[If I die before my spouse, how to direct Vanguard advisors?]

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1210sda
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[If I die before my spouse, how to direct Vanguard advisors?]

Post by 1210sda » Wed Oct 18, 2017 6:58 pm

[Moved into a stand-alone thread from: Re: About Vanguard advisors: opinions, thoughts? --admin LadyGeek]

I am faced with the same situation that many others have: If I predecease my spouse, she would have difficulty maintaining our portfolio, simple as it might be.

We currently have all of our money at Vanguard in the 3 fund portfolio and love it's simplicity. I've tried explaining re-balancing to her but she feels it's too complicated and would have difficulty with it were I not around.

Therefore, my plan is to use a signed "letter of instruction" to Vanguard stating that upon my death (and it's accompanying "step up in basis"), Vanguard should exchange ALL my Funds (both taxable and tax advantaged) into the LifeStrategy Moderate Growth fund (VSMGX). Due to the step-up, there would be no, or very little, capital gains tax exposure in our taxable account. Of course, there wouldn't any tax effect in our IRA's.

With this set up, it wouldn't matter where she withdrew funds from. Asset Allocation would stay the same.

I realize that this is not optimum from a tax perspective (due to the fixed income portion of VSMGX in the taxable account), but my calculations indicate that the tax cost would be less than the .3% that VPAS would charge her. In addition, there wouldn't be anybody trying to force her into other decisions.

That's in case I pre-decease her. I still have a concern, and continue to think through, my becoming incapacitated without dying. If I was mentally unable to manage our portfolio. In this case there is no step up in basis. Unfortunately (or fortunately :happy ) we have a sizable gain in our taxable accounts.

1210

P.S. As as alternative, I have considered using the Balanced Index Fund Admiral shares (VBIAX). It has a 7 basis point advantage over VSMGX. That's almost 1/4 of the .3% fee for VPAS. Although, some would argue, it is not as diversified as VSMGX. Stay tuned.....

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Re: About Vanguard advisors: opinions, thoughts?

Post by friar1610 » Wed Oct 18, 2017 8:45 pm

1210sda wrote:
Wed Oct 18, 2017 6:58 pm
I am faced with the same situation that many others have: If I predecease my spouse, she would have difficulty maintaining our portfolio, simple as it might be.

We currently have all of our money at Vanguard in the 3 fund portfolio and love it's simplicity. I've tried explaining re-balancing to her but she feels it's too complicated and would have difficulty with it were I not around.

Therefore, my plan is to use a signed "letter of instruction" to Vanguard stating that upon my death (and it's accompanying "step up in basis"), Vanguard should exchange ALL my Funds (both taxable and tax advantaged) into the LifeStrategy Moderate Growth fund (VSMGX). Due to the step-up, there would be no, or very little, capital gains tax exposure in our taxable account. Of course, there wouldn't any tax effect in our IRA's.

With this set up, it wouldn't matter where she withdrew funds from. Asset Allocation would stay the same.

I realize that this is not optimum from a tax perspective (due to the fixed income portion of VSMGX in the taxable account), but my calculations indicate that the tax cost would be less than the .3% that VPAS would charge her. In addition, there wouldn't be anybody trying to force her into other decisions.

That's in case I pre-decease her. I still have a concern, and continue to think through, my becoming incapacitated without dying. If I was mentally unable to manage our portfolio. In this case there is no step up in basis. Unfortunately (or fortunately :happy ) we have a sizable gain in our taxable accounts.

1210

P.S. As as alternative, I have considered using the Balanced Index Fund Admiral shares (VBIAX). It has a 7 basis point advantage over VSMGX. That's almost 1/4 of the .3% fee for VPAS. Although, some would argue, it is not as diversified as VSMGX. Stay tuned.....

1210,

As one of those in the same boat, I like your solution BUT I have a couple of questions:
1. Are your taxable accounts jointly owned with your spouse such that she automatically becomes the owner on your death?
2. If so, are you sure the step-up applies?
3. If not, how do you have things set up so step-up does apply?

