Trust Fund Hell

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
dbr
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Re: Trust Fund Hell

Post by dbr »

David Jay wrote:
sschoe2 wrote:I thought Vanguard was $7-8 per trade?

I may have to do this some day soon with my Mom's RBC account. She has a bunch of obscure funds I figured transfer it all to Vanguard and sell it for $7 per trade per fund.
$7 trades only applies to exchange traded products (i.e. ETFs, individual stocks). Mutual funds from other companies often have higher sales charges.

Of course, Vanguard products are always free.
If the fund balance is so small that one time trades at $7 or $35 or $75 actually matter, then there is not enough here to worry about anyway. Besides it is lost money due to the original bad fate of putting the account in the wrong place.
JFP_SF
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Re: Trust Fund Hell

Post by JFP_SF »

stimulacra wrote:Trust Fund Hell in blue.

Boglehead 3-fund in red.

The trust fund outperformed the S&P 500 during the time frame that matches your adopted daughter's time window… It could have been worse.

Image
I find it kind of funny that everyone just passed over this. If the trust fund out-performed the S&P, how is this "trust fund hell?"
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Pacific
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Re: Trust Fund Hell

Post by Pacific »

delamer wrote:What was done with the two previous distributions?
All in Total Stock Market Admiral, Total International Admiral, and Small-Cap Value Admiral (though also had FTSE All-World ex-US Small Cap at one time before sold and added to Total International).
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Pacific
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Re: Trust Fund Hell

Post by Pacific »

stimulacra wrote:Trust Fund Hell in blue.

Boglehead 3-fund in red.

The trust fund outperformed the S&P 500 during the time frame that matches your adopted daughter's time window… It could have been worse.

Image
That is pretty neat. The trust funds for the girls all started in 1984. The 17 mutual funds have not remained static. They have changed over the years from brokerage to brokerage and even within each brokerage. But, I like the chart now.
dbr
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Re: Trust Fund Hell

Post by dbr »

JFP_SF wrote:
I find it kind of funny that everyone just passed over this. If the trust fund out-performed the S&P, how is this "trust fund hell?"
It would be interesting if there were a calculation of how much money went to the broker over this time that could have gone to the beneficiaries.
JFP_SF
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Re: Trust Fund Hell

Post by JFP_SF »

dbr wrote:
JFP_SF wrote:
I find it kind of funny that everyone just passed over this. If the trust fund out-performed the S&P, how is this "trust fund hell?"
It would be interesting if there were a calculation of how much money went to the broker over this time that could have gone to the beneficiaries.
I agree, but you were probably going to pay someone to run the trust fund regardless of the investment strategy.
inbox788
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Re: Trust Fund Hell

Post by inbox788 »

Pacific wrote:
stimulacra wrote:Trust Fund Hell in blue.

Boglehead 3-fund in red.

The trust fund outperformed the S&P 500 during the time frame that matches your adopted daughter's time window… It could have been worse.

Image
That is pretty neat. The trust funds for the girls all started in 1984. The 17 mutual funds have not remained static. They have changed over the years from brokerage to brokerage and even within each brokerage. But, I like the chart now.
How do you know that the funds stayed in these funds from the beginning of the period? They could have been stacked just last year after years of abismal performance in bad funds. AKA performance chasing. OP, is the original balance in 2008 available?
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Taylor Larimore
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One of the oldest tricks in the book

Post by Taylor Larimore »

Bogleheads:

One of the oldest tricks in the book that is used by unscrupulous brokers and advisors (to earn commissions and fool their clients) is to sell a fund in the clients portfolio that is doing poorly and buy a fund what is doing well. When the client looks at their portfolio, containing only top-performing funds, it will appear that they are receiving superior advice.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
FBN2014
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Re: Trust Fund Hell

Post by FBN2014 »

FIREchief wrote:
Afull wrote:
(multiple mucked up quotes removed - Afull being quoted as FIREchief and FIREchief being quoted as Afull)

I just can't ascribe to one size fits all in investing, trust management, etc. To your question about success stories, one thing I've noticed on this forum and every other place I've been, never a consensus. Keeps me interested in looking for new ideas and learning.
True enough. We've heard that Vanguard is willing to use low cost index funds for Trust investments, we just haven't heard any reports of actual successful experiences (several of us have asked for them in multiple threads). Since Vanguard will be bound in most/all states by the prudent investor rules (which require exercise of special skills), they may not be able to just use a simple two or three fund approach.
Yesterday in a conversation with a Vanguard Trust rep he told me that their model is to use 4 index funds: Total Stock Market, Total Bond, International Stock, International Bond. If there are remainder beneficiaries then the allocation could be as high as 80/20. He also said that they are not market timers. The management fee is .30%, trustee fee is .25% up to $5 million. He said they will converse with beneficiaries to gauge the comfort level with the allocation they choose.
"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
FBN2014
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Re: Trust Fund Hell

