Trust Services

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FIREchief
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Re: Trust Services

Post by FIREchief » Sun Jul 14, 2019 10:14 pm

Gill wrote:
Sun Jul 14, 2019 7:58 pm
FIREchief wrote:
Sun Jul 14, 2019 7:53 pm
robandjeanne wrote:
Sun Jul 14, 2019 1:36 pm
I'm getting estimates of 1% (seems all successor trustees got together) to be STs for "our" trust. Of the six candidate STs we've talked with, only one sounds like they wouldn't fight us on investing our portfolio in VTI. So 1% managing a Trust with a portfolio approaching 8 figures seems to be the norm with non-directed STs. There is a "No Contest Clause" in our Trust where unsuccessful challengers lose everything, and I can't believe anyone could win saying VTI was not a prudent investment. Given this, I fail to see why STs are so worried about being sued. If I were to make a impolite statement about STs, it would be they don't care how low your portfolio return is as long as they cover themselves from lawsuits. They heck with the beneficiaries, the ST gets his fee no matter what.
I don't think it has anything to do with lawsuits. I believe you're butting up against a business model where the 1% AUM fee is the admitted fee but they are building in another .5% to 1% hidden profit through utilization of selected high ER funds. I'm guessing they would call it the old "reasonable and customary." I believe that the typical prudent investor rules require exercise of "special skills," which likely manifests themselves as "complicated" investments (which conveniently reward the custodian with high expenses).
That is not the case at all. Corporate trustees cannot double dip and self deal. They can invest in their own funds but must reduce their trustee fee by the income earned on the funds.
Gill
Gill. I respect your opinions and your experience. That said, why do we have these widespread reports of corporate trustees refusing to invest in a manner that us Bogleheads embrace as safe, reliable and profitable? Why would we have any interest in "their own funds" when "our own funds" have proven superior performance. Why not just let a Boglehead's trust be invested in a Boglehead manner????? This is the perpetual question in these threads, and we've never, ever received anything close to a clear answer!
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

afan
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Re: Trust Services

Post by afan » Mon Jul 15, 2019 5:32 am

I suspect it is because there is a traditional defense against claims of improper behavior. Probably so well established that following the usual procedures can shut down many suits long before they get to court. There are plenty of experts who would happily claim that an all index portfolio is irresponsible.

I don't think it is just the fees. When I was shopping for trustees I asked whether the bank would do all index even if it got to collect its full fee. Everyone that I asked had a simple "no."
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Gill
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Re: Trust Services

Post by Gill » Mon Jul 15, 2019 5:35 am

FIREchief wrote:
Sun Jul 14, 2019 10:14 pm
Gill wrote:
Sun Jul 14, 2019 7:58 pm
FIREchief wrote:
Sun Jul 14, 2019 7:53 pm
robandjeanne wrote:
Sun Jul 14, 2019 1:36 pm
I'm getting estimates of 1% (seems all successor trustees got together) to be STs for "our" trust. Of the six candidate STs we've talked with, only one sounds like they wouldn't fight us on investing our portfolio in VTI. So 1% managing a Trust with a portfolio approaching 8 figures seems to be the norm with non-directed STs. There is a "No Contest Clause" in our Trust where unsuccessful challengers lose everything, and I can't believe anyone could win saying VTI was not a prudent investment. Given this, I fail to see why STs are so worried about being sued. If I were to make a impolite statement about STs, it would be they don't care how low your portfolio return is as long as they cover themselves from lawsuits. They heck with the beneficiaries, the ST gets his fee no matter what.
I don't think it has anything to do with lawsuits. I believe you're butting up against a business model where the 1% AUM fee is the admitted fee but they are building in another .5% to 1% hidden profit through utilization of selected high ER funds. I'm guessing they would call it the old "reasonable and customary." I believe that the typical prudent investor rules require exercise of "special skills," which likely manifests themselves as "complicated" investments (which conveniently reward the custodian with high expenses).
That is not the case at all. Corporate trustees cannot double dip and self deal. They can invest in their own funds but must reduce their trustee fee by the income earned on the funds.
Gill
Gill. I respect your opinions and your experience. That said, why do we have these widespread reports of corporate trustees refusing to invest in a manner that us Bogleheads embrace as safe, reliable and profitable? Why would we have any interest in "their own funds" when "our own funds" have proven superior performance. Why not just let a Boglehead's trust be invested in a Boglehead manner????? This is the perpetual question in these threads, and we've never, ever received anything close to a clear answer!
I couldn’t agree more, and I’m glad I’m no longer trying to sell trust services. I think the simple reason is the trust institutions have a self interest in trying to convince potential clients they can invest better than anyone. If they defaulted to index funds they would only have their administrative abilities to sell which doesn’t have the same sizzle. I’m sure it’s a struggle for them to attract business these days with the huge success of index funds. I really think this is the simple answer. When I retired index funds were nowhere near as prevalent. I’m sure it’s very difficult for banks to sell their investment expertise in this environment

Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

trustquestioner
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Re: Trust Services

Post by trustquestioner » Mon Jul 15, 2019 6:24 am

Disagree.

There is clearly a market for “I’ll put it all in index funds for .25% a year, $10,000 minimum,” look at this thread. This industry has price fixing. It is generally uncompetitive because the business is largely referred from cozy lawyers and the people who fee the pain aren’t the initial purchasers / decision makers.

Gill
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Re: Trust Services

Post by Gill » Mon Jul 15, 2019 6:34 am

trustquestioner wrote:
Mon Jul 15, 2019 6:24 am
Disagree.

There is clearly a market for “I’ll put it all in index funds for .25% a year, $10,000 minimum,” look at this thread. This industry has price fixing. It is generally uncompetitive because the business is largely referred from cozy lawyers and the people who fee the pain aren’t the initial purchasers / decision makers.
It’s not clear who you’re disagreeing with. The larger trust institutions aren’t interested in a $10,000 minimum fee. Walk into any of my former employers and suggest a $10,000 minimum fee and they’ll show you the door.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

FBN2014
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Re: Trust Services

Post by FBN2014 » Mon Jul 15, 2019 7:56 am

bayview wrote:
Sun Jul 14, 2019 9:37 pm
robandjeanne wrote:
Sun Jul 14, 2019 1:36 pm
I'm getting estimates of 1% (seems all successor trustees got together) to be STs for "our" trust. Of the six candidate STs we've talked with, only one sounds like they wouldn't fight us on investing our portfolio in VTI. So 1% managing a Trust with a portfolio approaching 8 figures seems to be the norm with non-directed STs. There is a "No Contest Clause" in our Trust where unsuccessful challengers lose everything, and I can't believe anyone could win saying VTI was not a prudent investment. Given this, I fail to see why STs are so worried about being sued. If I were to make a impolite statement about STs, it would be they don't care how low your portfolio return is as long as they cover themselves from lawsuits. They heck with the beneficiaries, the ST gets his fee no matter what.
I think that the resistance is because (please all, correct me if I am wrong), the defense by a fiduciary against charges of mismanagement is to essentially have done what everyone else is doing. Perhaps a three-fund portfolio will nowadays fall into this category; maybe even a 60/40 portfolio of VTI and Treasuries (my preference, btw.) But all you would need is one snippy beneficiary who saw his/her check go down in a year when US stocks drop to instigate a lawsuit. No trustee wants to put up with that.