I have often wished that I could change my 3 fund taxable port into an asset allocation fund that would be hands-off for my wife but we have the CG issue. Your idea might be the solution, but I don't understand how the step-up would apply for joint accounts. Any light you can shed on this would be appreciated.

Thank you.

Moderator,

If I am hijacking this thread please feel free to do whatever is appropriate.
Friar1610

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1210sda
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Re: About Vanguard advisors: opinions, thoughts?

Post by 1210sda » Wed Oct 18, 2017 9:43 pm

friar1610 wrote:
Wed Oct 18, 2017 8:45 pm
As one of those in the same boat, I like your solution BUT I have a couple of questions:
1. Are your taxable accounts jointly owned with your spouse such that she automatically becomes the owner on your death?
2. If so, are you sure the step-up applies?
3. If not, how do you have things set up so step-up does apply?

I have often wished that I could change my 3 fund taxable port into an asset allocation fund that would be hands-off for my wife but we have the CG issue. Your idea might be the solution, but I don't understand how the step-up would apply for joint accounts. Any light you can shed on this would be appreciated.

Thank you.
Yes, in fact, they are community property with right of survivor ship. Therefore, the entire amount is stepped up at the death of one of the owners.

1210

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by LadyGeek » Wed Oct 18, 2017 9:57 pm

1210sda - I split your question into a new thread, which is in the Personal Finance (Not Investing) forum (estate planning). If you want to change the thread title, just edit the Subject: line in Post #1.
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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by FIREchief » Wed Oct 18, 2017 11:23 pm

1210sda wrote:
Wed Oct 18, 2017 6:58 pm
Therefore, my plan is to use a signed "letter of instruction" to Vanguard stating that upon my death (and it's accompanying "step up in basis"), Vanguard should exchange ALL my Funds (both taxable and tax advantaged) into the LifeStrategy Moderate Growth fund (VSMGX).
What is a "signed letter of instruction?" This doesn't sound like something than a brokerage would act upon. :confused

Upon a person's death, an account is controlled by either the surviving joint owner(s), a trust's trustee(s), designated beneficiary(s) or the estate's personal representative. While any of these could make the changes you suggest, I doubt any non-legal document signed by a decedent (even with VG's preferred holy medallion guarantee) would be worth any more than the paper it was written upon.
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: [If I die before my spouse, how to direct Vanguard advisors?]

Post by JBTX » Wed Oct 18, 2017 11:39 pm

1210sda wrote:
Wed Oct 18, 2017 6:58 pm
[Moved into a stand-alone thread from: Re: About Vanguard advisors: opinions, thoughts? --admin LadyGeek]

I am faced with the same situation that many others have: If I predecease my spouse, she would have difficulty maintaining our portfolio, simple as it might be.

We currently have all of our money at Vanguard in the 3 fund portfolio and love it's simplicity. I've tried explaining re-balancing to her but she feels it's too complicated and would have difficulty with it were I not around.

Therefore, my plan is to use a signed "letter of instruction" to Vanguard stating that upon my death (and it's accompanying "step up in basis"), Vanguard should exchange ALL my Funds (both taxable and tax advantaged) into the LifeStrategy Moderate Growth fund (VSMGX). Due to the step-up, there would be no, or very little, capital gains tax exposure in our taxable account. Of course, there wouldn't any tax effect in our IRA's.

With this set up, it wouldn't matter where she withdrew funds from. Asset Allocation would stay the same.

I realize that this is not optimum from a tax perspective (due to the fixed income portion of VSMGX in the taxable account), but my calculations indicate that the tax cost would be less than the .3% that VPAS would charge her. In addition, there wouldn't be anybody trying to force her into other decisions.

That's in case I pre-decease her. I still have a concern, and continue to think through, my becoming incapacitated without dying. If I was mentally unable to manage our portfolio. In this case there is no step up in basis. Unfortunately (or fortunately :happy ) we have a sizable gain in our taxable accounts.