Post by FBN2014 »

dbr wrote:
JFP_SF wrote:
I find it kind of funny that everyone just passed over this. If the trust fund out-performed the S&P, how is this "trust fund hell?"
It would be interesting if there were a calculation of how much money went to the broker over this time that could have gone to the beneficiaries.
Yes, and that could form the basis for suing the uncle for squandering trust assets. Any litigators in BH land?
"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
Hug401k
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Re: Trust Fund Hell

Post by Hug401k »

ResearchMed wrote:He is/was a trustee, with some fiduciary responsibilities.

He may have wanted to have a managed account so that he would not be "blamed" if there were any problems (e.g., losses/complaints).
Using a "big name" manager would presumably help with this, as long as any AUM/etc., fees weren't out of line with norms.

I wouldn't at all consider this "Trust Fund Hell", unless there were also outrageous fees every year.

RM

This. Absolutely. And not necessarily in a bad way, but it a "I have no idea what to do so I better hire a professional" way. This is annoying but it's not hell. I was thinking I was going to read about missing money...
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FIREchief
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Re: Trust Fund Hell

Post by FIREchief »

FBN2014 wrote:
FIREchief wrote:
Afull wrote:
(multiple mucked up quotes removed - Afull being quoted as FIREchief and FIREchief being quoted as Afull)

I just can't ascribe to one size fits all in investing, trust management, etc. To your question about success stories, one thing I've noticed on this forum and every other place I've been, never a consensus. Keeps me interested in looking for new ideas and learning.
True enough. We've heard that Vanguard is willing to use low cost index funds for Trust investments, we just haven't heard any reports of actual successful experiences (several of us have asked for them in multiple threads). Since Vanguard will be bound in most/all states by the prudent investor rules (which require exercise of special skills), they may not be able to just use a simple two or three fund approach.
Yesterday in a conversation with a Vanguard Trust rep he told me that their model is to use 4 index funds: Total Stock Market, Total Bond, International Stock, International Bond. If there are remainder beneficiaries then the allocation could be as high as 80/20. He also said that they are not market timers. The management fee is .30%, trustee fee is .25% up to $5 million. He said they will converse with beneficiaries to gauge the comfort level with the allocation they choose.
Another encouraging report. We just really need to hear from somebody who has pulled the trigger and actually used VG for a year or two.
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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nedsaid
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Re: Trust Fund Hell

Post by nedsaid »

Taylor Larimore wrote:Pacific:

Thank you for your post regarding the danger of trust fund investment managers.

In 1990 I brought suit against the largest bank in Miami for mishandling the investments of my grandmother's trust fund. This is a portion of the suit:

"During the period of time (17 years) that the trust funds were being managed and invested by Southeast Bank, the corpus of the trusts experienced an increase in value of approximately one-half percent a year--meanwhile, The Dow Jones Industrial Average rose approximately three hundred percent."

We live and learn.

Best wishes
Taylor
Taylor, my understanding is that bank trust departments don't have the best reputations for being prudent investment managers. Think my mom told me that and from what I have heard from other sources, that seems to be true.
A fool and his money are good for business.
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nedsaid
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Re: Trust Fund Hell

Post by nedsaid »

Pacific wrote:My adopted daughter’s deceased father left her a trust fund which paid out at 25, 30, and 35 years of age. The trustee is her uncle. He is a very nice guy and a tax attorney in New York (unfortunately, however, he is not Bruce Steiner).

About 18 years ago I happened to see how the uncle was investing the funds. In several polite emails I (and my daughter) tried to reason with him to switch the investments to Vanguard Total Stock, Total International, Small-Cap Value, and Total Bond, and how much easier his job would be to track the investments if he did that (the deceased father also set up trust funds for my other two adopted daughters). I also told him that he was very bright and he didn't need no stinkin' financial advisors (Smith Barney at the time). He was very stubborn about it and would not change. I figured it wasn’t my money and no sense causing any inter (or intra) family problems. So, I let the matter drop and hoped that once I stopped with my suggestions, he might see the light. LOL

Fast forward. My daughter will turn 35 in October and will receive the last (1/3) distribution.

