Trust Services

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
BillWalters
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Re: Trust Services

Post by BillWalters » Tue Aug 13, 2019 2:19 pm

bsteiner,

I would love to hear a short summary of the litigation you’ve been involved with, along with time frames and outcomes. I’m sure I’m not alone.

bsteiner
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Re: Trust Services

Post by bsteiner » Wed Aug 14, 2019 9:28 am

BillWalters wrote:
Tue Aug 13, 2019 2:19 pm
bsteiner,

I would love to hear a short summary of the litigation you’ve been involved with, along with time frames and outcomes. I’m sure I’m not alone.
1. In one case, the decedent died in 1999. His investments were concentrated in the telecommunications sector, which soon after his death collapsed in the 2000-2003 market decline, which hit the tech sector harder than the market generally. There was a protracted Will contest (the decedent and his wife who died first came to the United States from Europe and didn't have children, and the rest of the family was in Europe, and didn't get along, I assume because they were on opposite sides in World War II). The side that prevailed in the Will contest brought a claim against the preliminary executors for not selling the stocks and diversifying sooner. The case was settled.

2. In another case, a guardian was appointed for an elderly woman because her two daughters didn't get along. After she died, the daughters (with separate counsel) brought several claims against the guardian: (i) for incurring a late filing penalty on a tax return where he didn't apply for an extension or ask that the penalty be waived, (ii) for cashing in U.S. Savings Bonds paying a good interest rate, tax-deferred, and for which the interest could have been accrued on the final return (she died in January of her final year), (iii) for selling appreciated assets and incurring capital gains taxes which could have been avoided by holding the stocks until her death (though one of them was a concentrated position in a stock that declined substantially after it was sold), (iv) for hiring a wirehouse broker and paying 1.4% a year to manage the assets. The judge ruled in favor of the guardian, perhaps because the claims were relatively minor and because they wouldn't have needed an independent guardian if the daughters could have cooperated.

3. In a case that couldn't be brought because the trustee didn't have much in the way of assets, a trust was invested entirely in one stock that collapsed, resulting in an 8-figure loss. Unfortunately the trustee invested his own money in the same stock, so the beneficiary decided there wouldn't be any purpose to bringing a claim.

4. In another case, the husband died in 2012 when the estate tax rate was 35%. The wife died in 2013 (before the husband's estate tax return was due), when the estate tax rate was 40%. He left his estate to her in a marital (QTIP) trust. His executor (who was also her executor) claimed the marital deduction, which resulted in a 40% estate tax rate instead of a 35% estate tax rate, costing the family a couple of million dollars. Claiming the marital deduction also gave up the credit for the tax on prior transfers, which was substantial. I spotted this when reviewing the accounting on behalf of a beneficiary. The statute of limitations for claims against the lawyers and accountants had expired, and the family decided not to bring a claim against the executor.

Gill
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Re: Trust Services

Post by Gill » Wed Aug 14, 2019 9:54 am

bsteiner wrote:
Wed Aug 14, 2019 9:28 am
4. In another case, the husband died in 2012 when the estate tax rate was 35%. The wife died in 2013 (before the husband's estate tax return was due), when the estate tax rate was 40%. He left his estate to her in a marital (QTIP) trust. His executor (who was also her executor) claimed the marital deduction, which resulted in a 40% estate tax rate instead of a 35% estate tax rate, costing the family a couple of million dollars. Claiming the marital deduction also gave up the credit for the tax on prior transfers, which was substantial. I spotted this when reviewing the accounting on behalf of a beneficiary. The statute of limitations for claims against the lawyers and accountants had expired, and the family decided not to bring a claim against the executor.
Bruce, this was indeed a beauty with serious money involved. I'm curious why the Statute of Limitations had run. Couldn't the argument be made that the beneficiary was not aware of this error until you reviewed it in the accounting and therefore the Statute was tolled and did not begin to run until that time? Just wondering...
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

bsteiner
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Re: Trust Services

Post by bsteiner » Wed Aug 14, 2019 10:31 am

Gill wrote:
Wed Aug 14, 2019 9:54 am
bsteiner wrote:
Wed Aug 14, 2019 9:28 am
4. In another case, the husband died in 2012 when the estate tax rate was 35%. The wife died in 2013 (before the husband's estate tax return was due), when the estate tax rate was 40%. He left his estate to her in a marital (QTIP) trust. His executor (who was also her executor) claimed the marital deduction, which resulted in a 40% estate tax rate instead of a 35% estate tax rate, costing the family a couple of million dollars. Claiming the marital deduction also gave up the credit for the tax on prior transfers, which was substantial. I spotted this when reviewing the accounting on behalf of a beneficiary. The statute of limitations for claims against the lawyers and accountants had expired, and the family decided not to bring a claim against the executor.
Bruce, this was indeed a beauty with serious money involved. I'm curious why the Statute of Limitations had run. Couldn't the argument be made that the beneficiary was not aware of this error until you reviewed it in the accounting and therefore the Statute was tolled and did not begin to run until that time? Just wondering...
Gill
I checked to refresh my recollection. The executor was an accountant and did the estate tax returns himself (or others in his firm prepared them and he signed them as preparer). (It was actually a revocable trust since they lived in Florida and wanted their accountant in New York to be the personal representative, but Florida requires a personal representative to be either a relative or a Florida resident, so a revocable trust is the most common workaround.) So the claim would have been against him one way or the other.

The statute of limitations in New York generally runs from when the act occurred. However, New York has the concept of continuous representation which may toll the statute of limitations. I didn't check to see whether it would have applied since he was also the fiduciary so they could have brought the claim on that basis, and they didn't want to pursue the matter.

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FIREchief
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Re: Trust Services

Post by FIREchief » Wed Aug 14, 2019 1:45 pm

Thank you for the interesting stories Bruce.
bsteiner wrote:
Wed Aug 14, 2019 9:28 am

1. The side that prevailed in the Will contest brought a claim against the preliminary executors for not selling the stocks and diversifying sooner.