1210

P.S. As as alternative, I have considered using the Balanced Index Fund Admiral shares (VBIAX). It has a 7 basis point advantage over VSMGX. That's almost 1/4 of the .3% fee for VPAS. Although, some would argue, it is not as diversified as VSMGX. Stay tuned.....
So presumably you are doing something in your 3 fund that is more tax efficient than a life strategy fund? Do you have the fixed income in municipals? Is the after tax return of the municipals greater than the after tax potential return of the bond portion of the life strategy fund? I understand the desire for no taxes, but if the after tax returns are comparable, then what difference does it make?

Looking at the two funds

http://beta.morningstar.com/funds/XNAS/VWITX/quote.html

http://beta.morningstar.com/funds/XNAS/VSCGX/quote.html

Looks like municipal has SEC yield of 1.7% vs Life strategy 2.05%. Likely that will be a slightly better after tax return for the muni fund. Duration is slightly higher with the lifestyle fund. The lifestyle is mostly government and govt back mortgage securities, so arguably a tad more safe than munis from that perspective.

Given all that it seems like the lifestyle is a pretty good trade-off and greatly simplifies things for her.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by celia » Thu Oct 19, 2017 2:21 am

1210sda wrote:
Wed Oct 18, 2017 6:58 pm
Therefore, my plan is to use a signed "letter of instruction" to Vanguard stating that upon my death (and it's accompanying "step up in basis"), Vanguard should exchange ALL my Funds (both taxable and tax advantaged) into the LifeStrategy Moderate Growth fund (VSMGX). Due to the step-up, there would be no, or very little, capital gains tax exposure in our taxable account. Of course, there wouldn't any tax effect in our IRA's.
Are you planning on sending this letter to Vanguard now? They are not going to hold onto it for several years because they are expected to process requests on the day they are received. Even if they did hold onto your request, how would they know when you've died? Are you going to call them? :oops: And if you've died, do you somehow think they will follow instructions from a deceased person?

It seems that the correct way to do what you wish is for your wife to call them, let them know you died, then ask what she needs to do. They will walk her through submitting a death certificate, transfer your IRAs to her (if she is your beneficiary), and anything else she needs to do. So, it looks like you need to create a Letter of Instruction for your wife! It can even tell her exactly what to say. Why not have her set up automatic monthly payments into her checking account?
With this set up, it wouldn't matter where she withdrew funds from. Asset Allocation would stay the same.

It will certainly matter if she draws from taxable, tax-deferred, or from Roth. In the year after you die, she will have to file as Single and her tax bracket will likely have half the space in it as MFJ.
That's in case I pre-decease her. I still have a concern, and continue to think through, my becoming incapacitated without dying. If I was mentally unable to manage our portfolio. In this case there is no step up in basis. Unfortunately (or fortunately :happy ) we have a sizable gain in our taxable accounts.
You can leave her a different set of instructions for this situation, since you don't have the stepped-up basis yet.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by thelimocat » Thu Oct 19, 2017 8:15 am

Celia, 1210sda

Your both on the right track BUT! We just went through this with the death of my mother in law. VG goes to beneficiaries on the accounts first then the estate if there are none assigned. Death Certs are required etc, etc. Signed letters have no legal standing this needs to be in your will.
I live in a 55+ community where this type of thing is common so many of the "old men" try to get their wives involved across the board. My wife is finally starting to ask me questions about the whole operation so in terms of VG she is the established beneficiary then I have told her to contact them and if necessary friends who are CPA's or such for some assistance.
You need to have Medical directives, power of attorney and so forth as that is all that will stand up. So what to do, do as you said instructions to your wife. The biggest issue we face is "what is where", how this operation runs bills, taxes, even to buying a new car and "who can help".
Great discussion please continue.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by 1210sda » Thu Oct 19, 2017 8:27 am

celia wrote:
Thu Oct 19, 2017 2:21 am

1. So, it looks like you need to create a Letter of Instruction for your wife!

2.It will certainly matter if she draws from taxable, tax-deferred, or from Roth.