I understand your goals, but you might have to accept that controlling from the grave is pretty dang hard to do, at least successfully.
The avoidance of a lawsuit is exactly why you need to use a corporate trustee or at least a qualified investment advisor (CFP, RIA, etc.) as ST. Appointing a ST who does not professionally manage money is an invitation for a lawsuit down the road. Legal fees can quickly add up and exceed fiduciary fees. I speak from experience.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

bsteiner
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Re: Trust Services

Post by bsteiner » Mon Jul 15, 2019 8:16 am

Gill wrote:
Mon Jul 15, 2019 5:35 am
FIREchief wrote:
Sun Jul 14, 2019 10:14 pm
... why do we have these widespread reports of corporate trustees refusing to invest in a manner that us Bogleheads embrace as safe, reliable and profitable? Why would we have any interest in "their own funds" when "our own funds" have proven superior performance. Why not just let a Boglehead's trust be invested in a Boglehead manner????? This is the perpetual question in these threads, and we've never, ever received anything close to a clear answer!
I couldn’t agree more, and I’m glad I’m no longer trying to sell trust services. I think the simple reason is the trust institutions have a self interest in trying to convince potential clients they can invest better than anyone. If they defaulted to index funds they would only have their administrative abilities to sell which doesn’t have the same sizzle. I’m sure it’s a struggle for them to attract business these days with the huge success of index funds. I really think this is the simple answer. When I retired index funds were nowhere near as prevalent. I’m sure it’s very difficult for banks to sell their investment expertise in this environment
I agree that many corporate trustees try to market themselves on investments. But when a client names a corporate trustee, it's usually for people issues, such as a trust for the second spouse and then children of the first marriage, or a trust for a child with a disability where it's not appropriate to have a family member controllling the trust, or where the amount of money is very large.
FBN2014 wrote:
Mon Jul 15, 2019 7:56 am
...
The avoidance of a lawsuit is exactly why you need to use a corporate trustee or at least a qualified investment advisor (CFP, RIA, etc.) as ST. Appointing a ST who does not professionally manage money is an invitation for a lawsuit down the road. Legal fees can quickly add up and exceed fiduciary fees. I speak from experience.
The same reasons apply to initial trustees as to successor trustees.

It's hard to bring a claim against a trustee unless the trustee does something unreasonable. But there's some risk that an individual trustee will do something unreasonable, such as keeping all the assets in one sector, or not filing tax returns.

An individual trustee has the option to hire someone to handle the investments.

robandjeanne
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Re: Trust Services

Post by robandjeanne » Mon Jul 15, 2019 4:07 pm

Perhaps a statement in the Trust that says if portfolio is not invested in VTI, the Special Co-Trustee can come riding in and terminate the Trust distributing to beneficiaries and ending the Successor Trustee's fee. That ought to get their attention. Either get $70K for one or two years or invest in VTI and maybe get $70K for a hundred years. We're just distributing half the VTI growth each year, do you think its overly optimistic to assume 100 years or longer (no limit in VA)?

afan
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Re: Trust Services

Post by afan » Tue Jul 16, 2019 5:01 am

That would be a great way to ruin an estate plan. If there was a good reason to establish the trust, then it would be crazy to throw it out because you could not agree with one trustee. Instead of ending the trust, just hire a different trustee.
As Gill points out, a projected bank income of $70k over the life of the trust is not going to get any trustee to take the job, let alone motivate it to change its routine practices to keep the business.

Gill,

How much does the administrative part of the trust business cost? Include beneficiary service- paying bills, dealing with real estate and other non financial property, moves to nursing homes, etc? I realize this will vary widely among beneficiaries but for a trust department what would be a typical figure across all accounts as a percent of assets held in trust?

I suspect that managing the money is cheap even if one does active management. I suspect the routine administrative work is very cheap and largely automated. But there are no economies of scale for dealing with individuals.


It seems few in this thread understand that the trust business evolved to serve the wealthy. The customer base has been families with far more money than most bogleheads will ever have. The trust companies are designed to serve a group with very large amounts of money, long term goals that extend well beyond the lifetimes of those who create the trusts and clients who do not want the "awesome responsibility" of managing the assets.

Bogleheads who have $3M total and are quite happy to keep that in a simple index fund portfolio do not need or want the main service the banks are selling. The banks are not interested in the fees they could collect on such trusts and certainly are not going to compete for these small accounts.

Along those lines, how much beneficiary service can one expect from the directed trustees who charge much lower fees and have no responsibility for investment management? I viewed these as largely legal firewalls for asset protection. If you want South Dakota asset protection laws to apply you need a SD bank. The bank will cheerfully charge a small fee for being the titular trustee while doing very little work. Are they willing to act as trustee at all when there are complicated beneficiary issues, competing interets among generations and so forth?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

bsteiner
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Re: Trust Services

Post by bsteiner » Tue Jul 16, 2019 7:20 am

afan wrote:
Tue Jul 16, 2019 5:01 am
...
Bogleheads who have $3M total and are quite happy to keep that in a simple index fund portfolio do not need or want the main service the banks are selling. The banks are not interested in the fees they could collect on such trusts and certainly are not going to compete for these small accounts.

Along those lines, how much beneficiary service can one expect from the directed trustees who charge much lower fees and have no responsibility for investment management? I viewed these as largely legal firewalls for asset protection. If you want South Dakota asset protection laws to apply you need a SD bank. The bank will cheerfully charge a small fee for being the titular trustee while doing very little work. Are they willing to act as trustee at all when there are complicated beneficiary issues, competing interets among generations and so forth?
Most banks and trust companies will take a $3 million trust, though you might not get the same level of service that you would at the ones that only take larger trusts.