4. His executor (who was also her executor) claimed the marital deduction, which resulted in a 40% estate tax rate instead of a 35% estate tax rate, costing the family a couple of million dollars. Claiming the marital deduction also gave up the credit for the tax on prior transfers, which was substantial.
More reasons why I will never accept an appointment as executor unless I know in advance exactly what I'm getting into. :shock:
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Gill
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Re: Trust Services

Post by Gill » Wed Aug 14, 2019 2:49 pm

bsteiner wrote:
Wed Aug 14, 2019 10:31 am
Gill wrote:
Wed Aug 14, 2019 9:54 am
bsteiner wrote:
Wed Aug 14, 2019 9:28 am
4. In another case, the husband died in 2012 when the estate tax rate was 35%. The wife died in 2013 (before the husband's estate tax return was due), when the estate tax rate was 40%. He left his estate to her in a marital (QTIP) trust. His executor (who was also her executor) claimed the marital deduction, which resulted in a 40% estate tax rate instead of a 35% estate tax rate, costing the family a couple of million dollars. Claiming the marital deduction also gave up the credit for the tax on prior transfers, which was substantial. I spotted this when reviewing the accounting on behalf of a beneficiary. The statute of limitations for claims against the lawyers and accountants had expired, and the family decided not to bring a claim against the executor.
Bruce, this was indeed a beauty with serious money involved. I'm curious why the Statute of Limitations had run. Couldn't the argument be made that the beneficiary was not aware of this error until you reviewed it in the accounting and therefore the Statute was tolled and did not begin to run until that time? Just wondering...
Gill
I checked to refresh my recollection. The executor was an accountant and did the estate tax returns himself (or others in his firm prepared them and he signed them as preparer). (It was actually a revocable trust since they lived in Florida and wanted their accountant in New York to be the personal representative, but Florida requires a personal representative to be either a relative or a Florida resident, so a revocable trust is the most common workaround.) So the claim would have been against him one way or the other.

The statute of limitations in New York generally runs from when the act occurred. However, New York has the concept of continuous representation which may toll the statute of limitations. I didn't check to see whether it would have applied since he was also the fiduciary so they could have brought the claim on that basis, and they didn't want to pursue the matter.
Thanks for the explanation, Bruce.
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

robandjeanne
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Re: Trust Services

Post by robandjeanne » Wed Aug 14, 2019 8:10 pm

An update on our quest to find a Successor Trustee to manage our mostly VTI portfolio. Now when I say mostly VTI portfolio I should clarify that presently the portfolio consists of over 30 mutual funds and ETFs with VTI being less than 10%. So imho the present portfolio seems diverse. It certainly is not all high tech or one stock so it seems unlikely that beneficiaries could successfully claim it was not diverse enough. If beneficiaries challenge the Trust and are unsuccessful they get nothing (no contest clause). Also the Trust says we are not using the Prudent Investor rules. I looked at my present portfolio and found that I barely beat the S&P on a 5 or 10 year basis, however I occasionally beat it by 2% on bad years like 2018. So I thought why not simplify things by putting all new money into VTI (if you can't beat them...). Interestingly I just saw a Jack Bogle interview where he disclosed that Warren Buffett was planning to leave 90% of his money to his wife using VTI (he didn't say where the other 10% would be)

The one potential ST seems to be dragging his feet, so we'll see what happens there. Schwab seems almost overly responsive (I wonder if they are falling on hard times) and initially indicated they would be more than happy to manage the existing portfolio for 0.5%, although they would want to move the assets to Schwab (they indicated this was a move in kind without selling). As expected they suggested acting as Trustees right away, but we said we were only interested in them as Successor Trustees. We shall see. .

robandjeanne
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Re: Trust Services

Post by robandjeanne » Thu Aug 15, 2019 1:30 am

I have heard some say beneficiaries would be unhappy receiving an amount that varied with market performance. I mentioned our RLT has a minimum yearly amount of $20 K, so this is an amount each beneficiary could count on. Any additional amount due to market growth should be considered a bonus. I wonder, however, if it would be wiser to pick a larger yearly base amount value that would potentially still allow a legacy trust. I'm getting the sense that some beneficiaries may value a consistent amount they can count on, more than a boom amount some years.

bsteiner
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Re: Trust Services

Post by bsteiner » Thu Aug 15, 2019 7:58 am

robandjeanne wrote:
Thu Aug 15, 2019 1:30 am
I have heard some say beneficiaries would be unhappy receiving an amount that varied with market performance. I mentioned our RLT has a minimum yearly amount of $20 K, so this is an amount each beneficiary could count on. Any additional amount due to market growth should be considered a bonus. I wonder, however, if it would be wiser to pick a larger yearly base amount value that would potentially still allow a legacy trust. I'm getting the sense that some beneficiaries may value a consistent amount they can count on, more than a boom amount some years.
No one knows what the future will bring. It's almost always better to give the trustees discretion to decide on distributions. That way, they can take into account the circumstances as they exist from time to time.

bsteiner
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Re: Trust Services

Post by bsteiner » Thu Aug 15, 2019 8:00 am

BillWalters wrote:
Tue Aug 13, 2019 2:19 pm
bsteiner,

I would love to hear a short summary of the litigation you’ve been involved with, along with time frames and outcomes. I’m sure I’m not alone.
We also had a couple of cases, one of which is still pending, where the administrator misappropriated the assets. In one case the court required a bond so we were able to go after the bonding company. In the other case the decedent owned an LLC that owned a rental property, so we were able to get the property sold, and the proceeds are being held in escrow pending a determination of how much rent the former administrator misappropriated (so it can be charged against her share).

robandjeanne
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Re: Trust Services

Post by robandjeanne » Thu Aug 15, 2019 10:37 am

Thanks to bsteiner for the court room view of Trusts and Wills. It seems most of the malfeasance cases are pretty clear (Trustee owning one stock...). I wondered if there have been successful cases against a Trustee that holds a Bogle-like portfolio? I know anything is possible, but it would seem a losing proposition to go against a Trustee who managed a portfolio of VTI and dozens of other mutual funds. Does the "no contest clause" in any of these cases make a difference?

