New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by Rick Ferri »

Here is the LINK>

Bogleheads on Investing episode 029: Frazer Rice, host Rick Ferri

Frazer Rice is the author of “Wealth, Actually: Intelligent Decision-Making for the 1%”, host of the “Wealth, Actually” podcast, creator of the "Wealth, Actually" blog, and a Northeast Regional Director for Pendleton Square Trust Company. Frazer is an attorney and experienced trust officer. His wealth management career has included serving for over 15 years as a Managing Director at Wilmington Trust Company. We cover a lot of ground in this episode including estate planning, reasons for using trusts, selecting trustees, family dynamics, investing for 1%'ers, and much more!   

Happy New Year!

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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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Bumped to the top.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by L82GAME »

Interesting podcast! Admittedly, I learned a few things after checking my biases at the door RE: intelligent decision making for the 1%. Particularly the conversation about trust construction and corporate trustees was helpful, as well as the concept of being rich vs. wealthy (i.e., balance sheet vs cash flow statement analogy). Thanks, Rick!
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by geerhardusvos »

Good discussion. Thanks for the podcast!

Mr. Rice kindly confirmed my understanding and position that wealthy people are making north of ~$500,000, or even more accurately, have $20 million or more net worth. And high income doesn’t always mean someone will accumulate to a higher net worth.
Last edited by geerhardusvos on Sat Jan 02, 2021 3:43 pm, edited 1 time in total.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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As always, great interview and podcast.

There's certainly a big difference between "income" and "wealth"!
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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There's certainly a big difference between "income" and "wealth"!
You could have a negative net worth - if you make $400,000 per year in income, you're wealthy according to our government.

On the other hand:

You could have $5 million in net worth - if your taxable income is only $17,000 per year, you're in poverty and need government assistance!

Go figure. :?

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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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Very interesting! I liked how a concern of the 1% is making sure their kids take advantage of the opportunity and not squander it. That definitely applies to a broad demographic.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by sleepysurf »

Great podcast discussion! Right on cue, too, since my primary New Years resolution is to review/update our estate plan. Definitely has me rethinking whom to name as Trustee.

For those considering the Corporate Trustee route...

Vanguard charges 0.55% for first $5 million (0.25% Administrative Fee plus 0.3% for PAS portfolio management). More info here... https://www.vanguard.com/pdf/a198.pdf

Fidelity charges 0.79% for first $2 million (0.45% Administrative Fee plus 0.34% Agent Fee), with additional a la carte charges. More info here... https://clearingcustody.fidelity.com/ap ... 790970.PDF

Schwab charges 0.5% for first $5 million, which appears to be inclusive, but I didn't fully research it. More info here... https://www.schwab.com/personal-trust-s ... text-86761

Using a Bank or Attorney as Trustee would ostensibly be even more expensive.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by dharrythomas »

Rick,

Thank you. Another informative, enjoyable podcast.

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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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sleepysurf wrote: Sat Jan 02, 2021 3:12 pm Fidelity charges 0.79% for first $2 million (0.45% Administrative Fee plus 0.34% Agent Fee), with additional a la carte charges. More info here... https://clearingcustody.fidelity.com/ap ... 790970.PDF
We have Fidelity set to be a successor corporate co-trustee but fees have increased since the time we created our revocable trust...hmmm (perhaps to pay for Zero funds?!) :annoyed

VG does not manage real-estate (as of the time I researched this ~1 year ago), whereas Schwab and FIDO do. Also thought that VG has $1M min.
Last edited by L82GAME on Sat Jan 02, 2021 3:50 pm, edited 1 time in total.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by abuss368 »

Rick Ferri wrote: Sat Jan 02, 2021 9:24 am
There's certainly a big difference between "income" and "wealth"!
You could have a negative net worth - if you make $400,000 per year in income, you're wealthy according to our government.

On the other hand:

You could have $5 million in net worth - if your taxable income is only $17,000 per year, you're in poverty and need government assistance!

Go figure. :?

Rick Ferri
Have to love that dynamic!

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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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The most interesting tidbit to me was that you could avoid state income taxes on trusts by having a trustee in a no income tax state. On researching it more, there are additional requirements that don't make it suitable for your standard living trust, but it sounds interesting for a high net worth in a high tax state who wants to create some irrevocable trusts as part of their estate planning.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by marcopolo »

Rick Ferri wrote: Sat Jan 02, 2021 9:24 am
There's certainly a big difference between "income" and "wealth"!
You could have a negative net worth - if you make $400,000 per year in income, you're wealthy according to our government.