The service is actually pretty good at the trust companies in states like South Dakota that will act as trustee for a modest annual fee so long as they don't have responsibility for the investments. But that's a niche market, mainly to avoid state income taxes or for someone wanting to set aside some money in an asset protection trust.

afan
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Re: Trust Services

Post by afan » Tue Jul 16, 2019 9:53 am

If a client comes in with what is to a bank a big trust they may be able to negotiate not only the fees but how the assets are managed. Many big trusts hold undiversified portfolios that reflect how the grantor got rich. Such grantors would discuss the importance to the family of, say, holding on to a controlling share of a now public company. I assume customizing management is part of the service and the bank is happy to do it as long as the fees are good and the liability risk is limited. For a typical bogleheads trust of a few million, would banks be interested in negotiating on anything? Would it be worth their while? Or would it be what I and others have encountered "this is how it works. Take it or leave it?"

That is encouraging about the SD trusts. They could be a good solution for the problems many on this thread have brought up. Low fees, no involvement in asset management and good service. The asset protection and absence of state taxes become nice bonuses.

Will they serve as the discretionary trustee for distributions? Or is that something else that has to be directed by some other party?

To have the asset protection work, would the grantor or beneficiaries need some attachment to SD? Does the grantor have to visit fly over country to set it up? Do the beneficiaries have to make their way through the sagebrush every now and then? Or can everything be done online?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

smackboy1
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Re: Trust Services

Post by smackboy1 » Tue Jul 16, 2019 12:05 pm

robandjeanne wrote:
Mon Jul 15, 2019 4:07 pm
Perhaps a statement in the Trust that says if portfolio is not invested in VTI, the Special Co-Trustee can come riding in and terminate the Trust distributing to beneficiaries and ending the Successor Trustee's fee. That ought to get their attention. Either get $70K for one or two years or invest in VTI and maybe get $70K for a hundred years. We're just distributing half the VTI growth each year, do you think its overly optimistic to assume 100 years or longer (no limit in VA)?
That would a an incredibly short sighted mistake to handcuff the trust like that. I doubt any reasonable trust lawyer or financial planner would think it would be a good idea. It may end up becoming a white elephant trust where the future generations have to spend time and $ trying to undo that restriction. Here are just a few issues that I can think of:

- Total US equity market is unlikely to be in the best interests of the beneficiaries in all situations. The US stock market can be very volatile which makes it an unsuitable investment if the beneficiaries have defined fixed needs over time e.g. long term medical expenses, education costs, support and maintenance during retirement or disability. Sometimes bonds or annuities are a better option.

- The US economy could experience a long protracted downturn - like Japan. VTI is not very diverse.

- VTI is relatively new, as is the concept of index funds. It's possible Fidelity or some other company creates something better. Or something could happen ending VTI's existence or even Vanguard's existence.

- How is tax loss harvesting going to occur?

- What if a beneficiary has a judgment creditor looming e.g. ex-spouse, plaintiff? And the Special Co-Trustee terminates the trust and distributes all the assets.

- What if a Medicaid qualified beneficiary is mentally incompetent requiring institutional care? And the Special Co-Trustee terminates the trust and distributes all the assets, disqualifying that beneficiary for Medicaid.


This an many more potential unintended consequences makes it much more prudent to give the trustee and future generations guidance, but also flexibility to make the best decisions based on the circumstances at the time.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

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FIREchief
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Re: Trust Services

Post by FIREchief » Tue Jul 16, 2019 12:24 pm

afan wrote:
Tue Jul 16, 2019 5:01 am
That would be a great way to ruin an estate plan. If there was a good reason to establish the trust, then it would be crazy to throw it out because you could not agree with one trustee.
I didn't read that as a serious suggestion, but rather an extreme example to prove a point. Perhaps the poster can clarify.
Instead of ending the trust, just hire a different trustee.
Which brings us back to the challenge that is consistently brought up in these threads. If a person's fallback is "just hire a different trustee," they'll just wind up back at square one (yet another corporate trustee who refuses to invest in a Boglehead manner). I've read your reports of VG telling you they will use passive index funds for .3% AUM. I've read other reports of VG telling people they absolutely will NOT do this. Nobody will know until it is too late. Have we seen any reports of VG actually doing this, today, for a trust for which VG is managing the investments? The bottom line is that unless the trust document offers some levels of additional control, then any corporate trustee can simply follow their customary business model and justify it with a) the broad discretion in investing allowed in typical trust boilerplate language and b) the State's prudent investor rules. The only thing that can provide any legal teeth is language in the trust that supersedes those and, of course, most/all corporate trustees may not accept such a trust. I am of the opinion that some ambitious lawyer could easily draft a clause for a trust that would provide an option for the current beneficiary to override the standard investment terms. Example:
[boilerplate] The trustee shall have broad discretion to invest trust assets in any manner determined to align with trust investing approaches as outlined in article 53, section 101, blah blah blah.....[/boilerplate] unless other investment direction is provided in writing by a majority of the current trust beneficiaries
(definitely see my signature)
As Gill points out, a projected bank income of $70k over the life of the trust is not going to get any trustee to take the job, let alone motivate it to change its routine practices to keep the business.
I believe the hypothetical example was $70K per year (i.e. trust principle in the range of $7M or more).
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

bsteiner
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Re: Trust Services

Post by bsteiner » Tue Jul 16, 2019 1:23 pm

afan wrote:
Tue Jul 16, 2019 9:53 am
...
That is encouraging about the SD trusts. They could be a good solution for the problems many on this thread have brought up. Low fees, no involvement in asset management and good service. The asset protection and absence of state taxes become nice bonuses.

Will they serve as the discretionary trustee for distributions? Or is that something else that has to be directed by some other party?

To have the asset protection work, would the grantor or beneficiaries need some attachment to SD? Does the grantor have to visit fly over country to set it up? Do the beneficiaries have to make their way through the sagebrush every now and then? Or can everything be done online?
Yes, they'll handle discretionary distributions as part of their modest annual fee. Of course, families who set up these trusts tend not to need much in the way of distributions.

There's no way to be sure how well the asset protection works but we think it probably works under Hanson v. Denckla: https://scholar.google.com/scholar_case ... s_sdt=3,33. Of course, in a bankruptcy case you'd have to take into account the bankruptcy law. If you're using the asset protection as the basis for an incomplete gift trust, the only interested party is your state taxing authority which is unlikely to raise the issue.

