Is this a Vanguard quirk? [Adding beneficiaries to account]

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investor4life
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Is this a Vanguard quirk? [Adding beneficiaries to account]

Post by investor4life » Wed Jul 16, 2014 11:26 am

I have a non-retirement account at Vanguard, held jointly with my spouse (the account is JT TEN WROS). I want to add my children as beneficiaries in the event that both account holders pass away simultaneously. (The children are not minors.) When I called Vanguard, I was told that they do NOT offer this option on joint accounts anymore (it was apparently discontinued sometime in 2006/07) and in the event of simultaneous death the assets pass on to the estate and distribution will be determined by our will. (Sad to say, we have not made a will as yet, but a will/estate planning is on the top of our to-do list.) The Vanguard phone rep. even brought a `beneficiary specialist' on the line and he, too, confirmed this. This surprised me no end as I have had no problem designating beneficiaries recently on joint accounts at Schwab, Ameritrade, etc.

So my questions for the forum: (1) What might be Vanguard's rationale for this? (2) Has anyone else encountered this situation (either with Vanguard or another mutual fund firm)? (3) Other than going the "will"-route, is there an easy and quick workaround? (Estate planning will take some time and I want a quick "fix" in place in the meantime.)

Thanks in advance. I've been a long-time lurker and am in awe of the collective wisdom and civility in this forum!

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Re: Is this a Vanguard quirk?

Post by 123 » Wed Jul 16, 2014 12:34 pm

My guess is that since the account type is "with right of survivorship" there is already, in essence, a beneficiary (that being the surviving joint tenant). Going beyond one level or "survivorship" might have complications in some situations (who knows) that Vanguard doesn't want to deal with.

I don't have experience with this type of issue elsewhere, most banks and brokerages seem to accommodate primary and secondary beneficiaries.

Alternatives might be to establish an account at Vanguard for each of the two joint tenants and divide the assets accordingly. Maybe then you can establish primary (the existing joint tenant) and contingent beneficiaries in connection with those new accounts.

Alternatively, you could move your Vanguard assets "in kind" to Schwab or Ameritrade if they accommodate your beneficiary requirements.
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Re: Is this a Vanguard quirk?

Post by mhalley » Wed Jul 16, 2014 12:51 pm

I don't know what Vanguard's thinking is. It would probably take longer to transfer the account than to do an online will kit, assuming that would be adequate to your estate planning needs.
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Re: Is this a Vanguard quirk?

Post by tadamsmar » Wed Jul 16, 2014 1:45 pm

I know that Vanguard tends to limit the options for beneficiaries. My guess is that it keeps costs down by avoiding complex cases.

But I don't know about this case.

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Re: Is this a Vanguard quirk?

Post by Mel Lindauer » Wed Jul 16, 2014 1:50 pm

tadamsmar wrote:I know that Vanguard tends to limit the options for beneficiaries. My guess is that it keeps costs down by avoiding complex cases.

But I don't know about this case.
That would be my guess, too. It's very rare that both owners die at the same exact time. While certain legal documents can spell out what time frame constitutes simultaneous death, that can be a dicey legal situation that's not spelled out with a simple POD designation, and Vanguard doesn't want to have to deal with these costly legal issues.
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Re: Is this a Vanguard quirk?

Post by tadamsmar » Wed Jul 16, 2014 2:00 pm

investor4life wrote:So my questions for the forum: (1) What might be Vanguard's rationale for this? (2) Has anyone else encountered this situation (either with Vanguard or another mutual fund firm)? (3) Other than going the "will"-route, is there an easy and quick workaround? (Estate planning will take some time and I want a quick "fix" in place in the meantime)
The quick and easy workaround is to look up the intestate succession laws in your state to see if they are satisfactory for your situation:

http://livingtrustnetwork.com/estate-pl ... ssion.html

They were not for me because I have some step-kids that needed to be covered in a will for assets solely in my name.

There are other reasons for writing a will, just is just one or them that you can look into.

You should also consider the case where one dies, and the other inherits and then dies before getting a will in place.

I am not a lawyer.

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Re: Is this a Vanguard quirk?

Post by celia » Wed Jul 16, 2014 2:04 pm

Do you own a house jointly with your wife? What would happen to it if you and your wife died at the same time?

The laws of your state define the default beneficiaries for your state. They usually say spouse, then children equally, then parents, ....
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Re: Is this a Vanguard quirk?

Post by tadamsmar » Wed Jul 16, 2014 2:07 pm

Mel Lindauer wrote:
tadamsmar wrote:I know that Vanguard tends to limit the options for beneficiaries. My guess is that it keeps costs down by avoiding complex cases.