3. You can leave her a different set of instructions for this situation, since you don't have the stepped-up basis yet.
1. Thank you for the thoughtful suggestion. We will revise our approach

2. My primary concern was for Asset Allocation. She is aware of the sequence of withdrawal.

3. This is more complicated. We will need to keep working on this.

Thank you very much

1210

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by 1210sda » Thu Oct 19, 2017 10:59 am

JBTX wrote:
Wed Oct 18, 2017 11:39 pm
Given all that, it seems like the lifestyle is a pretty good trade-off and greatly simplifies things for her.
JBTX,

That's how I see it.

As I also mentioned, right now we are trying to decide on either the Lifestrategy Moderate Growth fund(60/40), or the Balanced Index Admiral fund(VBIAX) which is also 60/40. It's basically a choice of international stocks and bonds, or not. (and the lower ER).

1210

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by HueyLD » Thu Oct 19, 2017 11:16 am

Do you have children or trusted relatives/friends that you can count on to help your wife after your demise or incapacity?

If you think she may need help, you want to do everything you can to "recruit" a trusted person to help her through the transition. But there is only so much you can do and there is no guarantee that she won't be converted by a smooth-talking salesman who may earn her trust.

I've seen smooth-talking salesmen in action in retiree heavy areas. I understand that the best defense is to get your spouse acclimated while you are still around and competent, but it is easier said than done.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by rkhusky » Thu Oct 19, 2017 11:21 am

1210sda wrote:
Thu Oct 19, 2017 10:59 am
JBTX wrote:
Wed Oct 18, 2017 11:39 pm
Given all that, it seems like the lifestyle is a pretty good trade-off and greatly simplifies things for her.
JBTX,

That's how I see it.

As I also mentioned, right now we are trying to decide on either the Lifestrategy Moderate Growth fund(60/40), or the Balanced Index Admiral fund(VBIAX) which is also 60/40. It's basically a choice of international stocks and bonds, or not. (and the lower ER).

1210
There is also Balanced Tax Managed for the taxable account, but it is 50/50 with Large US and muni bonds.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by 1210sda » Thu Oct 19, 2017 11:46 am

rkhusky wrote:
Thu Oct 19, 2017 11:21 am
1210sda wrote:
Thu Oct 19, 2017 10:59 am
JBTX wrote:
Wed Oct 18, 2017 11:39 pm
Given all that, it seems like the lifestyle is a pretty good trade-off and greatly simplifies things for her.
JBTX,

That's how I see it.

As I also mentioned, right now we are trying to decide on either the Lifestrategy Moderate Growth fund(60/40), or the Balanced Index Admiral fund(VBIAX) which is also 60/40. It's basically a choice of international stocks and bonds, or not. (and the lower ER).

1210
There is also Balanced Tax Managed for the taxable account, but it is 50/50 with Large US and muni bonds.
I've looked at that. Not sure. First blush seems to indicate that there isn't much difference it the after tax return. I wonder if it's worth any small benefit that she may derive from the Tax Managed fund to add to the complexity. The complexity being two different funds, and two different AA's. (I'm aware that the total portfolio would never go over 60% in stocks if we depleted the taxable account first; it would also never go less than 50% in stocks if we depleted the IRA's first.)

I would like to say that my wife is no dummy. She has a master's degree and worked many years in IT. It's just that she has no real interest in investments. I wouldn't be at all surprised if there are many BH's out there in the same situation. And it's gender neutral...the disinterested spouse could be the husband just as easily as the wife.

1210

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by nyclon » Thu Oct 19, 2017 12:00 pm

1210sda wrote:
Wed Oct 18, 2017 6:58 pm
[Moved into a stand-alone thread from: Re: About Vanguard advisors: opinions, thoughts? --admin LadyGeek]

I am faced with the same situation that many others have: If I predecease my spouse, she would have difficulty maintaining our portfolio, simple as it might be.

We currently have all of our money at Vanguard in the 3 fund portfolio and love it's simplicity. I've tried explaining re-balancing to her but she feels it's too complicated and would have difficulty with it were I not around.