On the other hand:

You could have $5 million in net worth - if your taxable income is only $17,000 per year, you're in poverty and need government assistance!

Go figure. :?

Rick Ferri
With the exception of the estate tax, the government is largely uninvolved in defining wealth. They focus on income.

I kind of prefer that to the even more intrusive reach they would have to have in order to determine people's level of wealth.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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Thanks
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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Thanks. Will check out.
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Podcast questions

Post by frazerrice »

Hi all-
Frazer Rice here. A happy and safe New Year to everyone.
I'd like to thank Rick for a fun interview - I hope you found it informative!
I have followed him for a long time and his contributions to the wealth management space can't be overstated.
It's a real honor to be on the Boglehead podcast.

This is a good place for members of the group to ask follow up questions.
I'll do my best to reply promptly!

Thanks, FCR
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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^^^ I confirm frazerrice is Rick Ferri's guest. Welcome!
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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Frazer, thanks for dropping by. I just listened to this excellent podcast for a 2nd time, this time with my wife, and we took notes.

A common scenario that wasn't addressed in the podcast are second (or more :D ) marriages with a blended family. Obviously, a good Estate Planning attorney will walk through all the options, and make recommendations. However, prior to meeting with one, are there any good resources (books, articles, etc.) you can recommend that provide some advanced guidance for that situation?
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by frazerrice »

Thanks for the question.
I haven't written about it, but because of the importance and timeliness of the topic, I will this year.

Second families can make planning complex and these are sensitive discussions.

A good place to start your thinking is deciding which assets go in the "yours", "mine" and "ours" buckets (See the Considerable article below).
Making sure that assets are titled correctly (life insurance policies and beneficiary designations esp.) to reflect the new family situation is job 1.
It is vital that estate plans (will, trusts, POA's) are updated and integrated with pre-and postnuptial agreements.

Here are a few links to get you started.
https://www.estateplanning.com/Estate-P ... Marriages/
https://www.forbes.com/sites/christinef ... 793a996568
https://www.cnbc.com/2019/01/17/estate- ... -kids.html
https://www.considerable.com/life/marri ... emarriage/

There are a bunch of law firm sites that have good overviews of the issues as well.

Hope this helps-

FCR

sleepysurf wrote: Sun Jan 03, 2021 10:44 am Frazer, thanks for dropping by. I just listened to this excellent podcast for a 2nd time, this time with my wife, and we took notes.

A common scenario that wasn't addressed in the podcast are second (or more :D ) marriages with a blended family. Obviously, a good Estate Planning attorney will walk through all the options, and make recommendations. However, prior to meeting with one, are there any good resources (books, articles, etc.) you can recommend that provide some advanced guidance for that situation?
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by frazerrice »

Yes- good comment.

(One quick note- I expect many states, in a desperate need for revenue, to look hard at increasing state income taxes. For instance for certain high earners in AZ, the state income tax rate went from 4.5% to 8% this year. The non-grantor trust tactic could become even more popular. Also, with recent WFH phenomenon and other wealth transportability issues, many people will investigate changing their tax domicile.)

SpaceCowboy wrote: Sat Jan 02, 2021 4:13 pm The most interesting tidbit to me was that you could avoid state income taxes on trusts by having a trustee in a no income tax state. On researching it more, there are additional requirements that don't make it suitable for your standard living trust, but it sounds interesting for a high net worth in a high tax state who wants to create some irrevocable trusts as part of their estate planning.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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Frazer, thanks for the quick responses!

Wishing you (and all the BH's) a Safe and Happy New Year as well!
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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Rick,
Is there a transcript available?
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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1210sda wrote: Sun Jan 03, 2021 1:16 pm Rick,
Is there a transcript available?
I don't send out to have a transcript made because it's expensive. We have volunteers who are working on this, though.

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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by JAZZISCOOL »

frazerrice wrote: Sun Jan 03, 2021 12:10 pm Thanks for the question.
I haven't written about it, but because of the importance and timeliness of the topic, I will this year.

Second families can make planning complex and these are sensitive discussions.