We've also set up trusts in these places for people who wanted the trusts to be able to last forever, or who wanted a trust company for some other reason.

You don't have to actually go to South Dakota (or Alaska, Delaware or Nevada). You can do everything by e-mail.

afan
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Re: Trust Services

Post by afan » Tue Jul 16, 2019 7:45 pm

Although my interest in a directed trustee is mainly having administrative tasks handled without the trusree doing the investing, the asset protection for heirs is appealing. I had the impression that SD and Nevada had the strongest asset protection. Is that correct? More than Delaware, Alaska or NH, for example?

I seem to remember a case in which it mattered whether the grantor had any relationship to the state in which he created the trust.

in re Huber

The court said
Under the Restatement, the Debtor's choice of Alaska law designated in the Trust should be upheld if Alaska has a substantial relation to the Trust. Restatement § 270(a). Comment b provides that "a state has a substantial relation to a trust if at the time the trust is created: (1) the trustee or settlor is domiciled in the state; (2) the assets are located in the state; and (3) the beneficiaries are domiciled in the state. These contacts with the state are not exclusive." In re Zukerkorn, 484 B.R. 182, 192 (9th Cir. BAP 2012). In the instant case, it is undisputed that at the time the Trust was created, the settlor was not domiciled in Alaska, the assets were not located in Alaska, and the beneficiaries were not domiciled in Alaska. The only relation to Alaska was that it was the location in which the Trust was to be administered and the location of one of the trustees, AUSA.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

robandjeanne
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Re: Trust Services

Post by robandjeanne » Thu Jul 18, 2019 1:20 am

I have not had any success with VG. The person I talked with wants to load up a VTI portfolio with bonds and international stock ETFs, and they definitely won't handle real estate. I have yet to find a ST who will invest in VTI and do the other Trustee tasks for $70 K per year (although I may have one nibbling). Remember that's $70K/yr for as many years as they can keep the portfolio going. When distributing only half the yearly growth it is possible the Trust may last 100 years or more (no limit in VA). That's a retirement job for somebody. As for VTI being new, it tracks amazingly closely with the S&P, which I certainly would not consider new. Probably one reason I'm trying to go with VTI is you can't get much more diverse than several thousand US companies many of them having bonds and international exposure. Those who think VTI is not sufficient should state what other passive investment beats VTI. Even bond fundss in the 80s didn't beat VTI on a 10 year basis.I have not yet found a SD or other state ST who will act as a directed trustee and invest in VTI. It would be great to find a corporate entity that would do both the directed investing and administrative.trust work, otherwise it seems too many entities would be involved to make it work. It has been pointed out that, unfortunately, we can;t get much feedback on how well the STs are doing when the Trustors are gone. Its also unfortunate that STs will get their $70K/yr even if they have the portfolio performing poorly compared with VTI.

robandjeanne
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Re: Trust Services

Post by robandjeanne » Sat Jul 20, 2019 4:43 pm

You can stream from the WSJ site (I do it with ROKU) a Morgan Stanley advisor extolling the benefits of VTI like investments in wealth management. This was an interview with Ron Vinder the Private Wealth Manager of Morgan Stanley. He says he fired all his active managers and went passive about 12 years ago. He is totally sold on passive investments, and seems totally sold on owning the entire market like VTI. If Morgan Stanley supports investments like VTI, why can't local bank and trusts?

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FIREchief
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Re: Trust Services

Post by FIREchief » Sat Jul 20, 2019 5:43 pm

robandjeanne wrote:
Sat Jul 20, 2019 4:43 pm
If Morgan Stanley supports investments like VTI, why can't local bank and trusts?
That is the question. From a strictly business perspective, the local bank and trust companies are in business to make money (we'll leave credit unions out of this for now). If they refuse to embrace a boglehead approach I would conclude that either a) they would make more profit doing things "their" way and/or b) they feel that they would be violating some law. I believe that they sometimes hide behind "b" to achieve "a." Just one man's opinion, see my signature.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

bayview
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Re: Trust Services

Post by bayview » Sat Jul 20, 2019 10:26 pm

robandjeanne wrote:
Sat Jul 20, 2019 4:43 pm
You can stream from the WSJ site (I do it with ROKU) a Morgan Stanley advisor extolling the benefits of VTI like investments in wealth management. This was an interview with Ron Vinder the Private Wealth Manager of Morgan Stanley. He says he fired all his active managers and went passive about 12 years ago. He is totally sold on passive investments, and seems totally sold on owning the entire market like VTI. If Morgan Stanley supports investments like VTI, why can't local bank and trusts?
This is one guy. There is no indication that his views represent those of MS. More likely, he is allowed to make outrageous statements (from their point of view) to show how open-minded they are.

My mother-in-law’s accounts are mostly at MS, and they are mostly in a churn-a-rama red hot mess of individual purchases, frequently churned from what I can see.

DH is starting to recover from the “but he’s a nice guy” angle to the Cost Matters Hypothesis.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

robandjeanne
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Re: Trust Services

Post by robandjeanne » Wed Jul 31, 2019 9:40 pm

Does the beneficiary normally pay taxes on inherited money? For example if a Legacy Trust is distributing income received from mutual funds, this might consist of dividends and short term capital gains (STCG) as well as LTCG. Since the Trust would be highly taxed on dividends and STCG if held in the trust, this money would probably be distributed to beneficiaries. In this case the beneficiaries would pay income taxes at their bracket rate which would probably be lower than the Trust rate. If the Trust income were not enough and the Trustee sold principal assets the capital gains will be less because of the stepped up value. In this case of selling principal does the beneficiary still pay the capital gains taxes, or does the Trust?

bsteiner
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Re: Trust Services

Post by bsteiner » Wed Jul 31, 2019 10:45 pm

robandjeanne wrote:
Wed Jul 31, 2019 9:40 pm
Does the beneficiary normally pay taxes on inherited money? For example if a Legacy Trust is distributing income received from mutual funds, this might consist of dividends and short term capital gains (STCG) as well as LTCG. Since the Trust would be highly taxed on dividends and STCG if held in the trust, this money would probably be distributed to beneficiaries. In this case the beneficiaries would pay income taxes at their bracket rate which would probably be lower than the Trust rate. If the Trust income were not enough and the Trustee sold principal assets the capital gains will be less because of the stepped up value. In this case of selling principal does the beneficiary still pay the capital gains taxes, or does the Trust?
The trustees would consider income taxes as well as any other factors they deem relevant in deciding on distributions.