Therefore, my plan is to use a signed "letter of instruction" to Vanguard stating that upon my death (and it's accompanying "step up in basis"), Vanguard should exchange ALL my Funds (both taxable and tax advantaged) into the LifeStrategy Moderate Growth fund (VSMGX). Due to the step-up, there would be no, or very little, capital gains tax exposure in our taxable account. Of course, there wouldn't any tax effect in our IRA's.

With this set up, it wouldn't matter where she withdrew funds from. Asset Allocation would stay the same.

I realize that this is not optimum from a tax perspective (due to the fixed income portion of VSMGX in the taxable account), but my calculations indicate that the tax cost would be less than the .3% that VPAS would charge her. In addition, there wouldn't be anybody trying to force her into other decisions.

That's in case I pre-decease her. I still have a concern, and continue to think through, my becoming incapacitated without dying. If I was mentally unable to manage our portfolio. In this case there is no step up in basis. Unfortunately (or fortunately :happy ) we have a sizable gain in our taxable accounts.

1210

P.S. As as alternative, I have considered using the Balanced Index Fund Admiral shares (VBIAX). It has a 7 basis point advantage over VSMGX. That's almost 1/4 of the .3% fee for VPAS. Although, some would argue, it is not as diversified as VSMGX. Stay tuned.....
I'd simply choose a fund that doesn't need to be sold / rebalanced for the sake of simplicity. If the Life Strategy fund you've chosen is too aggressive, choose one that's more conservative and that doesn't require your wife or the brokerage to make changes to it. You've optimized for taxes already, so the expense ratio is just noise.

I think you're close to this already, but just lay out a very simple, straightforward frame work where your wife would just sell/withdraw assets and an accountant could guide her with your simple instructions - she'd have a peace of mind that way.

I don't think a few bps here and there or not being optimized on capital gains due to a fund structure will cause her to change her standard of living - but you should double check.

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Re: About Vanguard advisors: opinions, thoughts?

Post by friar1610 » Thu Oct 19, 2017 12:19 pm

1210sda wrote:
Wed Oct 18, 2017 9:43 pm
friar1610 wrote:
Wed Oct 18, 2017 8:45 pm
As one of those in the same boat, I like your solution BUT I have a couple of questions:
1. Are your taxable accounts jointly owned with your spouse such that she automatically becomes the owner on your death?
2. If so, are you sure the step-up applies?
3. If not, how do you have things set up so step-up does apply?

I have often wished that I could change my 3 fund taxable port into an asset allocation fund that would be hands-off for my wife but we have the CG issue. Your idea might be the solution, but I don't understand how the step-up would apply for joint accounts. Any light you can shed on this would be appreciated.

Thank you.
Yes, in fact, they are community property with right of survivor ship. Therefore, the entire amount is stepped up at the death of one of the owners.

1210
1210,

After reading your answer and doing a little more digging, I have just learned a few things I didn't know.
1. First of all, I didn't realize there was any step-up in basis with jointly owned accounts when one married partner dies.
2. Secondly, I see now that the rules are different based on whether a couple lives in a joint property state (as you obviously do) or a non-joint property state (as I do). In the latter case, only half the value of the asset can be stepped-up in basis. (This is still a good deal but not as good a deal as the whole value).

There is actually an explanation of this in the BH wiki although I had not previously read it.

Thank you for calling my attention to this issue through your OP.
Friar1610

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by JBTX » Thu Oct 19, 2017 12:43 pm

1210sda wrote:
Thu Oct 19, 2017 11:46 am
rkhusky wrote:
Thu Oct 19, 2017 11:21 am
1210sda wrote:
Thu Oct 19, 2017 10:59 am
JBTX wrote:
Wed Oct 18, 2017 11:39 pm
Given all that, it seems like the lifestyle is a pretty good trade-off and greatly simplifies things for her.
JBTX,

That's how I see it.

As I also mentioned, right now we are trying to decide on either the Lifestrategy Moderate Growth fund(60/40), or the Balanced Index Admiral fund(VBIAX) which is also 60/40. It's basically a choice of international stocks and bonds, or not. (and the lower ER).