A good place to start your thinking is deciding which assets go in the "yours", "mine" and "ours" buckets (See the Considerable article below).
Making sure that assets are titled correctly (life insurance policies and beneficiary designations esp.) to reflect the new family situation is job 1.
It is vital that estate plans (will, trusts, POA's) are updated and integrated with pre-and postnuptial agreements.

Here are a few links to get you started.
https://www.estateplanning.com/Estate-P ... Marriages/
https://www.forbes.com/sites/christinef ... 793a996568
https://www.cnbc.com/2019/01/17/estate- ... -kids.html
https://www.considerable.com/life/marri ... emarriage/

There are a bunch of law firm sites that have good overviews of the issues as well.

Hope this helps-

FCR

sleepysurf wrote: Sun Jan 03, 2021 10:44 am Frazer, thanks for dropping by. I just listened to this excellent podcast for a 2nd time, this time with my wife, and we took notes.

A common scenario that wasn't addressed in the podcast are second (or more :D ) marriages with a blended family. Obviously, a good Estate Planning attorney will walk through all the options, and make recommendations. However, prior to meeting with one, are there any good resources (books, articles, etc.) you can recommend that provide some advanced guidance for that situation?
Thanks Frazer and Rick! I really enjoyed the podcast! :happy
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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L82GAME wrote: Sat Jan 02, 2021 3:39 pm
sleepysurf wrote: Sat Jan 02, 2021 3:12 pm Fidelity charges 0.79% for first $2 million (0.45% Administrative Fee plus 0.34% Agent Fee), with additional a la carte charges. More info here... https://clearingcustody.fidelity.com/ap ... 790970.PDF
We have Fidelity set to be a successor corporate co-trustee but fees have increased since the time we created our revocable trust...hmmm (perhaps to pay for Zero funds?!) :annoyed

VG does not manage real-estate (as of the time I researched this ~1 year ago), whereas Schwab and FIDO do. Also thought that VG has $1M min.
Sleepysurf has overstated the fees. The agent fee is not added to the administrative fee. Read the brochure carefully. Agent fee is , for instance, if uncle Fred is assigned trustee and wants professional help. The admin fee is if you appoint fidelity as primary or joint trustee.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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Murgatroyd wrote: Sun Jan 03, 2021 6:41 pm Sleepysurf has overstated the fees. The agent fee is not added to the administrative fee. Read the brochure carefully. Agent fee is , for instance, if uncle Fred is assigned trustee and wants professional help. The admin fee is if you appoint fidelity as primary or joint trustee.
My apologies if misleading. I was just trying to compare apples vs. apples, since the "all-in" Vanguard fees include PAS for asset management.

Fidelity's brochure states...
Potentially more options for investment managers as New Hampshire allows an investment manager to be appointed to serve with the trustee
If "Uncle Fred" manages the Fidelity portfolio on his own, he'd theoretically have more liability if any trust beneficiaries are unhappy with the portfolio performance. At least that's my (novice) take on what Frazer alluded to.

Hopefully, folks who are actually using Corporate Trustee services from the major brokerages will chime in with more details.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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^^^ A PM would be better.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

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LadyGeek wrote: Mon Jan 04, 2021 10:34 am ^^^ A PM would be better.
Thanks, Lady Geek. I'll do that.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by mbt863 »

Just listened to the podcast which was informative but question for Frazer if he sees this. You mention the powerful tool of an "estate value freeze" because of low interest rates and high estate tax exemption which can double the leverage in estate planning. Can you provide a bit more detail on what you are talking about as not familiar with this and particularly how low interest rates impact the calculus.

Channeling Denzel in Philadelphia, if you could explain this to me like I was a five year old I'd appreciate a bit more detail on how it could benefit people. :sharebeer
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by frazerrice »

Ok! I'll do my best..

The purpose of an estate freeze is to transfer to other persons (children, grandchildren, key employees) the future increase in value of the assets (and this can be anything - real estate, closely held business, stock- but it works best when these assets appreciate a lot and quickly) that an initiator of a freeze (the transferor) owns. Estate freeze transactions share some common characteristics in that these transactions generally involve a senior generation family member making some form of a transfer of an asset and receiving back a type of cash-flow interest (e.g., a promissory note, a fixed annuity interest, or a preferred payment). The effectiveness of the transfer is dependent two things: the increase in value that is going to the next generation and fixed nature of the return of the cash flow interest. That cash flow interest is tied to interest rates published by the IRS (the "AFR rates"). High Estate tax/Gift Tax exemptions open up a different set of tools in the toolbox and can amplify certain estate freeze techniques.