But I don't know about this case.
That would be my guess, too. It's very rare that both owners die at the same exact time. While certain legal documents can spell out what time frame constitutes simultaneous death, that can be a dicey legal situation that's not spelled out with a simple POD designation, and Vanguard doesn't want to have to deal with these costly legal issues.
In other words, that lunch you bought with the savings from Vanguard's low expense ratios was not free.

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Re: Is this a Vanguard quirk?

Post by Lafder » Wed Jul 16, 2014 2:55 pm

Great reason to make a will! And update account ownership and beneficiaries as circumstances change.

I had the same situation with JTWROS accounts, Vanguard does not allow a beneficiary.

I agree with Mel's comment that it becomes a logistical nightmare for Vanguard if there is an accident and both original owners are harmed and die, but not at the exact same time, or if time of death can not be determined. If they have different beneficiaries, the heirs could argue the time of death etc. etc

I remember the attorney explained this to us when we made our will since it is a well known issue with inheritance (time of death if 2 joint owners). There is wording in our will that basically says if time of death is unclear it is to be treated as if both died at the same time.

:oops: ******edit after reading more posts and online I realized I misunderstood the time of death clause. The clause in our will says the opposite of what I thought. It says that if timing of death is unclear, our deaths are NOT to be treated as simultaneous since that complicates inheritance even more**********

It seems to me it should be easy to allow a beneficiary especially if both JTWROS owners wanted the same beneficiary(ies).

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Last edited by Lafder on Sat Jul 19, 2014 11:19 am, edited 1 time in total.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by LadyGeek » Wed Jul 16, 2014 4:50 pm

This thread is now in the Personal Finance (Not Investing) forum (estate planning). I also retitled the thread.

The OP can change the thread title by editing the Subject: line in Post #1.
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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by Alan S. » Wed Jul 16, 2014 6:10 pm

I have taxable accounts at Schwab and T Rowe Price, both of which are registered to us as CPWROS (community Prop state) with a TOD beneficiary and contingent beneficiary. Both were set up without problems.

Also have a beneficiary deed recorded on the house as CPWROS with a primary beneficiary on it.

Each of these forms are clear that they only apply after the last spouse passes.

I have heard that VG will make beneficiary related exceptions for Flagship clients, but even in those cases the process may be far from routine. So Vanguard quirk? Yes, and there has been a historical track record there. Give them credit for consistency at least.

Complex beneficiary designations are requested somewhat in proportion to the amount of assets clients control. Perhaps VG does not appeal to those with very large estates to begin with, which allows them to maintain beneficiary restrictions without too much in the way of lost assets. But obviously VG has lost many accounts due to these restrictions and you can bet they keep track of this and still feel that estate settlement efficiency is worth the lost assets.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by sscritic » Wed Jul 16, 2014 6:22 pm

Some quotes from the Morningstar forum (Thanks google!)
Today I contacted Vanguard wanting to setup a TOD (transfer on death) plan on my jointly owned, non-retirement PrimeMMF account and was told that as of 1/1/2007 TODs can only be setup on individually owned accounts. ... This was an internal Vanguard decision not based on any law changes according to the VG rep.
Apparently there have been some potential beneficiaries, who upon finding out that they were not listed as a beneficiary on a joint account where both owners died decide to go to court contending that had one of the joint owners survived, surely they have been named as a beneficiary. Vanguard gets dragged into court, which costs money, and they want to avoid this.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by DonCamillo » Wed Jul 16, 2014 6:52 pm

I believe that beneficiary designations avoid probate, while passing an estate by will does not. So this policy could cost both time and money. Another problem is that beneficiary updates are often not timely and might not be updated before the second death. That might happen more often than simultaneous death.
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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by bsteiner » Wed Jul 16, 2014 7:18 pm

DonCamillo wrote:I believe that beneficiary designations avoid probate, while passing an estate by will does not. So this policy could cost both time and money. Another problem is that beneficiary updates are often not timely and might not be updated before the second death. That might happen more often than simultaneous death.
Your info says you're in New Jersey. It takes less than an hour to probate a Will in New Jersey. In many counties, the court clerks will even fill out the forms for you. The filing fee is modest. Absent a contest, once the Will is probated, you don't have to deal with the court (except you have to file a piece of paper saying that you sent a notice of probate to the interested parties).

Naming beneficiaries for assets other than retirement benefits and life insurance can create lots of problems. For example:

1. If a beneficiary doesn't voluntarily contribute his/her share of the estate taxes, the executors will have to struggle to collect the money.

