Marriage - Asset Allocation Question

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wvudss
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Joined: Mon Jun 01, 2009 1:19 pm

Marriage - Asset Allocation Question

Post by wvudss »

Just when I had my allocation and rebalancing to the point I was happy.......I decided to get married.

While its a good problem to have, I thought I'd ask the board given this scenario:

She has two rather large accounts with MerrilLynch, high 6 figures split evenly between them.

The first is a brokerage account that holds six large-cap individual stocks (primarily oil companies purchased long ago), all of which have very high unrealized gains (gifting from grandparents previously). The dividends are deposited into her checking account as cash. ML does not charge management fees on this acct.

The second is a Trust account which is a piece of a family trust managed by ML. The current holdings include something on the order of +60 individual stocks and 16 mutual funds. Appears to be very "actively" managed looking at the activity page on the website. Unrealized gains are minor - family trust distributions and acct dividends are invested/reinvested. The trust assets become hers in ~5 years.

I have conf call(s) scheduled with the investment managers of both to discuss things, but they are obviously managed independently of each other.

I wanted to solicit the advice of the board in order to identify the best methods in which to combine our assets, working toward getting back to the desired asset allocation.
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FelixTheCat
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Re: Marriage - Asset Allocation Question

Post by FelixTheCat »

My reference is from a marriage/divorce in California. To let you know, these are inherited assets and she does not have to commingle the assets with you. She can keep them separate as her own property.

Personally, I would not recommend your wife to commingle the assets. Ultimately, it is up to her what she wants to do.
Felix is a wonderful, wonderful cat.
island
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Re: Marriage - Asset Allocation Question

Post by island »

imgritz wrote:My reference is from a marriage/divorce in California. To let you know, these are inherited assets and she does not have to commingle the assets with you. She can keep them separate as her own property.

Personally, I would not recommend your wife to commingle the assets. Ultimately, it is up to her what she wants to do.
Ditto. I'd suggest directing her here to ask her own questions.
Jazz56
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Joined: Thu Jun 19, 2014 10:19 am

Re: Marriage - Asset Allocation Question

Post by Jazz56 »

Commingling assets can get really complicated - especially when one or both parties come to the marriage with substantial assets. Sometimes a "Yours-Mine-Ours" approach is most useful since it helps to clarify which assets are truly marital assets. Best of luck to you both and congratulations on your marriage :happy
Calm Man
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Re: Marriage - Asset Allocation Question

Post by Calm Man »

OP, I know you are interested in your wife having a fully fair shake of it. These are inherited assets and I strongly suggest you leave them apart from you asset allocation. In fact, if this were my daughter, she would have known that already. Too many things can go wrong with commingling in any way. I know of course that there is no possibility of a bad outcome to the marriage. But it is possible that the wife can die, you inherit the assets and you remarry and then give it to or contribute it to a new marriage, unintentionally shortchanging potential children. So its easiest for her to manage it without your involvement although if she is mentally incapable of handling it, I suppose your advice would be fine.
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Meg77
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Location: Dallas, TX

Re: Marriage - Asset Allocation Question

Post by Meg77 »

I am a woman who recently married who also has a trust and some inherited assets (not as much as your wife, but fairly substantial). So you may appreciate my perspective. Or not. :D

1. You didn't tell us anything about what you have or how old you two are, or how stable your jobs/careers are. It's hard to advise about asset allocation without that info. Though it sounds like you have agreed on a target AA and these funds are skewing it. You may be able to get the fund managers to adjust accordingly, or at least move the needle a bit. But you also may just need to accept that sometimes AAs get skewed by things like inheritances that you can't control. Considering this money a separate bucket from your joint assets (which you can analyze and control however you want) may be in order.

2. I understand you taking an interest in these funds and wanting to figure out a joint financial plan, etc., but your wife needs to be more involved in the process than it sounds like she is. She needs to be on those conference calls at a minimum, if not scheduling them and directing them herself. If she isn't confident and seems to be willingly handing you the reigns, then you should help of course - but also give her the space and knowledge to become a little more empowered and to take the lead as you manage this money over time.