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FIREchief
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Re: Trust Services

Post by FIREchief » Thu Aug 15, 2019 2:19 pm

robandjeanne wrote:
Thu Aug 15, 2019 10:37 am
I wondered if there have been successful cases against a Trustee that holds a Bogle-like portfolio?
I highly doubt it, simply because I've never seen a report of an independent trustee investing trust assets in a manner that a boglehead would (i.e. entirely low cost, passively managed index funds). That's one of the things we complain about in these threads. :annoyed
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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FIREchief
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Re: Trust Services

Post by FIREchief » Thu Aug 15, 2019 2:23 pm

robandjeanne wrote:
Wed Aug 14, 2019 8:10 pm
Also the Trust says we are not using the Prudent Investor rules..
Does the trust provide directions that supersede the prudent investor rules, or does it just somehow state that compliance is not required? I don't understand how that would work. :confused
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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FIREchief
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Re: Trust Services

Post by FIREchief » Thu Aug 15, 2019 2:35 pm

robandjeanne wrote:
Wed Aug 14, 2019 8:10 pm
Interestingly I just saw a Jack Bogle interview where he disclosed that Warren Buffett was planning to leave 90% of his money to his wife using VTI (he didn't say where the other 10% would be)
I've most frequently seen Buffet quoted as stating that he is recommending to his trustee that 90% of the assets left to his wife be invested in an S&P 500 index fund and the other 10% in treasuries. This has often puzzled me because a grantor of a trust (even one with as many billions as Buffet has) can't simply "recommend" something to a trustee and expect it to be adhered to after his demise. A trustee will do what the trust and state laws require. Language in the trust can trump prudent investor laws, but verbal recommendations can not. I more easily believe that Buffet is just making a statement to the rest of us that the bulk of our long term investments should be invested in high quality stocks.
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 » Thu Aug 15, 2019 3:35 pm

robandjeanne wrote:
Thu Aug 15, 2019 10:37 am
Thanks to bsteiner for the court room view of Trusts and Wills. It seems most of the malfeasance cases are pretty clear (Trustee owning one stock...). I wondered if there have been successful cases against a Trustee that holds a Bogle-like portfolio? I know anything is possible, but it would seem a losing proposition to go against a Trustee who managed a portfolio of VTI and dozens of other mutual funds. Does the "no contest clause" in any of these cases make a difference?
The no contest provision applies to who gets what. If I leave $100,000 to child A and the rest to child B, and I say that anyone who contests the Will forfeits his/her bequest, child A will be discouraged from contesting the Will.

It would be hard to object to an accounting if a trustee had dozens of mutual funds unless they were all in one sector, or otherwise insufficiently diversified, and that resulted in a loss.

bsteiner
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Re: Trust Services

Post by bsteiner » Thu Aug 15, 2019 3:41 pm

FIREchief wrote:
Thu Aug 15, 2019 2:35 pm
robandjeanne wrote:
Wed Aug 14, 2019 8:10 pm
Interestingly I just saw a Jack Bogle interview where he disclosed that Warren Buffett was planning to leave 90% of his money to his wife using VTI (he didn't say where the other 10% would be)
I've most frequently seen Buffet quoted as stating that he is recommending to his trustee that 90% of the assets left to his wife be invested in an S&P 500 index fund and the other 10% in treasuries. This has often puzzled me because a grantor of a trust (even one with as many billions as Buffet has) can't simply "recommend" something to a trustee and expect it to be adhered to after his demise. A trustee will do what the trust and state laws require. Language in the trust can trump prudent investor laws, but verbal recommendations can not. I more easily believe that Buffet is just making a statement to the rest of us that the bulk of our long term investments should be invested in high quality stocks.
You may be right. He may be saying that to tell the public that they should invest mainly in S&P 500 type stocks or funds. We'll probably find out after his death when we see his Will.

He's more likely to recommend than to direct the trustees. No one knows what the future will bring. But as long as his recommendation is practical, and there's no compelling reason to do otherwise, the trustees will likely follow it. Given the size of his estate, assuming he leaves enough of it in trust for his wife, she'll be fine no matter how the trustees invest the assets.

Broken Man 1999
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Re: Trust Services

Post by Broken Man 1999 » Thu Aug 15, 2019 3:51 pm

Hopefully Mr Buffett has a will. If not, he wouldn't be the only very rich person who doesn't/didn't have a will, but he would probably be the richest. :oops:

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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FIREchief
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Re: Trust Services

Post by FIREchief » Thu Aug 15, 2019 4:07 pm

bsteiner wrote:
Thu Aug 15, 2019 3:41 pm
But as long as his recommendation is practical, and there's no compelling reason to do otherwise, the trustees will likely follow it. Given the size of his estate, assuming he leaves enough of it in trust for his wife, she'll be fine no matter how the trustees invest the assets.
Absolutely. I posted that (hopefully) for the benefit of the forum readers who are trying to understand these issues. I've seen multiple instances of folks who report establishment of a trust with usual wide discretion for investments, but then suggest that they'll have something like a letter of instruction asking the trustee to invest in a three fund portfolio or similar passive, index-based investments. I believe that the risk of failure (of their plan actually being carried out) is high in these situations. I could of course be wrong.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

2wendyliu
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Re: Trust Services

Post by 2wendyliu » Thu Aug 15, 2019 9:56 pm

FYI, I came across this article about Schwab's Administrative Trustee Services for those who wish to separate investment from administration of the trust - https://www.ifa.com/pdfs/schwab-trustee-services.pdf

2wendyliu
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Re: Trust Services

Post by 2wendyliu » Thu Aug 15, 2019 10:43 pm

Fee schedule for Schwab's Administrative Trustee Services - https://www.schwab.com/public/file/P-10180944
It's nice to be able to separate administration from investing of trust assets. Not only can you make decisions independently, there may be protection from conflict of interest as well.