2. If one asset grows more than another, or the person adds more money to one than another, or withdraws more from one than another, or sells an asset, the result may not be what was intended.

3. Our clients almost always provide for their children to inherit in trust rather than outright. That keeps their inheritances out of their estates for estate tax purposes, and protects their inheritances from their creditors and spouses. Naming beneficiaries for accounts can destroy these protections.

4. Someone might leave cash bequests to specified persons. Naming beneficiaries for accounts may result in there not being enough money to satisfy these bequests.

5. If there are other debts or expenses, or taxes due, the executors may have to struggle to recoup the funds needed to pay these items.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by donall » Wed Jul 16, 2014 7:27 pm

I think Schwab also has this type of situation, but I can't remember what type of account. If you have a living trust set up for real estate, then you can also use the living trust for account holdings by retitling.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by Alan S. » Wed Jul 16, 2014 7:51 pm

DonCamillo wrote:I believe that beneficiary designations avoid probate, while passing an estate by will does not. So this policy could cost both time and money. Another problem is that beneficiary updates are often not timely and might not be updated before the second death. That might happen more often than simultaneous death.
A beneficiary on a joint account must have been agreed to by both owners, and both owners must sign the TOD beneficiary form. When the first owner passes, the designation is still valid although the surviving owner does have the authority to change it. If both owners want to guarantee that a certain beneficiary receive an account, it must be left to a trust as is frequent when owners have children from prior marriages.

TODs are simple, quick, and cost free to change. Wills and trusts do not have these advantages. Therefore, procrastination should be less of a factor in changing a TOD than changing a will or trust. If the owner is oblivious to life changes however, all these asset transfer methods will likely fail to deliver the intended result.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by KlangFool » Wed Jul 16, 2014 7:56 pm

TS,

I just want to thank you for bringing this out. Until I read your post, I thought that I have beneficiary assigned to all my accounts...

Thanks.

KlangFool

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by tadamsmar » Fri Jul 18, 2014 7:17 am

In terms of this being a Vanguard quirk, The Federal TSP is even more restrictive in that I customize beneficiaries with my Vanguard account in ways that I cannot with the TSP.

With the TSP I really think it's a matter of the fact that have a captive audience and are not competing with other options and have limited resources and low ERs.

With Vanguard, I think it's a matter of low ERs that limit how much cost-intensive service they can provide within their budget, so they have to pick and choose. If you have ever tried to look into a matter of federal was vs a state laws, you will quickly find that can be 50 times harder to get a grasp of all the state laws, so the effort can add up when state laws and regulations are involved.

Vanguard's policies on POAs are kind of quirky and restrictive too, and for the same reason, I think.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by placeholder » Fri Jul 18, 2014 12:57 pm

ShareBuilder doesn't allow TOD on non IRA accounts period.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by billjudy » Fri Jul 18, 2014 3:49 pm

Vanguard indicates that when one of the joint account holders passes the other becomes the single owner. At that time Vanguard allows (as they should) beneficiaries or a TOD to be set up for the then single account holder.

Fidelity does allow beneficiaries on joint accounts with right of survivorship.

Otherwise, wills or trusts have to be generated.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by Alan S. » Fri Jul 18, 2014 6:43 pm

tadamsmar wrote:In terms of this being a Vanguard quirk, The Federal TSP is even more restrictive in that I customize beneficiaries with my Vanguard account in ways that I cannot with the TSP.

With the TSP I really think it's a matter of the fact that have a captive audience and are not competing with other options and have limited resources and low ERs.

With Vanguard, I think it's a matter of low ERs that limit how much cost-intensive service they can provide within their budget, so they have to pick and choose. If you have ever tried to look into a matter of federal was vs a state laws, you will quickly find that can be 50 times harder to get a grasp of all the state laws, so the effort can add up when state laws and regulations are involved.

Vanguard's policies on POAs are kind of quirky and restrictive too, and for the same reason, I think.
Yes, the TSP treats beneficiaries in a different fashion than typical 401k plans or IRAs. This may be fine for those used to the TSP provisions and restrictions, but for those familiar with other types of plans it is dangerous to assume that the rules will be similar to what you are used to. The answer is to research your situation thoroughly and then determine if the advantages of the TSP or Vanguard are enough to override these other restrictions. Would be beneficial for someone to do a comparison chart on what these differences are for the TSP, VG and other typical custodian with broad options. Right now, am too lazy to undertake this :beer

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by runner9 » Mon Jul 28, 2014 4:15 pm

If the OP is still wondering if this is for sure the case at Vanguard here's the form which clearly states it doesn't apply to joint accounts if not already set up.

http://www.vanguard.com/pdf/bdbp.pdf?2210039149

As to why, I don't know.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by Alan S. » Mon Jul 28, 2014 11:28 pm

The footnote for joint accounts being ineligible indicates that in the past VG provided the TOD on joint accounts. But since they do not provide it on CP accounts it would be inconsistent with providing the TOD on joint accounts. So instead of offering it on CP accounts, they apparently became consistent by denying it on joint accounts as well.