3. Inherited funds come with a lot of emotional baggage and sometimes subtle expectations (or even explicit instructions) on how they are to be used. My grandparents set aside money for my education and have verbalized their desire that what is leftover be used for my future children's educations. Normally I wouldn't be hoarding college funds for unborn children, but I fully intend to follow at least the spirit of their intentions for this money. Please be sensitive to issues such as these before you start wielding your opinions too loudly.

4. Realize that she may decide that this is joint money to be used for the two of you on joint goals/purchases (such as a house purchase), or she may decide that is her money alone, to be used at a later time when you are potentially gone (she's likely to outlive you unless she's much older, even if you never do divorce). Either way she's crazy if she comingles it within a few years of marriage, in my personal opinion.

5. From a practical standpoint you cannot simply combine your assets as a couple, at least not literally. Of course you can and should create a joint financial plan and asset allocation. But those accounts will be staying where they are from the sounds of it (at least until the trust is fully hers). It's nice that the ML guys are listening to your opinions, and they will likely take your desires into account (especially if they sense you may end up lifelong clients), but if the assets are held in trust and they are the trustees then they can legally direct the investments any way they want. Annoying trust beneficiaries are the bane of every trust officer's existence. Play nice and you'll get further. Threats and angry outbursts don't get you far with them, trust me.
"An investment in knowledge pays the best interest." - Benjamin Franklin
dbr
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Re: Marriage - Asset Allocation Question

Post by dbr »

wvudss wrote: She has two rather large accounts with MerrilLynch, high 6 figures split evenly between them.

The first is a brokerage account that holds six large-cap individual stocks (primarily oil companies purchased long ago), all of which have very high unrealized gains (gifting from grandparents previously). The dividends are deposited into her checking account as cash. ML does not charge management fees on this acct.

Here the dilemma is diversifiable risk of having a few individual stocks but a tax cost to diversify the investment. The good news that individual stocks held in a non-managed account involve no investment costs and may be fairly tax efficient with qualified dividends only. It might be the best strategy is to slowly sell these off while keeping your total tax return below tax bracket break points. You don't say what you tax position looks like. It does matter what fraction of your total assets each of these stocks actually is. If taxes are not something you thoroughly understand, you might be well off consulting a tax accountant, especially given your new situation. There is no point at all in talking to your ML rep about this account as this would provide nothing more than an opportunity for him to try to sell something. He won't be able to give you tax advice even if he would be unethical enough or stupid enough to attempt it. If it seems that their commission structure for eventually selling these stocks is high, then you can open a brokerage account elsewhere and have that broker initiate the transfer of shares without ever talking to ML.

The second is a Trust account which is a piece of a family trust managed by ML. The current holdings include something on the order of +60 individual stocks and 16 mutual funds. Appears to be very "actively" managed looking at the activity page on the website. Unrealized gains are minor - family trust distributions and acct dividends are invested/reinvested. The trust assets become hers in ~5 years.

I have conf call(s) scheduled with the investment managers of both to discuss things, but they are obviously managed independently of each other.

It is reasonable to have a conference with the trust management to ask in a friendly and respectful manner what the investment strategy is and what the account costs are. You can explain to them that you understand that investment costs are an important concern and you would like an understanding of what that is for this account. Note that this request and conversation should come from your wife and not you. I would not react in any way to anything you hear until after you have spoken to them and taken the numbers home to think about. The obvious costs will be a management fee % of assets to run the trust, expense ratios on the mutual funds, an accounting of commissions for trading investments, if there are any, and any loads that were incurred to buy funds. It should be that both loads and commissions are waived in a management account, but knowing ML, I wouldn't be so sure. Remember that a trust has costs for tax reporting and other administrative issues. Presumably you are getting quarterly, or at least annual reports of trust acivity and also a K-1 tax form. By you, I mean your wife.

I wanted to solicit the advice of the board in order to identify the best methods in which to combine our assets, working toward getting back to the desired asset allocation.

As others have pointed out you should not willy-nilly combine assets formally. You can, of course, think about what your combined assets look like as a pool of wealth. You don't say how old you or or anything else about your situation, but one thing a couple can do when bringing significant assets to a marriage is consult an estate attorney to get an understanding of legal issue in managing wealth, especially when there are inherited assets involved. These things are also state specific, so you need a local attorney.