In addition to the Delaware company that serves as trust administrator only, Schwab also has a Nevada company that operates more like VG with similar fee schedule (0.5% vs 0.55% for first 5 million).

Quick summary of Schwab Administrative's benefits over Vanguard:
1. Supports administrative only
2. Supports real estate and private foundation

robandjeanne
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Re: Trust Services

Post by robandjeanne » Fri Aug 16, 2019 12:44 am

Firechief is absolutely right about the need to direct the Successor Trustee to do what you want. I had a quite productive meeting with one potential ST and his Senior Portfolio Manager. The ST was suggesting we use language like "prefer" to state what we wanted. Toward the end of the meeting the Portfolio Manager admitted if we said "prefer" he would just do things his way. I thought that was amazingly honest, and will probably list this Trust Corp as one of our STs. Also on the idea of writing what you want rather than conveying it in some other way, I think with a chuckle of the Code of Hammurabi (1754 BC). It is almost ridiculously strict since the penalty for any serious offense was death. If they caught a man and woman together no matter what they said if they could not produce a written document saying they were married, the penalty was death. Perhaps Warren Buffett could learn from Hammurabi. Incidentally I've watched several interviews with Buffett on YouTube, he absolutely loved the S&P 500 index (not just the companies), and most recently loved VTI.

bsteiner
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Re: Trust Services

Post by bsteiner » Fri Aug 16, 2019 8:36 am

FIREchief wrote:
Thu Aug 15, 2019 4:07 pm
bsteiner wrote:
Thu Aug 15, 2019 3:41 pm
But as long as his recommendation is practical, and there's no compelling reason to do otherwise, the trustees will likely follow it. Given the size of his estate, assuming he leaves enough of it in trust for his wife, she'll be fine no matter how the trustees invest the assets.
Absolutely. I posted that (hopefully) for the benefit of the forum readers who are trying to understand these issues. I've seen multiple instances of folks who report establishment of a trust with usual wide discretion for investments, but then suggest that they'll have something like a letter of instruction asking the trustee to invest in a three fund portfolio or similar passive, index-based investments. I believe that the risk of failure (of their plan actually being carried out) is high in these situations. I could of course be wrong.
Nothing is certain. But if you give each child the right to become a trustee, the co-trustee can't invest the assets without the child/trustee's approval. And if you give the child the right to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee (which our clients usually do unless there's a reason not to do so in a given case), the co-trustee is likely to be responsive to the child.
2wendyliu wrote:
Thu Aug 15, 2019 10:43 pm
Fee schedule for Schwab's Administrative Trustee Services - ...
It's nice to be able to separate administration from investing of trust assets. Not only can you make decisions independently, there may be protection from conflict of interest as well.
...
There are many trust companies in Alaska, Delaware, Nevada and South Dakota that will act as a trustee for about $5,000 a year so long as they're not responsible for investing the assets.
robandjeanne wrote:
Fri Aug 16, 2019 12:44 am
Firechief is absolutely right about the need to direct the Successor Trustee to do what you want. ...
Also the initial trustees.

robandjeanne
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Re: Trust Services

Post by robandjeanne » Mon Aug 19, 2019 10:48 pm

Our thanks to 2wendylu, afan, Firechief, FBN2014 et al for suggesting Schwab, which by far has been our best candidate for Successor Trustee. In our area of Northern VA, Schwab says they can handle our entire Trust (not just administrative). In our case we want a "Legacy Trust" which will distribute half the portfolio growth to 7 beneficiaries. We have a hodgepodge of 30 some mutual funds and ETFs which have managed to equal and on bad years (2018) do 3% better than the market (VTI). However since few beat the market on a 5 or 10 year average, we specified that all future money be invested in VTI. Schwab said no problem, but when the time comes for them to act as STs they would want to move the assets in kind (without selling) to a Schwab brokerage account They will charge 0.5%/year for this ST service. Sounded great to me!

afan
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Re: Trust Services

Post by afan » Wed Aug 21, 2019 6:50 am

Any idea why Schwab uses a Delaware trust when it is solely the administrative trustee but Nevada when it also manages the investments? Differences in state law? Taxes?

Re:Buffett's trust. Given his stature as an investor and in the finance industry, I would assume it would be easy for him to find a trustee who would follow his plan. At least until there was a good reason to deviate. On the unlikely event that it ever came to a court case I suspect it would be hard for the trustee to claim that the grantor had such limited knowledge of investing that he made unworkable suggestions.

Bsteiner,

For families that use administrative trustees with no responsibility for investing:

Why do they need an LLC to hold the investments with the trust holding the LLC? What does this accomplish that having the trust own the investments would not?

Do the families manage the investmenta themselves or hire others to do it?

Thanks
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 Aug 22, 2019 6:49 pm

afan noted how comical it would be for a Successor Trustee to claim he knew more about investing than Buffett, but in my experience I'll bet there would be some who would claim such genius status. Although it seems Buffett would have a trust, I found it quite interesting that according to Bogle, Buffett was leaving 90% of his assets to his wife via VTI. Maybe he thought VTI would have plenty of return, and his wife wouldn't have much trouble managing it.

Since I found a Schwab representative who says he will do the whole trust for 0.5% including managing our invested portfolio, I can't see the value in a separate firm to do the investing.