1210
There is also Balanced Tax Managed for the taxable account, but it is 50/50 with Large US and muni bonds.
I've looked at that. Not sure. First blush seems to indicate that there isn't much difference it the after tax return. I wonder if it's worth any small benefit that she may derive from the Tax Managed fund to add to the complexity. The complexity being two different funds, and two different AA's. (I'm aware that the total portfolio would never go over 60% in stocks if we depleted the taxable account first; it would also never go less than 50% in stocks if we depleted the IRA's first.)

I would like to say that my wife is no dummy. She has a master's degree and worked many years in IT. It's just that she has no real interest in investments. I wouldn't be at all surprised if there are many BH's out there in the same situation. And it's gender neutral...the disinterested spouse could be the husband just as easily as the wife.

1210
I’ve wondered the same thing on the vanguard tax advantaged. The long term after tax return on vanguard balanced admiral seems like it is a little higher on an after tax even though its taxes are slightly higher. At least that is what morningstar said. That may not hold for somebody in highest tax bracket.

As to spouse mine is a controller and perfectly capable but like yours has never shown a lasting interest enough to pursue it. Very content for me to do it. One of my concerns for her is she seems to occasionally fall for this or that investment pitch on AM radio that is too good to be true. Luckily she recently listened to a planet money on indexing and fees and has now fully enbraced that.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by TropikThunder » Thu Oct 19, 2017 1:03 pm

1210sda wrote:
Thu Oct 19, 2017 11:46 am
I would like to say that my wife is no dummy. She has a master's degree and worked many years in IT. It's just that she has no real interest in investments. I wouldn't be at all surprised if there are many BH's out there in the same situation. And it's gender neutral...the disinterested spouse could be the husband just as easily as the wife.

1210
That's why it bothers me when I see posters seeking advice for what to do with their spouses accounts. "I need to make some changes to DW's 401k" etc. I realize in many cases, the spouse is an active partner in making decisions and the poster just needs advice on how to implement those decisions. But in cases like yours where the spouse is disinterested, others have pointed out that an unscrupulous advisor can undo decades of hard work in a short amount of time following the passing of the main decider.

That's why threads like this are so good because they raise considerations that people would otherwise overlook (e.g., step-up basis in community property states vs non, how best to leave instructions for the spouse to follow, etc).

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by 1210sda » Thu Oct 19, 2017 4:38 pm

TropikThunder wrote:
Thu Oct 19, 2017 1:03 pm
That's why threads like this are so good because they raise considerations that people would otherwise overlook (e.g., step-up basis in community property states vs non, how best to leave instructions for the spouse to follow, etc).
You're absolutely right. One thing that got my attention was (as Celia mentioned above) that the surviving spouse in the year after the date of death of the first spouse will now have to file as a single taxpayer. (In the year of death, I believe you can still file "married filing jointly" ...MFJ).

I did a quick test of the tax difference on Turbo Tax. Take a couple with $75,000 of taxable income (Line 43, Form 1040) who files jointly, has just 2 personal exemptions and takes the standard deduction (with the over age 65 additional), their tax would be $10,323.
Yet when the survivor has to file as a single taxpayer the following year, with the same conditions (except just one personal exemption and one standard deduction), his/her tax on the same $75,000 of taxable income is $14,528. $4,202 more than when filing MFJ. (Over 40% increase). That'll put a ding in many people's budgets.

1210

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by jalbert » Thu Oct 19, 2017 4:58 pm

A surviving spouse may work with Vanguard Advisor Services to manage the portfolio and withdrawal processes. They will use their recommended portfolio. It most likely will not be designed to hold LifeStrategy Moderate in all accounts, and tax efficiencies relative to that may well compensate for the 30 bp fee. If moving everything to LS Moderate is what your spouse wants, your spouse will have to direct Vanguard to make those exchanges, and then manage the withdrawals.
Risk is not a guarantor of return.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by 1210sda » Thu Oct 19, 2017 5:09 pm

jalbert wrote:
Thu Oct 19, 2017 4:58 pm
If moving everything to LS Moderate is what your spouse wants, your spouse will have to direct Vanguard to make those exchanges, and then manage the withdrawals.
If ...this is the choice that is made, why would you need VPAS (and their 30 basis points costs).