Calm Man
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Joined: Wed Sep 19, 2012 9:35 am

Re: Marriage - Asset Allocation Question

Post by Calm Man »

Meg77 wrote:I am a woman who recently married who also has a trust and some inherited assets (not as much as your wife, but fairly substantial). So you may appreciate my perspective. Or not. :D

1. You didn't tell us anything about what you have or how old you two are, or how stable your jobs/careers are. It's hard to advise about asset allocation without that info. Though it sounds like you have agreed on a target AA and these funds are skewing it. You may be able to get the fund managers to adjust accordingly, or at least move the needle a bit. But you also may just need to accept that sometimes AAs get skewed by things like inheritances that you can't control. Considering this money a separate bucket from your joint assets (which you can analyze and control however you want) may be in order.

2. I understand you taking an interest in these funds and wanting to figure out a joint financial plan, etc., but your wife needs to be more involved in the process than it sounds like she is. She needs to be on those conference calls at a minimum, if not scheduling them and directing them herself. If she isn't confident and seems to be willingly handing you the reigns, then you should help of course - but also give her the space and knowledge to become a little more empowered and to take the lead as you manage this money over time.

3. Inherited funds come with a lot of emotional baggage and sometimes subtle expectations (or even explicit instructions) on how they are to be used. My grandparents set aside money for my education and have verbalized their desire that what is leftover be used for my future children's educations. Normally I wouldn't be hoarding college funds for unborn children, but I fully intend to follow at least the spirit of their intentions for this money. Please be sensitive to issues such as these before you start wielding your opinions too loudly.

4. Realize that she may decide that this is joint money to be used for the two of you on joint goals/purchases (such as a house purchase), or she may decide that is her money alone, to be used at a later time when you are potentially gone (she's likely to outlive you unless she's much older, even if you never do divorce). Either way she's crazy if she comingles it within a few years of marriage, in my personal opinion.

5. From a practical standpoint you cannot simply combine your assets as a couple, at least not literally. Of course you can and should create a joint financial plan and asset allocation. But those accounts will be staying where they are from the sounds of it (at least until the trust is fully hers). It's nice that the ML guys are listening to your opinions, and they will likely take your desires into account (especially if they sense you may end up lifelong clients), but if the assets are held in trust and they are the trustees then they can legally direct the investments any way they want. Annoying trust beneficiaries are the bane of every trust officer's existence. Play nice and you'll get further. Threats and angry outbursts don't get you far with them, trust me.
Bless you Meg. Although I think my (as yet unmarried and I wouldn't mind if it stayed that way) daughter understands this, I may send her to you for a refresher course. I would also point out that there is no reason that this advice would not apply to a man with an inheritance as well. It's just that usually (but not always) the woman in these relationships is the one who is less knowledgeable. We need to change that by the way.
countdown
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Re: Marriage - Asset Allocation Question

Post by countdown »

+1000 Meg.

To OP:
How much larger is your wife's portfolio than yours?
Grt2bOutdoors
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Re: Marriage - Asset Allocation Question

Post by Grt2bOutdoors »

+10000 to Meg. :D :beer
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hornet96
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Re: Marriage - Asset Allocation Question

Post by hornet96 »

wvudss wrote: The second is a Trust account which is a piece of a family trust managed by ML. The current holdings include something on the order of +60 individual stocks and 16 mutual funds. Appears to be very "actively" managed looking at the activity page on the website. Unrealized gains are minor - family trust distributions and acct dividends are invested/reinvested. The trust assets become hers in ~5 years.
Keep in mind that the trust is governed by a legal document (and an investment policy statement of its own). Since it sounds like your wife is a beneficiary (and not a trustee), I doubt she will have much of a say as to how the assets in the trust are invested. Especially since it is "a piece of a family trust," implying that there are other parties involved that would probably have to approve any significant changes.

All speculation on my part, of course. But, I would expect it to be challenging to do much about the asset allocation in the trust, given the added layer of legal complexities.
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cheese_breath
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Re: Marriage - Asset Allocation Question

Post by cheese_breath »

Marriage AA is as follows...

Your assets are hers. Her assets are hers. It's that simple.
The surest way to know the future is when it becomes the past.
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