For those considering a "Legacy Trust" some phrases to pay keen attention to are "lapse", "general power of appointment", and the powers of a Special Co-Trustee or Trust Protector. As I understand it if a beneficiary's share lapses it extinguishes and ceases to exist, so no new yearly distributions would go to that share. Even though you might have thought a deceased beneficiaries share went to his descendants per stirpes, I think (not sure here) the beneficiary by exercising his general power of appointment (in writing before he dies) could leave his ongoing share to anybody (his mistress). If this is true it might be wise to not give beneficiaries a general power of appointment. The Trust Protector is typically given a lot of power, and one of these is to terminate the Legacy Trust early. I can see real problems here because many of our beneficiaries are spendthrifts. If they could influence a Trust Protector to distribute early and get a windfall of a million tax free, that would be a strong incentive and defeat the Legacy Trust. The solution here I guess is to not give the Trust Protector this power of early Trust termination.

robandjeanne
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Re: Trust Services

Post by robandjeanne » Fri Sep 20, 2019 12:49 am

Starting to hear the same old song and dance from Schwab who initially agreed to manage a mainly VTI portfolio, but after getting through two layers of people I'm now hearing how they are worried about being sued because VTI is not diverse enough. In the last two years Schwab has taken on the entire job of Successor Trustee meaning they invest as well as administer. It seems like I may still be looking for a ST. Anyone have good success with a separate investment trustee combined with an administrative trustee? I'm not sure if Schwab still does the admin part, but I know they can handle selling the house and contents.

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FIREchief
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Re: Trust Services

Post by FIREchief » Fri Sep 20, 2019 12:29 pm

robandjeanne wrote:
Fri Sep 20, 2019 12:49 am
Starting to hear the same old song and dance from Schwab who initially agreed to manage a mainly VTI portfolio, but after getting through two layers of people I'm now hearing how they are worried about being sued because VTI is not diverse enough.
I am not at all surprised. This is a common theme in these threads. Somebody initially is led to believe that an independent (i.e. paid) trustee will invest as a Boglehead would, only to later discover that old (profitable) habits die hard.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Pigeye Brewster
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Re: Trust Services

Post by Pigeye Brewster » Fri Sep 20, 2019 2:17 pm

robandjeanne wrote:
Fri Sep 20, 2019 12:49 am
Starting to hear the same old song and dance from Schwab who initially agreed to manage a mainly VTI portfolio, but after getting through two layers of people I'm now hearing how they are worried about being sued because VTI is not diverse enough.
Is Schwab saying that 1) VTI is not diverse enough, or 2) a portfolio invested mainly in an equities is not diverse enough?

robandjeanne
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Re: Trust Services

Post by robandjeanne » Sun Sep 22, 2019 4:22 pm

I think Schwab's man in Nevada doesn't think VTI is diverse enough. Schwab has only been investor and admin ST for two years, I suspect they want to push their own index funds (at least it's index) instead of VTI. I asked him what index funds and their performance he recommends, and I'm waiting to hear back. If they use an S&P index and put 85% of the portfolio in it that might be OK. I guess I'm waiting to learn how much of my portfolio they are willing to waste to cover their rears. I liked Schwab's admin people, but as mentioned their investor guy just echos what all ST investor guys say, If anyone has any success with separating the investor side from the admin side of a Trust, please let me know. It appears i'm back to square one.

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Re: Trust Services

Post by bsteiner » Sun Sep 22, 2019 5:10 pm

afan wrote:
Wed Aug 21, 2019 6:50 am
...
Bsteiner,

For families that use administrative trustees with no responsibility for investing:

Why do they need an LLC to hold the investments with the trust holding the LLC? What does this accomplish that having the trust own the investments would not?

Do the families manage the investmenta themselves or hire others to do it?
A corporate trustee that's not responsible for the investments is only getting a modest annual fee, usually about $5,000 a year. They'll hold a small number of private investments (such as interests in family owned corporations and LLCs), but they don't want to hold an actively traded portfolio. Even if someone else is responsible for the investments, they would have to be involved in every trade. They would prefer to hold an LLC which in turn holds the securities so they don't have to be involved in the trades.

The person(s) responsible for the investments can either manage the investments themselves or hire someone to do it, as they choose. These trusts are usually created for special reasons, such as asset protection trusts (there are some states where you can create a trust for your own benefit that will be exempt from your future creditors), or to avoid state income taxes (different states have different ways of determining when a trust is taxable in that state). It's much less common though possible for someone to create such a trust in his/her Will.
robandjeanne wrote:
Sun Sep 22, 2019 4:22 pm
... If anyone has any success with separating the investor side from the admin side of a Trust, please let me know. ....
We've done it. What are you trying to accomplish? You may have already said it in this thread but there have been so many posts in this thread that it would be more efficient for you to say it again rather than to have to go a large number of posts.

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Re: Trust Services

Post by robandjeanne » Sun Sep 22, 2019 11:49 pm

We have a legacy Trust with 6 beneficiaries, and would like to distribute half the portfolio growth every year. The portfolio has 33 funds and ETFs, and as various funds are sold, any money not distributed we would like to be invested in VTI. Since we can't seem to find an ST who will agree to do this without buying bonds and international funds, we wondered if separating the investment role from the admin role might make this possible. Schwab is probably going to try to push their own selection of index funds (at least they believe in index funds), even though what they suggest will most likely lag behind VTI. In other words most STs are eager to sacrifice beneficiary gains to cover their rears. Also they can never seem to estimate how much their suggested portfolio will return, so I can estimate how much they are going to lose We need an investor with a light touch who won't immediately sell everything and put it in low return investments. Since our portfolio would be gradually moving towards VTI, I don't believe the investor would have a very difficult job. Nevertheless, we haven't found one yet.