1210

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by fishandgolf » Thu Oct 19, 2017 5:44 pm

This is an interesting thread. I'm in a similar boat as OP. DW has no interest in managing....or even trying to figure out what to do with account after I am past tense. What I have instructed her to do is to contact Vanguard and have the account managed by their Advisory Service.......I don't care about the .30 cost. I just want her to be comfortable and not have to deal with the details; she is set-up as the beneficiary.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by aristotelian » Thu Oct 19, 2017 6:38 pm

FIREchief wrote:
Wed Oct 18, 2017 11:23 pm
1210sda wrote:
Wed Oct 18, 2017 6:58 pm
Therefore, my plan is to use a signed "letter of instruction" to Vanguard stating that upon my death (and it's accompanying "step up in basis"), Vanguard should exchange ALL my Funds (both taxable and tax advantaged) into the LifeStrategy Moderate Growth fund (VSMGX).
What is a "signed letter of instruction?" This doesn't sound like something than a brokerage would act upon. :confused

Upon a person's death, an account is controlled by either the surviving joint owner(s), a trust's trustee(s), designated beneficiary(s) or the estate's personal representative. While any of these could make the changes you suggest, I doubt any non-legal document signed by a decedent (even with VG's preferred holy medallion guarantee) would be worth any more than the paper it was written upon.
Agreed. I would call VG before sending anything. If it is allowed, which I tend to doubt, I would guess you would need to use their forms and likely get a medallion signature guarantee.

Another alternative would be to name someone you trust to execute the instructions and give them agent authorization now.

moghopper
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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by moghopper » Thu Oct 19, 2017 9:11 pm

This is why I plan to find a fee-only advisor that I can trust.

Trying to manage the world from beyond the grave seldom works out well.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by jalbert » Fri Oct 20, 2017 1:19 am

1210sda wrote:
Thu Oct 19, 2017 5:09 pm
jalbert wrote:
Thu Oct 19, 2017 4:58 pm
If moving everything to LS Moderate is what your spouse wants, your spouse will have to direct Vanguard to make those exchanges, and then manage the withdrawals.
If ...this is the choice that is made, why would you need VPAS (and their 30 basis points costs).

1210
You don't. Directing vanguard to make the change in investment position does not require engaging PAS.
Risk is not a guarantor of return.

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celia
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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by celia » Fri Oct 20, 2017 4:03 am

Some of the posters above are not giving their spouse enough credit. He/she may defer to your recommendations now, for any number of reasons, but I have yet to meet a widow or widower who did not care about their finances (except for those who had cognitive decline who should have someone else manage their money).

The one thing I do want to suggest though is that each spouse have a couple of months of living expenses in an account they can access after their spouse's death since it may take time to obtain a death certificate, send it in, and move some accounts around.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by pennywise » Fri Oct 20, 2017 7:31 am

celia wrote:
Fri Oct 20, 2017 4:03 am
Some of the posters above are not giving their spouse enough credit. He/she may defer to your recommendations now, for any number of reasons, but I have yet to meet a widow or widower who did not care about their finances (except for those who had cognitive decline who should have someone else manage their money).
YES! All couples have a division of duties--and the partner who isn't responsible for X doesn't need or have to worry about it. My husband takes the trash out each night and puts the bins out twice weekly. I don't think about doing it, I don't remind him, I don't keep that task on my to-do list in any way. I also don't tell him how he should be emptying the bags or how to place them in the outside cans for that matter. It's his chore, how he handles it is up to him as long as it gets done. I don't care.

However if he weren't around I certainly wouldn't live in filth with garbage overflowing the cans, piling up and never being taken out to be picked up--I'd be the one getting my trash out to be removed. If I weren't around he would figure out how to manage and access our accounts, pay bills etc. And so would all those seemingly clueless wives who never bother their heads about the household budget and money management.