The income (the technical term is "distributable net income" or "DNI") of a trust is taxable to the beneficiaries to the extent it's distributed. For this purpose, the income includes dividends (and short-term capital gains from mutual funds). Capital gains (including short-term capital gains other than from mutual funds) are generally not included in income for this purpose, though it's sometimes possible to include them in income so that they can be passed through to the beneficiaries.

afan
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Re: Trust Services

Post by afan » Thu Aug 01, 2019 12:34 pm

Since there are companies that will serve as administrative trustee without managing investments, it is no longer necessary to find one that will do a simple index fund portfolio. You can hire your own investment manager who will do this. Or set it up so that one or more of the beneficiaries can do it themselves.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

FBN2014
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Re: Trust Services

Post by FBN2014 » Thu Aug 01, 2019 12:36 pm

afan wrote:
Thu Aug 01, 2019 12:34 pm
Since there are companies that will serve as administrative trustee without managing investments, it is no longer necessary to find one that will do a simple index fund portfolio. You can hire your own investment manager who will do this. Or set it up so that one or more of the beneficiaries can do it themselves.
I like Portfolio Solutions for the investment manager part. They use Schwab as custodian. Schwab also has a trust department that can do the administrative chores.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

MikeG62
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Re: Trust Services

Post by MikeG62 » Fri Aug 02, 2019 8:07 am

afan wrote:
Thu Aug 01, 2019 12:34 pm
Since there are companies that will serve as administrative trustee without managing investments, it is no longer necessary to find one that will do a simple index fund portfolio. You can hire your own investment manager who will do this. Or set it up so that one or more of the beneficiaries can do it themselves.
Can you share any names and the cost(s) they are charging?
Real Knowledge Comes Only From Experience

MikeG62
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Re: Trust Services

Post by MikeG62 » Fri Aug 02, 2019 8:07 am

FBN2014 wrote:
Thu Aug 01, 2019 12:36 pm
afan wrote:
Thu Aug 01, 2019 12:34 pm
Since there are companies that will serve as administrative trustee without managing investments, it is no longer necessary to find one that will do a simple index fund portfolio. You can hire your own investment manager who will do this. Or set it up so that one or more of the beneficiaries can do it themselves.
I like Portfolio Solutions for the investment manager part. They use Schwab as custodian. Schwab also has a trust department that can do the administrative chores.
What is PS charging for investment management?
Real Knowledge Comes Only From Experience

FBN2014
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Re: Trust Services

Post by FBN2014 » Fri Aug 02, 2019 8:41 am

38 basis points, .38%
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

eukonomos
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Re: Trust Services

Post by eukonomos » Fri Aug 02, 2019 8:51 am

FBN2014 wrote:
Fri Aug 02, 2019 8:41 am
38 basis points, .38%
And what does Schwab charge for administrative only? I believe it starts at 0.5% for full service including investment.

cherijoh
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Re: Trust Services

Post by cherijoh » Fri Aug 02, 2019 9:07 am

Gill wrote:
Mon Apr 17, 2017 3:41 pm
I spent my career in the trust business but I won't attempt to answer all your questions other than to urge you to have a professional trustee manage your assets separate from the guardian of your children. Any of the options you mention could be good depending on your needs and the size of the trust. Banks such as Northern have very high minimums as well as fees (trust me, I worked there!). The same firm should be named as your personal representative to handle assets such as your real estate, although Vanguard and possibly others won't act in that capacity.
Gill
Gill, can include real estate within the revocable trust? Is there a reason not to do so?

Thanks for weighing in with your experience! :happy

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Re: Trust Services

Post by afan » Fri Aug 02, 2019 10:00 am

Not Gill, but most trust companies will handle real estate. It is just Vanguard that will not.

Whether your real estate should be in trust depends on individual situation, type of real estate, marital status and state law. You would need an attorney to figure that out for you.

When I checked Schwab fees, now several years ago, the cost for administrative trustee service only was well under 0.5%. it could well have changed.

Since bsteiner says that there are banks that will do this for a small flat fee, that sounds better than any AUM arrangement.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Gill
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Re: Trust Services

Post by Gill » Fri Aug 02, 2019 10:06 am

cherijoh wrote:
Fri Aug 02, 2019 9:07 am
Gill wrote:
Mon Apr 17, 2017 3:41 pm
I spent my career in the trust business but I won't attempt to answer all your questions other than to urge you to have a professional trustee manage your assets separate from the guardian of your children. Any of the options you mention could be good depending on your needs and the size of the trust. Banks such as Northern have very high minimums as well as fees (trust me, I worked there!). The same firm should be named as your personal representative to handle assets such as your real estate, although Vanguard and possibly others won't act in that capacity.
Gill
Gill, can include real estate within the revocable trust? Is there a reason not to do so?

Thanks for weighing in with your experience! :happy
afan gave you the correct answer. I've seen it done both ways and usually for individual needs and preference. I have a RLT but my residence is not titled in trust name because I feel my attorney-in-fact could deal with it during my lifetime or my personal representative at the time of my death.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

FBN2014
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Re: Trust Services

Post by FBN2014 » Fri Aug 02, 2019 10:11 am

eukonomos wrote:
Fri Aug 02, 2019 8:51 am
FBN2014 wrote:
Fri Aug 02, 2019 8:41 am
38 basis points, .38%
And what does Schwab charge for administrative only? I believe it starts at 0.5% for full service including investment.
Administrative Trustee Services
Fee Schedule
Fee Schedule*
Marketable Securities
First $3 million 40 basis points
Next $1 million 35 basis points
Next $1 million 30 basis points
Next $5 million 20 basis points
Thereafter 15 basis points
Minimum annual fee per account $2,500
Closely Held Entities**
First entity $4,000
Each additional entity $1,000
Irrevocable Life Insurance Trusts
First policy $1,500 annually
Each additional policy $500
Liability Accounting
First note $1,000
Each additional note $500
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

robandjeanne
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Re: Trust Services

Post by robandjeanne » Fri Aug 02, 2019 2:02 pm

Thanks for all the recent input. Has anyone actually selected a separate investor Trustee? We have a legacy RLT and are having difficulty finding a Successor Trustee who will invest new money in VTI. The one bank (out of 7) we thought was going to come through has recently suggested we use weasel words like "prefer VTI" even though this banks Senior Portfolio Manager told us we have to direct him to invest in VTI. He was honest enough to say if we said "prefer" he would just do it his way. This bank was going to charge 1% (or about $70K/year for a hundred or more years?) for everything, and although they would do it, had some reservations about selling the house. Maybe the legacy trust had some power and clout because when I floated the idea that maybe we would just distribute right away (no legacy), the potential ST said "oh no, don't be so hasty". I suspect I may be looking seriously at the separate IT option. I might also consider a distribute right away option, but I think our 6 adult beneficiaries would be paying half their inheritance in income taxes (tax experts please chime in)