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Re: Trust Services

Post by JoinToday » Mon Sep 23, 2019 12:14 am

robandjeanne wrote:
Sun Sep 22, 2019 11:49 pm
...... Also they can never seem to estimate how much their suggested portfolio will return, so I can estimate how much they are going to lose .....
If you weren't distributing anything from the trust:
72 / ER = number of years for the advisor + funds to take one half (50%) of your assets
42 / ER = number of years for the advisor + funds to take one third (33%) of your assets
30 / ER = number of years for the advisor + funds to take one quarter (25%) your assets

That should get you in the ballpark of what you need to know. This is relatively insensitive to the portfolio return.
I wish I had learned about index funds 25 years ago

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Re: Trust Services

Post by LilyFleur » Mon Sep 23, 2019 11:09 pm

robandjeanne wrote:
Sun Sep 22, 2019 11:49 pm
We have a legacy Trust with 6 beneficiaries, and would like to distribute half the portfolio growth every year. The portfolio has 33 funds and ETFs, and as various funds are sold, any money not distributed we would like to be invested in VTI. Since we can't seem to find an ST who will agree to do this without buying bonds and international funds, we wondered if separating the investment role from the admin role might make this possible. Schwab is probably going to try to push their own selection of index funds (at least they believe in index funds), even though what they suggest will most likely lag behind VTI. In other words most STs are eager to sacrifice beneficiary gains to cover their rears. Also they can never seem to estimate how much their suggested portfolio will return, so I can estimate how much they are going to lose We need an investor with a light touch who won't immediately sell everything and put it in low return investments. Since our portfolio would be gradually moving towards VTI, I don't believe the investor would have a very difficult job. Nevertheless, we haven't found one yet.
Check out the #1 ETF here (It is SCHX, a Schwab ETF, with an ER of .03% with 1-year returns at 4.06%):
https://money.usnews.com/funds/etfs/ran ... arge-blend
VTI is ranked 13, with an ER of .03% with 1-year returns at 3.00%.
It seems that, at least for the past year, VTI is lagging behind what Schwab might recommend.

Most likely your Schwab investment advisor is a fiduciary. Perhaps it would be a good idea to sit down with the Schwab advisor and get a written plan to take home to study. Maybe the reality is not as horrible as you fear. And, no fiduciary is going to be able to predict how much their recommended portfolio will return. None of them have a crystal ball. Perhaps STs want to include bonds and international funds so that they don't get sued for breach of fiduciary duty.

I think it's great that you have a high risk tolerance for your trust fund. But trusts are legal entities, and legal benefits are bestowed with legal requirements and liabilities, and thus are subject to lawsuits, so perhaps that is why the STs are not inclined to invest so heavily in VTI. I do think Schwab would be able to design a portfolio that would include VTI as well as highly-ranked, tax-efficient Schwab ETFs and index funds that would take very good care of your trust's beneficiaries and would also stand up in a court of law as performing the required fiduciary duty.

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Re: Trust Services

Post by robandjeanne » Tue Sep 24, 2019 9:35 am

Thanks lilyfleur for those calming words. I'm a little confused by the stats you reference. Morningstar shows VTI as follows for YTD, 3,5,and 10 year performance: 20.83, 13.17, 10.45, and 15.14%. SCHX has YTD of 21.09%, 12.67, 9.93, -. From M* it looks like they are almost equal with VTI having a slight edge and a longer record (no 10 year quoted for SCHX). Almost all STs want to diversify into bonds and internationals lowering the portfolio return. I am anxious to learn what Schwab recommends so I can see how much historically they are losing compared with VTI.

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Re: Trust Services

Post by Pigeye Brewster » Tue Sep 24, 2019 11:23 am

robandjeanne wrote:
Tue Sep 24, 2019 9:35 am
Almost all STs want to diversify into bonds and internationals lowering the portfolio return.
That's because trustee's in many (40+) states are subject to the prudent investor rule. It places a large emphasis on diversification. As LilyFleur noted, to invest otherwise would subject a trustee to potential fiduciary liability.

However, the settlor of a trust can typically override the prudent investor rule. Your attorney may be able waive its requirements in the trust agreement and allow you to give specific instructions to the trustee on how to structure the portfolio.

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Re: Trust Services

Post by robandjeanne » Tue Sep 24, 2019 8:46 pm

We already state we are not following the Prudent Investor Rule in our Trust. So far STs seem to be ignoring this. It almost seems they want to use this worry about being sued to push their own choices for investments. To a Trustor trying to set up a Trust it is very frustrating. The STs seem to be saying we are more than willing to sacrifice your return, as long as we cover our behinds. As mentioned Schwab used to only do the admin part of Trusts, but in the last 2 years are doing the investment role. Perhaps we should add a reward if they come close to equaling or perhaps exceed the S&P. If anyone is using a separate corporate investor to invest in a Bogle way without loading the portfolio with their own lame choices, please let me know.

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Re: Trust Services

Post by bsteiner » Tue Sep 24, 2019 9:24 pm

robandjeanne wrote:
Sun Sep 22, 2019 11:49 pm
We have a legacy Trust with 6 beneficiaries, and would like to distribute half the portfolio growth every year. The portfolio has 33 funds and ETFs, and as various funds are sold, any money not distributed we would like to be invested in VTI. Since we can't seem to find an ST who will agree to do this without buying bonds and international funds, we wondered if separating the investment role from the admin role might make this possible. Schwab is probably going to try to push their own selection of index funds (at least they believe in index funds), even though what they suggest will most likely lag behind VTI. In other words most STs are eager to sacrifice beneficiary gains to cover their rears. Also they can never seem to estimate how much their suggested portfolio will return, so I can estimate how much they are going to lose We need an investor with a light touch who won't immediately sell everything and put it in low return investments. Since our portfolio would be gradually moving towards VTI, I don't believe the investor would have a very difficult job. Nevertheless, we haven't found one yet.
While you're alive the trustees are likely to give consideration to your wishes, especially if you have the power to remove and replace them.

