguard, but I just would not expect those tasks to be their forte.

In my own will, I have chosen one of the options bsteiner mentions above. After my wife and I are both gone, I've named Vanguard and an individual as co-trustees. I've specified that Vanguard is responsible for general administrative matters and investment decisions (except with respect to assets, like my house, which Vanguard will not manage), while the individual co-trustee is responsible for distribution decisions (and assets Vanguard will not manage). However, I do not have any special needs beneficiaries. If I did, I might choose instead to place all trustee functions (administration, investment, and distribution) with a single local institution with deep expertise in handling special needs issues.

[letsgobobby]

Did vanguard accept being a co trustee?

[Eric]

Did vanguard accept being a co trustee?

I'm not dead yet! (With apologies to Monty Python.) However, Vanguard advertises that it will serve as co-trustee. (Click on the link shown, then click on "Trust services details and fees" on the lower right side of the page.)

[plannerman]

Vanguard requires specific language in the trust before they will accept it. If you are counting on them to be a co-trustee, you should send them a copy for pre-approval. If you do not have the required language currently in the trust document, it's a lot easier to get it added while you are alive.

plannerman

[Calm Man]

OP, you mean your child is on Medicaid, not Medicare, right? If so, the trust needs to be a special needs trust or he will lose eligibility for Medicaid.

[monicafaye]

OP, you mean your child is on Medicaid, not Medicare, right? If so, the trust needs to be a special needs trust or he will lose eligibility for Medicaid.

No, he is on Medicare. He draws Social Security Disability on his father's earning record. Therefore he qualifies for Medicare but not Medicaid.

[Eric]

Vanguard requires specific language in the trust before they will accept it. If you are counting on them to be a co-trustee, you should send them a copy for pre-approval. If you do not have the required language currently in the trust document, it's a lot easier to get it added while you are alive.

Agreed. I have had Vanguard review a trust agreement in the past. I have also inserted their required form language (which is posted on the Vanguard web site for attorney use). I didn't want the poster to take my word for it, though -- hence my joking reference. I'll add a smiley next time.

[Saving$]

Vanguards website makes it look like they charger $2500/year to be a trustee, plus an annual percentage of the assets (0.7% for trusts under $1 mil) presumably to be the custodian of the trust funds.
1. Am I understanding their total fees correctly?
2. Under which of these charges do they take care of filing the trust tax forms, or is that another charge?
Just trying to understand.

There was also a post a few days ago about a trust product mentioned in Forbes.
viewtopic.php?f=2&t=107952&newpost=1569678

[celia]

If you're considering banks or trust companies in your area, the lawyer who handles your estate planning should have good relationships with many of them, and should be able to introduce you to people at several of them.

When we created a trust about 30 years ago, we used one of the trust companies our lawyer recommended as a back-up executor. The company no longer exists, nor the company who took them over. However, all the relatives we listed (in succession to each other) as executor before the trust company are still around and live at the same address as originally documented. You need to plan for several of the executors not being available/willing.

[asset_chaos]

When we created a trust about 30 years ago, we used one of the trust companies our lawyer recommended as a back-up executor. The company no longer exists, nor the company who took them over. However, all the relatives we listed (in succession to each other) as executor before the trust company are still around and live at the same address as originally documented. You need to plan for several of the executors not being available/willing.

This, in fact, is one of the reasons I chose Vanguard Trust as the co- and backup trustee. Due to their corporate structure, I thought that they had a higher probability of remaining independent, keeping their service culture intact, and continuing as a viable business. Nothing's guarenteed of course, but you're entirely correct that trust makers should explicitly consider this problem of will the company I chose exist after I'm gone.