Again, I had no problem getting a TOD on community property accounts from Schwab and T Rowe Price. Without a TOD, a common disaster could result in the accounts going into the estate and becoming subject to probate. :annoyed

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by tadamsmar » Thu Jul 31, 2014 7:37 am

Alan S. wrote:
Yes, the TSP treats beneficiaries in a different fashion than typical 401k plans or IRAs. This may be fine for those used to the TSP provisions and restrictions, but for those familiar with other types of plans it is dangerous to assume that the rules will be similar to what you are used to. The answer is to research your situation thoroughly and then determine if the advantages of the TSP or Vanguard are enough to override these other restrictions. Would be beneficial for someone to do a comparison chart on what these differences are for the TSP, VG and other typical custodian with broad options. Right now, am too lazy to undertake this :beer
You'd probably have to be pretty energetic to do this. Hard or impossible to do a complete analysis. Fifty states, fifty rules. And, I think Vanguard uses judgement in some cases so it's hard to say what the limits are. And, some of the information on this is from specific communications with clients. I don't think the info on their standard forms tells the whole story even when it seems definitive, there are grey areas and work-arounds in some cases.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by bartbill » Thu Jul 31, 2014 11:32 am

I ran into this issue just 3 days ago.

We don't have a will right now - and don't think I need one. Everything we have is now in stocks, bonds, and cash. We do have a nice truck and 5th wheel travel trailer. Since retirement we are full-time just traveling the country. We will buy a permanent residence down the road

We are traveling to South Africa in October for Safari so I was checking into those same issues (both of us dying at the same time). We have a fairly large, jointly owned, taxable, Vanguard Total Stock Market account. Vanguard told us the same thing. I have this account linked to my personal checking account. I think I will give my son access to the Vanguard account and upon receiving word of our simultaneous demise, transfer the money to the checking account he has access to. Good idea, bad idea. Thought?

regards

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by Epsilon Delta » Thu Jul 31, 2014 1:27 pm

bartbill wrote: We are traveling to South Africa in October for Safari so I was checking into those same issues (both of us dying at the same time). We have a fairly large, jointly owned, taxable, Vanguard Total Stock Market account. Vanguard told us the same thing. I have this account linked to my personal checking account. I think I will give my son access to the Vanguard account and upon receiving word of our simultaneous demise, transfer the money to the checking account he has access to. Good idea, bad idea. Thought?

regards
Bad idea. Once you die the Vanguard account no longer belongs to you, and you can't authorize your son to access it outside the estate handling process. Whoever is entitled to the funds at the moment of your death can ask the courts for the money. Causing your son some difficulty.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by placeholder » Thu Jul 31, 2014 4:31 pm

I agree that any scheme to access accounts after death is a poor idea so if you want the son to have the assets if both die make him a TOD beneficiary which for a joint account only becomes effective if both account holders die.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by runner9 » Thu Jul 31, 2014 4:41 pm

placeholder wrote:I agree that any scheme to access accounts after death is a poor idea so if you want the son to have the assets if both die make him a TOD beneficiary which for a joint account only becomes effective if both account holders die.
Aren't we discussing that there is no beneficiary option on joint taxable accounts at Vanguard, as detailed and linked in the last several posts?

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by placeholder » Thu Jul 31, 2014 5:32 pm

Well that was weeks ago and I didn't recall.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by toto238 » Thu Jul 31, 2014 5:59 pm

I believe a workaround could be:

1. Move assets into Spouse A's name in a single account.
2. Establish TOD on single account where Spouse B is the primary Beneficiary, and whoever else you'd like is the secondary beneficiary
3. Fill out Agent Authorization form giving Spouse B full authority over Spouse A's account

Net result is that both spouses have complete access to the account, as it was before. If Spouse B dies, then no changes need to be made whatsoever (whereas with JTWROS you'd have to move everything to a single account) besides maybe updating your beneficiaries. If Spouse A dies, it would go to Spouse B as the primary beneficiary. If both die at the same time, then it would go to the secondary beneficiaries listed.

Am I missing anything here? Isn't this actually a better way of organizing since it avoids legal battles from simultaneous deaths and if Spouse B dies first doesn't require literally any paperwork be done at that time (it's already in Spouse A's name).