Distributions are generally based on what the beneficiaries need rather than a formula, but if you anticipate that distributions will be approximately equal to the income (assuming half of the total return is income), then the trustees may not want to invest entirely in stocks.

If you're having trouble finding an appropriate bank or trust company to take over after the presently acting trustees are no longer acting, you may want to pick one or more individuals, and give them the power to pick their own successors.

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Re: Trust Services

Post by FIREchief » Tue Sep 24, 2019 10:57 pm

robandjeanne wrote:
Tue Sep 24, 2019 8:46 pm
If anyone is using a separate corporate investor to invest in a Bogle way without loading the portfolio with their own lame choices, please let me know.
We've asked this same question for years. The silence is deafening..... :oops:
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Trust Services

Post by afan » Wed Sep 25, 2019 7:43 am

Under a traditional trust company relationship it seems that the profit comes from managing the assets. If Schwab puts money into its own broad market index fund rather than VTI the expense ratio is so low that there is not much profit to be made. I can understand why they might prefer to keep it in house rather than support a competitor. But they would be getting 0.5% of assets for being trustee and only a couple of basis points for having the Schwab fund. I suspect it is not simply the expense ratio they are after.
The two funds are likely to have near identical performance.

Bsteiner,
Is there a reason to prefer one versus another of the asset protection states over another?

Why would Schwab use use both Nevada and Delaware for different types of trust relationships?

If one will have a corporate trustee is there a reason not to pick one in an asset protection state? Since anyone can be sued for anything, it would be one more layer of protection, unless there is a reason not to use one.
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 Pigeye Brewster » Wed Sep 25, 2019 8:42 am

robandjeanne wrote:
Tue Sep 24, 2019 8:46 pm
We already state we are not following the Prudent Investor Rule in our Trust.
Sorry, missed that.

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Re: Trust Services

Post by afan » Wed Sep 25, 2019 11:52 am

In spite of their claims to highly personalized investment plans, the companies are not set up do do things completely differently for each trust. To do that would require far more employees and much higher expenses. They might do unique investing for a large trust that required it. For a typical boglehead sized trust invested in marketable securities it would not be an economical approach.

Instead, they have a relatively small number of people who make investing decisions and a larger group of relationship managers who talk to clients. They do not want each relationship manager going out on their own with investing plans and they do not want those who manage the money having an unwieldy number of different portfolios. Having standard portfolios greatly simplifies their work. Even if the language in the trust completely protected the bank from suits based on holding an undiversified portfolio, the bank would be motivated to put the assets in its standard offering.

I have no idea how much protection the trust could provide. The bank is still trustee and responsible for the investment decisions. Analyzing standard portfolios could be done en bloc by the banks' lawyers for compliance with expectations. Highly individualized portfolios would have to be analyzed individually for risk. For the vast majority of trusts it may not be worth it.

If you came to them with a huge trust that had to stay invested in complicated holdings then the fees could support the amount of work involved. Gill has spoken of trust departments that managed large businesses over years because that was what the trust needed and the fees were high enough to make it profitable.

As bsteiner keeps pointing out, if the beneficiaries have the ability to remove and replace trustees then they can take their business elsewhere if the company starts doing high cost active investing. I cannot imagine it would be worth the hassle to replace the trustee in order to replace one broad cap weighted mutual fund with near zero expenses for a different fund with the same characteristics.
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 robandjeanne » Fri Sep 27, 2019 3:28 pm

Apparently separating investment and admin roles may result in more flexibility with investing. Has anyone done that? Also the investment role would be Trust Investment Advisors, and the admin role would be Corporate Administrative Trustees (aka Directed Trustees). From the little I know the leading Directed Trustees are: Advisory Trust of DE, Wealth Advisor Trust Co, and Schwab Personal trust Services of DE. Anyone used any of these DTs? I have no lead on TIAs, although perhaps I could get some info from DTs. Anyone already know of any good TIAs. Thanks.

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Re: Trust Services

Post by robandjeanne » Sat Sep 28, 2019 7:31 pm

The first SD Trust Company I reached out to seemed to indicate they were willing to invest only in index funds like the S&P or VTI. apparently they don't like VTI and want to go with DFA funds perhaps DFELX large cap which tracks the S&P over 5,10,and 15 years. They could do investor and admin roles. Any one have any experience changing their situs to SD,or using Wealth Advisors Trust Company?

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Re: Trust Services

Post by bsteiner » Sat Sep 28, 2019 8:52 pm

afan wrote:
Wed Sep 25, 2019 7:43 am
Under a traditional trust company relationship it seems that the profit comes from managing the assets. If Schwab puts money into its own broad market index fund rather than VTI the expense ratio is so low that there is not much profit to be made. I can understand why they might prefer to keep it in house rather than support a competitor. But they would be getting 0.5% of assets for being trustee and only a couple of basis points for having the Schwab fund. I suspect it is not simply the expense ratio they are after.
The two funds are likely to have near identical performance.

Bsteiner,
Is there a reason to prefer one versus another of the asset protection states over another?

Why would Schwab use use both Nevada and Delaware for different types of trust relationships?

If one will have a corporate trustee is there a reason not to pick one in an asset protection state? Since anyone can be sued for anything, it would be one more layer of protection, unless there is a reason not to use one.
The profit is in managing the assets means that if they charge 1% a year to be a trustee they would charge the same 1% a year to manage the assets for a living person who hired them to manage the money.

But if they're a trustee and they invest in one of their own funds, they'll credit their management fee at the fund level against their trustee's fee.

An asset protection jurisdiction is only relevant for trusts that a living person creates for his/her own benefit. There are some jurisdictions where you can create a trust and the trust assets won't be subject to your future creditors. In other words, you'll be protected against the person you run over tomorrow (assuming you weren't planning to run him/her over), but not against the person you ran over yesterday. Someone with a small chance of a large loss that he/she can't insure against might consider putting a few million dollars into such a trust as a rainy day fund.