FBN2014
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Re: Trust Services

Post by FBN2014 » Fri Aug 02, 2019 2:23 pm

robandjeanne wrote:
Fri Aug 02, 2019 2:02 pm
Thanks for all the recent input. Has anyone actually selected a separate investor Trustee? We have a legacy RLT and are having difficulty finding a Successor Trustee who will invest new money in VTI. The one bank (out of 7) we thought was going to come through has recently suggested we use weasel words like "prefer VTI" even though this banks Senior Portfolio Manager told us we have to direct him to invest in VTI. He was honest enough to say if we said "prefer" he would just do it his way. This bank was going to charge 1% (or about $70K/year for a hundred or more years?) for everything, and although they would do it, had some reservations about selling the house. Maybe the legacy trust had some power and clout because when I floated the idea that maybe we would just distribute right away (no legacy), the potential ST said "oh no, don't be so hasty". I suspect I may be looking seriously at the separate IT option. I might also consider a distribute right away option, but I think our 6 adult beneficiaries would be paying half their inheritance in income taxes (tax experts please chime in)
I would be looking for an administrative (directed) trustee that charges a flat fee not one based on size of estate. Of course if a business is involved then fees will be higher based on amount of work required to manage the business. If an Inherited IRA is part of the estate then I would consider taking distributions above the RMDs in order to fund life insurance which is tax free to the beneficiaries.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

BigJohn
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Re: Trust Services

Post by BigJohn » Fri Aug 02, 2019 3:10 pm

This is certainly a very tough decision with lots of potentially messy outcomes. Rather then use a corporate trustee, I decided to let my kids be their own trustee (all are healthy, happy and fully employed). That may not work out well but I’ll be dead and won’t know/care.

The assets will all be at VG so one question if anyone has experience. If they need/want help managing the portfolio as trustees, can they hire VG PAS to do so without appointing VG as a co-trustee?

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Re: Trust Services

Post by bsteiner » Fri Aug 02, 2019 4:47 pm

FBN2014 wrote:
Fri Aug 02, 2019 2:23 pm
... If an Inherited IRA is part of the estate then I would consider taking distributions above the RMDs in order to fund life insurance which is tax free to the beneficiaries.
I know this has been the subject of recent discussion, but Ithink you should run the numbers before taking more than the required distributions to make gifts (other than annual exclusion gifts if you don't have other money with which to make the gifts).

Whether the gifts should be in the form of life insurance or other assets is a different question. Life insurance generally isn't the best investment.
BigJohn wrote:
Fri Aug 02, 2019 3:10 pm
... Rather then use a corporate trustee, I decided to let my kids be their own trustee (all are healthy, happy and fully employed). That may not work out well but I’ll be dead and won’t know/care.

The assets will all be at VG so one question if anyone has experience. If they need/want help managing the portfolio as trustees, can they hire VG PAS to do so without appointing VG as a co-trustee?
They'll need a co-trustee if they ever want distributions other than health, maintenance, support and education (and it's generally not a good idea to let them withdraw for those purposes even though it's permissible since there's a risk of exposure to creditors and Medicaid).

The trustees may move the assets wherever they want, and may hire anyone they want to manage the assets (or they may manage the assets themselves).

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Re: Trust Services

Post by BigJohn » Fri Aug 02, 2019 9:21 pm

bsteiner wrote:
Fri Aug 02, 2019 4:47 pm
They'll need a co-trustee if they ever want distributions other than health, maintenance, support and education (and it's generally not a good idea to let them withdraw for those purposes even though it's permissible since there's a risk of exposure to creditors and Medicaid).
Not sure I understand this statement but maybe we're talking about different types of trusts. They are the sole trustee of my testamentary trust to them. Per the trust document, they are the income beneficiaries and can withdraw that real time (and should to avoid the high trust tax rates). They can also use principle for the standard, health, maintenance, education, etc. My question is will VG be willing to manage the investment details via VG PAS without being co-trustee in this circumstance? I'm trying to help them manage the portfolio without VG being involved in the withdrawal decisions.

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Re: Trust Services

Post by FBN2014 » Fri Aug 02, 2019 9:25 pm

BigJohn wrote:
Fri Aug 02, 2019 9:21 pm
bsteiner wrote:
Fri Aug 02, 2019 4:47 pm
They'll need a co-trustee if they ever want distributions other than health, maintenance, support and education (and it's generally not a good idea to let them withdraw for those purposes even though it's permissible since there's a risk of exposure to creditors and Medicaid).
Not sure I understand this statement but maybe we're talking about different types of trusts. They are the sole trustee of my testamentary trust to them. Per the trust document, they are the income beneficiaries and can withdraw that real time (and should to avoid the high trust tax rates). They can also use principle for the standard, health, maintenance, education, etc. My question is will VG be willing to manage the investment details via VG PAS without being co-trustee in this circumstance? I'm trying to help them manage the portfolio without VG being involved in the withdrawal decisions.
I'm not an attorney but as I recall my attorney explained that depending upon state law there is better creditor protection from lawsuits, etc. if a beneficiary is not sole trustee of their own trust.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

afan
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Re: Trust Services

Post by afan » Sat Aug 03, 2019 8:18 am

BigJohn wrote:
Fri Aug 02, 2019 3:10 pm

The assets will all be at VG so one question if anyone has experience. If they need/want help managing the portfolio as trustees, can they hire VG PAS to do so without appointing VG as a co-trustee?
Yes, the trustees can hire PAS to manage the assets.

They could just as well hire a different firm to manage the assets. Not all registered investment advisors use Vanguard for custody. If the trustees wanted a manager who does not work with Vanguard, they could move the assets to a different custodian.