Take a look at how her trust has been “invested” and the remaining amounts (and I am NOT making this up):

AMG Yacktman Class I (YACKX) $4,517
Aberdeen US Small Cap Eq Inst Class I (GSCIX) $2,094
Deutsche Secs Tr Enhanced Commodity Strat Instl Class (SKIRX) $1,632
Cohen & Steers Instl Realty Shs Inc (CSRIX) $3,172
Delaware Group Equity FDS II-Value Instl Cl (DDVIX) $4,423
First Eagle SOGEN Overseas Cl I (SGOIX) $4,226
Metropolitan West Total Return Bd Cl I (MWTIX) $2,680
Principia Inc Midcap Fund Instl Class (PCBIX) $4,496
Oppenheimer Intl Growth Fd Cl Y Shs (OIGYX) $4,219
JPMorgan 100% Treasury Securities Money Market Instl (JTSXX) $134
JPMorgan Mid Cap Value Cl I (FLMVX) $4,501
PIMCO Pac Invt Mgmt Ser Total Return Fd Instl Cl (PTTRX) $2,721
Prudential Short-Term Corporate Bd Fd Inc Class Z (PIFZX) $2,737
Royce Spl Equity Investment (RYSEX) $2,189
T Rowe Price Blue Chip Growth (TRBCX) $5,807
Virtus Opportunities Tr Emerging Markets Opptys (HIEMX) $1,649
Vanguard Equity Income Admiral Cl (VEIRX) $6,041
TOTAL = $57,239

Unbelievable. Now, which would you all prefer for a $60,000 investment? Taylor’s 3-Fund Portfolio (or a variation of it) or the Wells Fargo Advisors 17-Fund Portfolio above?

At the time of the October last distribution of the trust fund, do all the funds have to be sold and taxes paid on them, or can any of the funds be simply exchanged for a similar Vanguard fund without incurring taxes at that time?
My reaction is that were I the daughter, I would be grateful that my dad had the foresight to leave me with a trust that would pay out in three stages. It was an incredibly nice thing to do. As far as the Uncle, he was a nice fellow and used an Advisory firm to manage the funds. Uncle was smart not to manage the funds himself, if things go wrong you can blame the Advisory firm and not the Uncle. He was protecting himself as well.

The Uncle did the best he could, and he was right to resist family pressure. In hindsight, he could have gone to Vanguard and let them manage the funds. Relatively few people are Bogleheads. The thing is, we are all experts on how other people's money should be managed. Were I in the Uncle's position, I would have politely told family members that as trustee, picking the investment advisor was my responsibility and not theirs. I would have further told them that at whatever point the money became theirs that they could manage it as they saw fit. Everyone has their opinion.

I was also amazed to see that a backtest of the advisory portfolio actually performed fairly well, outperforming the S&P 500 even though the portfolio contained bonds. Of course, the advisors pick funds that have recently done well so the actual returns were probably lower as the funds within the portfolio would have changed over time. My reaction is that the daughter should be thankful and grateful. Not the optimal choice of advisors but things worked out pretty well. Hardly life in hell. I don't know, if somebody delivered me $60,000; I would be whooping and hollering and celebrating.
A fool and his money are good for business.
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nedsaid
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Re: One of the oldest tricks in the book

Post by nedsaid »

Taylor Larimore wrote:Bogleheads:

One of the oldest tricks in the book that is used by unscrupulous brokers and advisors (to earn commissions and fool their clients) is to sell a fund in the clients portfolio that is doing poorly and buy a fund what is doing well. When the client looks at their portfolio, containing only top-performing funds, it will appear that they are receiving superior advice.

Best wishes.
Taylor
Yes, that is true. Pretty much this is performance chasing which over time will actually cut returns. I saw other comments and edited my post.
A fool and his money are good for business.
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FIREchief
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Re: Trust Fund Hell

Post by FIREchief »

nedsaid wrote: I don't know, if somebody delivered me $60,000; I would be whooping and hollering and celebrating.
Until you find out that it could/should have been $120,000. :P
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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nedsaid
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Re: Trust Fund Hell

Post by nedsaid »

FIREchief wrote:
nedsaid wrote: I don't know, if somebody delivered me $60,000; I would be whooping and hollering and celebrating.
Until you find out that it could/should have been $120,000. :P
Coulda, woulda, shoulda. I think we all agree that the management of the assets was less than ideal. It would be interesting to know what the returns in the trust account really were. It is a good example that things are not always perfect. Bogleheads are a small subset of the population and our expectations of others who don't have our interest in investing is just unrealistic. Most people in this situation would run to a financial advisor than do research for themselves. Just have a hard time fathoming that getting $60,000 from a trust is hell.
A fool and his money are good for business.
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