When properly structured and when the growth in value of the transferred asset exceeds the "return cash flow interest" (whose value has been "frozen" by choosing the interest rate published by the IRS), the growth in value of the initial asset is passed on transfer tax free to the next generation. Low interest rates (like now) increase the effectiveness of these transactions because the underlying assets have a lower "fixed value" hurdle to get over such that the surplus in that value over the fixed payment can go to the next generation.

Enough gobledygook- A useful example is pre-IPO stock. (This is an extremely oversimplified example, but it illustrates the point)
Let's say 100 shares of X are $10 in value on day one ($1mm total), and the 1 year interest rates are 2% (they are lower today as published by the IRS),
Let's say you set up a structure where the annuity payment going back to the initiator is $1,000,000 + 1 years of interest payments at 2% = $1,020,000, but that the future growth goes to the next generation at the end of the one year term.
Then, let's say that the stock price IPO'ed and went from $10 to $30 within that one year.
The value in that structure would be $3,000,000.
$1,020,000 (the "annuity") is paid back to the initiator.
This leaves $1,980,000 in value transferred to the next generation (transfer tax free) because the value of the estate was frozen on day one at the point at which the value was $10 (now $30).
If interest rates were 4% not 2%, the annuity payment would be $1,040,000 and the value transferred would be $1,960,000.
If the value of X appreciates "only" to $20 and interest rates are 2%, the value transferred would be $980,000 ($2mm - $1,020,000).
So low interest rates plus highly appreciating assets make these estate tools all the more effective.

(Again, this is an oversimplified example, but I hope this helps!)

To go really in depth on the subject . . . this is a terrific link: https://nysba.org/NYSBA/Meetings%20Depa ... ucting.pdf

-Frazer
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by bdpb »

abuss368 wrote: Sat Jan 02, 2021 3:46 pm
Rick Ferri wrote: Sat Jan 02, 2021 9:24 am
There's certainly a big difference between "income" and "wealth"!
You could have a negative net worth - if you make $400,000 per year in income, you're wealthy according to our government.

On the other hand:

You could have $5 million in net worth - if your taxable income is only $17,000 per year, you're in poverty and need government assistance!

Go figure. :?

Rick Ferri
Have to love that dynamic!

Tony
Big whoop over nothing. Let me count the number of people on one hand with 400k income and negative net worth.

On the other hand, it sounds like you folks are advocating for a wealth (net worth) tax.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by mbt863 »

thanks for the detailed response Frazer! Much appreciated. :beer
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by Stinky »

bdpb wrote: Sun Apr 11, 2021 9:55 am
Rick Ferri wrote: Sat Jan 02, 2021 9:24 am
There's certainly a big difference between "income" and "wealth"!
You could have a negative net worth - if you make $400,000 per year in income, you're wealthy according to our government.

On the other hand:

You could have $5 million in net worth - if your taxable income is only $17,000 per year, you're in poverty and need government assistance!

Go figure. :?

Rick Ferri
Big whoop over nothing. Let me count the number of people on one hand with 400k income and negative net worth.
I believe that there are a number of doctors, etc. who graduate with significant student loan debt who fit this description.
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Re: New "Bogleheads on Investing" podcast with estate expert Frazer Rice

Post by abuss368 »

bdpb wrote: Sun Apr 11, 2021 9:55 am
abuss368 wrote: Sat Jan 02, 2021 3:46 pm
Rick Ferri wrote: Sat Jan 02, 2021 9:24 am
There's certainly a big difference between "income" and "wealth"!
You could have a negative net worth - if you make $400,000 per year in income, you're wealthy according to our government.

On the other hand:

You could have $5 million in net worth - if your taxable income is only $17,000 per year, you're in poverty and need government assistance!

Go figure. :?

Rick Ferri
Have to love that dynamic!

Tony
Big whoop over nothing. Let me count the number of people on one hand with 400k income and negative net worth.

On the other hand, it sounds like you folks are advocating for a wealth (net worth) tax.
Ha! Confused how that conclusion was reached!

Tony
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