Having a will is always a good idea anyway, just in case.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by tadamsmar » Thu Jul 31, 2014 8:07 pm

runner9 wrote:
placeholder wrote:I agree that any scheme to access accounts after death is a poor idea so if you want the son to have the assets if both die make him a TOD beneficiary which for a joint account only becomes effective if both account holders die.
Aren't we discussing that there is no beneficiary option on joint taxable accounts at Vanguard, as detailed and linked in the last several posts?
There is a beneficiary because the money in the account goes to the estate and if there is no will then the intestate laws of the state determine the beneficiary.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by tadamsmar » Thu Jul 31, 2014 8:18 pm

bartbill wrote:I ran into this issue just 3 days ago.

We don't have a will right now - and don't think I need one. Everything we have is now in stocks, bonds, and cash. We do have a nice truck and 5th wheel travel trailer. Since retirement we are full-time just traveling the country. We will buy a permanent residence down the road

We are traveling to South Africa in October for Safari so I was checking into those same issues (both of us dying at the same time). We have a fairly large, jointly owned, taxable, Vanguard Total Stock Market account. Vanguard told us the same thing. I have this account linked to my personal checking account. I think I will give my son access to the Vanguard account and upon receiving word of our simultaneous demise, transfer the money to the checking account he has access to. Good idea, bad idea. Thought?

regards
The proper process is for your executor to be dealing with your estate. The executor should not be using your password and should not be using an agent authorization. Since you don't have a will I am not sure who your executor will be. I would guess the executor would be court appointed.

Not sure how big a mess it is if you don't follow the rules and regulations. I bet it happens a lot.

Here is the proper process for you son:

https://personal.vanguard.com/us/insigh ... one-032014

also see this:

http://www.vanguard.com/us/whatweoffer/ ... it-account

If you gave your son your login credentials then you are in violation of Vanguard's fraud reimbursement guarantee. If you gave him agent authorization, well that is not suppose to be used after your death, he can probably use it till Vanguard knows you are dead but I am not sure what kind of mess it may make.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by sscritic » Thu Jul 31, 2014 8:43 pm

I knew there was a reason I got a trust and put my Vanguard taxable assets in it. I don't have or need any beneficiaries; my trust has that all taken care of for me and for Vanguard. And I am not even married.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by tadamsmar » Thu Jul 31, 2014 8:50 pm

If your son sells all your stocks then I guess you will have to pay capital gains. Kind of a bummer for the heirs.

The heirs get stepped up basis after inheritance.

But I am not sure if your estate gets a stepped up basis.

And you are planning to have your son sell before the stocks before they are transferred to an estate account. That means that Vanguard will report this as a stock sale by you, and you will pay the capital gains. Not sure if that kind of blunder can be reversed.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by placeholder » Fri Aug 01, 2014 12:05 am

tadamsmar wrote:But I am not sure if your estate gets a stepped up basis.
Generally after the estate is distributed the executor files Schedule K-1 to report each beneficiary’s share which will then be "flowed" to their individual 1040s which includes the step up in basis.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by tadamsmar » Fri Aug 01, 2014 9:13 am

bartbill wrote:I ran into this issue just 3 days ago.

We don't have a will right now - and don't think I need one. Everything we have is now in stocks, bonds, and cash. We do have a nice truck and 5th wheel travel trailer. Since retirement we are full-time just traveling the country. We will buy a permanent residence down the road

We are traveling to South Africa in October for Safari so I was checking into those same issues (both of us dying at the same time). We have a fairly large, jointly owned, taxable, Vanguard Total Stock Market account. Vanguard told us the same thing. I have this account linked to my personal checking account. I think I will give my son access to the Vanguard account and upon receiving word of our simultaneous demise, transfer the money to the checking account he has access to. Good idea, bad idea. Thought?

regards
Bad idea.

Here are some ideas that at least follow the law and don't step on Vanguard's terms of service and other implied contracts:

1. Don't give your login credentials to anyone.
2. Don't instruct anyone to use an agent authorization after your death or POA after your death.
3. Instead of 1 or 2, they should contact Vanguard and find out what to do.
4. Familiarize yourself with the intestate laws of your state and figure out who will end up executing your estate if you don't have a will. If you can live with the intestate laws you can do nothing. If not, then you do need at least a simple will.

I am not a lawyer.

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Re: Is this a Vanguard quirk? [Adding beneficiaries to accou

Post by bartbill » Fri Aug 01, 2014 12:35 pm

Thanks much for the reply's.

As always, just outstanding advise and much to think about.

Regards

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