Some people create trusts for their own benefit in asset protection jurisdictions to avoid state income tax on a large capital gain, or on a large investment portfolio. It's possible (though complicated) to create a trust for your own benefit that's not a grantor trust. If your home state won't tax a trust if it doesn't have a trustee in the state, this allows you to avoid state income taxes. You can only be a beneficiary of such a trust if it's in an asset protection jurisdiction. SInce 2014, New York residents can no longer do this. But residents of other high tax states such as California and New Jersey, still can.

Trust companies in the various asset protection states will tell you why they think their state is best. I've set up trusts in Delaware, Nevada and South Dakota.

However, especially with the current level of the estate tax exclusion amount, most people don't create trusts or give away assets during their lifetime. Most trusts are created by Will. As long as no distributions are mandated (which would generally be the case except in marital trusts where the spouse is entitled to all the income), the trust is protected against the beneficiaries' creditors.

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Re: Trust Services

Post by bsteiner » Sat Sep 28, 2019 8:54 pm

robandjeanne wrote:
Fri Sep 27, 2019 3:28 pm
Apparently separating investment and admin roles may result in more flexibility with investing. Has anyone done that? Also the investment role would be Trust Investment Advisors, and the admin role would be Corporate Administrative Trustees (aka Directed Trustees). From the little I know the leading Directed Trustees are: Advisory Trust of DE, Wealth Advisor Trust Co, and Schwab Personal trust Services of DE. Anyone used any of these DTs? I have no lead on TIAs, although perhaps I could get some info from DTs. Anyone already know of any good TIAs. Thanks.
I've worked with several though not any of the ones you mentioned. Why not use one of the ones your lawyer has worked with?

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Re: Trust Services

Post by robandjeanne » Mon Sep 30, 2019 2:26 pm

This is the hidden side of Trust preparation, Our lawyer seems very experienced at preparing th Trust, but not experienced when picking a Successor Trustee. So the dark secret seems to be Trust lawyers make money preparing the Trust, but they don't view selecting a good ST as part of this job. Please share with us some of your directed Trustees and and investment advisors who have worked successfully with those DTs.

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Re: Trust Services

Post by bsteiner » Tue Oct 01, 2019 7:11 pm

robandjeanne wrote:
Mon Sep 30, 2019 2:26 pm
This is the hidden side of Trust preparation, Our lawyer seems very experienced at preparing the Trust, but not experienced when picking a Successor Trustee. So the dark secret seems to be Trust lawyers make money preparing the Trust, but they don't view selecting a good ST as part of this job. Please share with us some of your directed Trustees and and investment advisors who have worked successfully with those DTs.
We don't have crystal balls. We don't know what the situation will be when a trustee ceases to act. We'll usually provide that the grantor may pick successors, and if he/she doesn't (or if the trust is created by Will) then the last acting trustee may pick co-trustees or successor trustees, and if there's a vacancy then the beneficiary at the time may pick a trustee.

Directed trusts are one-offs so it's hard to generalize about them. They're usually created during lifetime for some special reason (such as avoiding state income taxes). If it won't cause a state income tax problem the grantor usually controls the investments. If that would cause a state income tax problem then usually friends or family control the investments.

It would help if you would say something about the purpose of the trust, and the reason for considering an administrative trustee.

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Re: Trust Services

Post by robandjeanne » Wed Oct 02, 2019 6:08 pm

The entire reason for going admin Trustee is to be able to pick an ST who would invest in the total US market (like VTI). The Trust is a dynasty Trust
that distributes half the yearly growth or a minimum of $20K to 7 beneficiaries. Correct me if I'm wrong, but if the Trust portfolio has enough assets to ride out a bad year or two, the 10 year annualized average of the S&P (VTI) has beaten bonds and internationals by significant margins. After listening to Bogle and Buffett, it seems an autopilot way for an ST to invest is in VTI. I may have found one potential ST who will agree to invest only in the broad US market, but he likes the Wilshire 5000 (now 6700 companies) versus VTI. This ST will also serve as admin trustee I don't know much about W5000 ETFs, but I suppose being in 6700 companies might be diversified enough to satisfy arguments to the contrary. It is sometimes frustrating to hear potential STs say they can not invest in VTI or equal, when I am paying them a significant fee for potentially many years to come.

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Re: Trust Services

Post by 2wendyliu » Sat Oct 05, 2019 11:39 pm

afan wrote:
Wed Aug 21, 2019 6:50 am
Any idea why Schwab uses a Delaware trust when it is solely the administrative trustee but Nevada when it also manages the investments? Differences in state law? Taxes?
According to my Schwab rep, the main difference is that the Nevada company serves "personal" clients who don't have a separate investment advisor (with Schwab filling that role) while the Delaware company serves "institutional" clients who use 3rd party investment advisors/asset managers. I asked if Schwab currently works with any advisor/manager who charges a flat annual fee as opposed to a percentage of the asset and the answer was no.

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Re: Trust Services

Post by NewMoneyMustBeSmart » Sun Oct 06, 2019 9:17 am

rigoodma wrote:
Mon Apr 17, 2017 3:29 pm
1. Who do you currently use for investment trust services?
We decided to decouple the investment and the trust services.

We have a particular investment advisor (Family Friend RIA) that will manage the financial resources on our death, and a separate company that will serve as corporate trustee.

The litmus test for our hiring process for the corporate trustee was two fold:

* Do you manage assets?

We found very few folks that would serve as trustee without managing the assets. My style is to focus on best-of-breed; and so I believe decoupling these gives us the best trustee, and the best financial management.

Therefore, for my circumstances, we have an RIA who gets control of the financial resources when we die, and a corporate trustee who intereprets and executes our revocable trust when we die, and the corporate trustee can fire/hire the financial manager.

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