They could keep the assets at Vanguard or elsewhere and hire an hourly fee advisor who will show them how to invest but not manage the money for them. In short, the trustees would have the same options for investment management as would an individual, unless you imposed restrictions in the terms of the trust.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Trust Services

Post by BigJohn » Sat Aug 03, 2019 10:11 am

Thanks afan

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FIREchief
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Re: Trust Services

Post by FIREchief » Sat Aug 03, 2019 12:28 pm

FBN2014 wrote:
Fri Aug 02, 2019 9:25 pm
BigJohn wrote:
Fri Aug 02, 2019 9:21 pm
bsteiner wrote:
Fri Aug 02, 2019 4:47 pm
They'll need a co-trustee if they ever want distributions other than health, maintenance, support and education (and it's generally not a good idea to let them withdraw for those purposes even though it's permissible since there's a risk of exposure to creditors and Medicaid).
Not sure I understand this statement but maybe we're talking about different types of trusts. They are the sole trustee of my testamentary trust to them. Per the trust document, they are the income beneficiaries and can withdraw that real time (and should to avoid the high trust tax rates). They can also use principle for the standard, health, maintenance, education, etc. My question is will VG be willing to manage the investment details via VG PAS without being co-trustee in this circumstance? I'm trying to help them manage the portfolio without VG being involved in the withdrawal decisions.
I'm not an attorney but as I recall my attorney explained that depending upon state law there is better creditor protection from lawsuits, etc. if a beneficiary is not sole trustee of their own trust.
My understanding is also that it depends greatly on which state a person lives in. I live in a conservative, asset protection state and have been told that there is generally no risk with allowing a beneficiary to serve as their own sole trustee. That said, it is also wise to draft the trust so that the beneficiary can appoint a co-trustee or resign as trustee and appoint an independent trustee as sole trustee (if laws or practices should change). See my signature.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

robandjeanne
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Re: Trust Services

Post by robandjeanne » Mon Aug 12, 2019 2:04 pm

It seems to me there are a lot of snake oil salesman out there with respect to Trusts and particularly the idea of serving as Successor Trustee. FBN mentioned Portfolio Solutions, which seemed interesting but there appears to be a lot of portfolio solution groups out there, so I wondered which one FBN had in mind? I have yet to find a ST who is happy managing a mostly VTI portfolio, which I believe would require minimal effort. Essentially I am saying don't do anything to mess up the performance of VTI by de-worsifying. Still no takers. If I ever do find a ST willing to manage a mostly passive VTI type portfolio is anyone else here interested (the prospect of more business might entice some potential STs)? Is anyone using Schwab to manage a passive portfolio, which (although I don't know much about Schwab) I imagine would be all Schwab investments?

FBN2014
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Re: Trust Services

Post by FBN2014 » Mon Aug 12, 2019 2:36 pm

robandjeanne wrote:
Mon Aug 12, 2019 2:04 pm
It seems to me there are a lot of snake oil salesman out there with respect to Trusts and particularly the idea of serving as Successor Trustee. FBN mentioned Portfolio Solutions, which seemed interesting but there appears to be a lot of portfolio solution groups out there, so I wondered which one FBN had in mind? I have yet to find a ST who is happy managing a mostly VTI portfolio, which I believe would require minimal effort. Essentially I am saying don't do anything to mess up the performance of VTI by de-worsifying. Still no takers. If I ever do find a ST willing to manage a mostly passive VTI type portfolio is anyone else here interested (the prospect of more business might entice some potential STs)? Is anyone using Schwab to manage a passive portfolio, which (although I don't know much about Schwab) I imagine would be all Schwab investments?
Portfoliosolutions.com which is Rick Ferri's old firm. Their approach is entirely passive using index mutual funds and index ETFs. They will handle the investment portion but you would still need a trustee to do the administrative tasks such as accountings, tax return filing, distributions, etc. Schwab Trust Co. does have an administrative trustee service which might fill the bill for you. I posted Schwab's fee schedule earlier in this thread.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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Re: Trust Services

Post by robandjeanne » Mon Aug 12, 2019 3:23 pm

Thanks, FBN. Since I haven't heard back from the our one potential ST yet, I am still actively looking. I have a call in with Schwab and as you mentioned probably their best role would be as administrative Trustee, with Portfolio Solutions serving as investor Trustee. I hope to learn more about this such as who is actually listed on the RLTrust (I'm guessing Schwab), and how does the linkage between the two get set up.

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Re: Trust Services

Post by FIREchief » Mon Aug 12, 2019 3:49 pm

robandjeanne wrote:
Mon Aug 12, 2019 2:04 pm
I have yet to find a ST who is happy managing a mostly VTI portfolio, which I believe would require minimal effort.
Have you been given any reasons why they would not do this?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

smackboy1
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Re: Trust Services

Post by smackboy1 » Mon Aug 12, 2019 4:46 pm

FBN2014 wrote:
Mon Aug 12, 2019 2:36 pm
Portfoliosolutions.com which is Rick Ferri's old firm. Their approach is entirely passive using index mutual funds and index ETFs.
I am not rendering an opinion on whether Portfolio Solutions is or is not a good choice of RIA. However, a quick search will reveal that Rick Ferri sold Portfolio Solutions a few years ago. Subsequent to the sale there was a legal disagreement between Rick Ferri and the new owners of Portfolio Solutions which resulted in a lawsuit. There was a non-compete and I'm guessing also non-disclosures so not sure what really happened behind the scenes.

So before hiring Portfolio Solutions, or any RIA, it pays to do a little background homework to make sure you will be satisfied with your choice. Is Portfolio Solutions the same firm as when Rick Ferri was at the helm?

viewtopic.php?t=278646
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

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Re: Trust Services

Post by bayview » Mon Aug 12, 2019 8:46 pm

FIREchief wrote:
Mon Aug 12, 2019 3:49 pm
robandjeanne wrote:
Mon Aug 12, 2019 2:04 pm
I have yet to find a ST who is happy managing a mostly VTI portfolio, which I believe would require minimal effort.
Have you been given any reasons why they would not do this?
+1

robandjeanne, are you really saying that you can't imagine why anyone wouldn't be willing to serve as trustee for a 100% stock portfolio?

Just because this might be a great investment for you while you are alive (in the context of also having Social Security, perhaps a pension, perhaps significant home equity), that doesn't mean that it's the best investment style for a trust, where the beneficiaries might not have non-equity income or investments that could stabilize the portfolio against the often-dramatic swings of an all-stock portfolio.

Don't get me wrong, I'm a huge fan of Total US Stock. But for me, and for most others, it is a co-player with fixed income investments.

It's fine that you believe strongly enough in this philosophy to want to "control from the grave" your beneficiaries' investments. But I have to gently push back against this whole "they're all snake-oil salesmen" etc portrayal of those who view their potential role as trustees differently. Trustees can be and do get sued by disappointed (this sometimes means whiny) beneficiaries who didn't get the consistent returns that they had imagined that they would get. You can't be so naive that you don't recognize that the normal ups and downs of the market don't result in erratic year-to-year, even when they have so far provided good long-term returns.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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Re: Trust Services

Post by FBN2014 » Mon Aug 12, 2019 9:16 pm

bayview wrote:
Mon Aug 12, 2019 8:46 pm
FIREchief wrote:
Mon Aug 12, 2019 3:49 pm
robandjeanne wrote:
Mon Aug 12, 2019 2:04 pm
I have yet to find a ST who is happy managing a mostly VTI portfolio, which I believe would require minimal effort.
Have you been given any reasons why they would not do this?
+1

robandjeanne, are you really saying that you can't imagine why anyone wouldn't be willing to serve as trustee for a 100% stock portfolio?

Just because this might be a great investment for you while you are alive (in the context of also having Social Security, perhaps a pension, perhaps significant home equity), that doesn't mean that it's the best investment style for a trust, where the beneficiaries might not have non-equity income or investments that could stabilize the portfolio against the often-dramatic swings of an all-stock portfolio.

Don't get me wrong, I'm a huge fan of Total US Stock. But for me, and for most others, it is a co-player with fixed income investments.

It's fine that you believe strongly enough in this philosophy to want to "control from the grave" your beneficiaries' investments. But I have to gently push back against this whole "they're all snake-oil salesmen" etc portrayal of those who view their potential role as trustees differently. Trustees can be and do get sued by disappointed (this sometimes means whiny) beneficiaries who didn't get the consistent returns that they had imagined that they would get. You can't be so naive that you don't recognize that the normal ups and downs of the market don't result in erratic year-to-year, even when they have so far provided good long-term returns.
Using 100% VTI would most likely be a violation of the prudent investor rule which a fiduciary is bound to follow. It would work great in a sustained bull market but would incur unnecessary losses when the bear emerges.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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FIREchief
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Re: Trust Services

Post by FIREchief » Mon Aug 12, 2019 11:49 pm

bayview wrote:
Mon Aug 12, 2019 8:46 pm
FIREchief wrote:
Mon Aug 12, 2019 3:49 pm
robandjeanne wrote:
Mon Aug 12, 2019 2:04 pm
I have yet to find a ST who is happy managing a mostly VTI portfolio, which I believe would require minimal effort.
Have you been given any reasons why they would not do this?
+1
I think you misunderstood my question. I was in no way suggesting that robandjeanne shouldn't be trying to arrange for a ST who would agree to a mostly VTI portfolio.
It's fine that you believe strongly enough in this philosophy to want to "control from the grave" your beneficiaries' investments. But I have to gently push back against this whole "they're all snake-oil salesmen" etc portrayal of those who view their potential role as trustees differently. Trustees can be and do get sued by disappointed (this sometimes means whiny) beneficiaries who didn't get the consistent returns that they had imagined that they would get. You can't be so naive that you don't recognize that the normal ups and downs of the market don't result in erratic year-to-year, even when they have so far provided good long-term returns.
If I'm the grantor of the trust, than the investments belong to "my" trust even though I'm six feet under. Legally, I have every right to control "my" trust from beyond the grave; regardless of how smart or ill-advised this might be. Nothing belongs to the beneficiaries until the trust makes distributions to them, according to whatever terms I established.

FBN2014 wrote:
Mon Aug 12, 2019 9:16 pm
Using 100% VTI would most likely be a violation of the prudent investor rule which a fiduciary is bound to follow. It would work great in a sustained bull market but would incur unnecessary losses when the bear emerges.
I believe that you are correct with respect to the prudent investor rules. The only way I am aware of to circumvent those is for the trust document itself to establish more restrictive investment directions (NOT "guidelines," but actual direction). This is atypical, and will likely draw the usual flood of "you're nuts" responses from those who embrace the current status quo with respect to investment practices of independent trustees.

If robandjeanne truly desire an independent ST to invest in a mostly VTI portfolio, they likely only have three options:
a) change the world of corporate trustees
b) draft the trust to require this
c) somehow assign an independent ST who will throw caution to the wind, and risk being sued, because they're willing to ignore prudent investor rules (and likely increased profits) and instead follow some "recommendations" from somebody who is no longer alive

I will suggest that only one of those is possible.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

afan
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Re: Trust Services

Post by afan » Tue Aug 13, 2019 7:58 am

4. Have an administrative trustee that has no responsibility for the investments. Let the beneficiaries manage the money. Or hire a non trustee to manage the money with instructions to keep it all in VTI.

Or put in the terms if the trust that the only investment it is allowed to hold is VTI. This is a terrible idea for reasons already discussed. But the administrative trustee will not care. The money manager will not care either. They will just reinvest dividends.

If all the trust will ever hold is one fund, then make it a mutual fund and set it to reinvest, holding enough cash to pay taxes.

This would be a lot simpler than trying to find a trustee who does not care about prudent investor rules.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

bsteiner
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Re: Trust Services

Post by bsteiner » Tue Aug 13, 2019 8:03 am

bayview wrote:
Mon Aug 12, 2019 8:46 pm
... Trustees can be and do get sued by disappointed (this sometimes means whiny) beneficiaries who didn't get the consistent returns that they had imagined that they would get. ...
That sometimes happens, but not as often as some people may think. I've been involved in a few such cases, both on the side of the beneficiaries and on the side of the executors or trustees.
robandjeanne wrote:
Mon Aug 12, 2019 2:04 pm
It seems to me there are a lot of snake oil salesman out there with respect to Trusts and particularly the idea of serving as Successor Trustee. ... I have yet to find a ST who is happy managing a mostly VTI portfolio, which I believe would require minimal effort. Essentially I am saying don't do anything to mess up the performance of VTI by de-worsifying. Still no takers. If I ever do find a ST willing to manage a mostly passive VTI type portfolio ...
Banks and trust companies would probably prefer to be the initial trustee rather than a successor trustee, though they're usually willing to come in as a successor trustee provided they don't have any exposure for what the prior trustee(s) may have done.

Banks and trust companies may have more individual securities, but they don't churn as much as some people may think.

We have one case where there will be a corporate trustee and we expect that they'll invest in index funds.
FBN2014 wrote:
Mon Aug 12, 2019 9:16 pm
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Using 100% VTI would most likely be a violation of the prudent investor rule which a fiduciary is bound to follow. ...
Under the prudent investor rule no investment is inherently prudent or imprudent. The trustees have to consider all of the facts and circumstances (which may change from time to time).

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