Gentlemen, the reason your lovely wives aren't at all interested, don't know, don't care etc is because YOU have taken on that role in your marriage. If/when you aren't around to do it, I can assure you she will get interested in managing HER money pretty darn quick.

She may not manage it the way you think is absolutely the best (as in the OP trying to jigger holdings from beyond the grave) but rest assured she will be extremely focused on not losing every penny of the funds that support her lifestyle.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by NotWhoYouThink » Fri Oct 20, 2017 7:42 am

Most widows/widowers will figure it out. If you leave them enough money, they'll be fine. But not all.

In the case below, the deceased left a trust with his widow and son as co-trustees and beneficiaries. The widow paid no more attention to the money after her husband's death than she did before. WF gets blamed for a lot of things on this forums, but this verdict was wrong and should be overturned on appeal. WF was the custodian only, and had no responsibility for managing the accounts.
Barbara Morriss, the widow of a former Boatmen’s Trust Co. chairman, has contended that she first learned her accounts were drained in late 2011, when her credit card was declined at Neiman Marcus.
http://www.insurancejournal.com/news/mi ... 368233.htm

So leaving behind instructions for our heirs is good, but you can't force people to pay attention to something they'd rather ignore. I'm not a big fan of corporate trustees, but in some cases they can do some good, or at least prevent some harm. It's something to think about, and discuss with your spouse if you think it's appropriate.

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by afan » Fri Oct 20, 2017 8:55 am

For those whose spouses truly are incapable of managing their own affairs- declining cognitive ability due to age, extremely limited education, whatever- something like PAS would be far better than most alternatives. But I have to agree that participants on this board tend to assume that their approach is the one true path to financial responsibility and that anyone who fails to obsess over ever basis point will crash and burn.

My spouse does not obsess over finances, but is perfectly capable of handling our assets if necessary. Would seek out someone to prepare tax returns or settle my estate. Would probably sell things held in my name to claim the step up, but probably reinvest in more or less the same way.

Remember, this is not like landing humans on Mars and returning them to earth. Little of it is particularly difficult or complicated. For the few tricky maneuvers around estate planning one can hire experts. Enrolled agents or CPAs can do tax returns. One of the wonderful things about efficient markets is that "put it in index funds and forget about it" works.

The more important issue is having a backup for declining abilities with age. We are fortunate to have an adult child who is sort of a boglehead light and is successor trustee. if we did not have that, then I would be looking at Vanguard trust services. Both spouse and successor know that they could hire Vanguard in this capacity if needed.

I don't see much use for PAS. They will implement a perfectly fine, but perfectly simple portfolio. There is no need to pay anyone to do that. If we did not have a successor trustee, we would need someone to pay bills, manage taxes and so forth. PAS will not do that.
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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1210sda
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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by 1210sda » Fri Oct 20, 2017 9:31 am

Pennywise, thank you for your input.

I agree that if I did nothing, my wife would be OK. A sort of survival instinct would take over and guide her.

But I see nothing wrong in trying to set a plan in place that would improve her odds of not becoming destitute, of being better able to fulfill our charitable gifting goals and of providing an inheritance for our kids.

I believe that aspiring perfection is the enemy of the good. So, I'm not trying to create a perfect plan for her.

The purpose of this thread was to seek suggestions from like-minded individuals of things that they have done or are doing in this area.

Celia (and others)suggested that a signed letter of instruction to Vanguard would not be valid once I had died. That it would be better if it was a letter of instruction for my wife, who then could direct Vanguard to do as the letter indicated. This is the kind of feedback that I am seeking.

Be that as it may, all viewpoints are welcome. We learn from everyone. :happy

1210

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by afan » Fri Oct 20, 2017 10:06 am

Also remember that, although Vanguard is wonderful, there is nothing magic going on there. Your spouse needs a simple low cost portfolio. That can be done with 1-3 Vanguard funds, but outfits like Fidelity and Schwab can offer identical services.

Funds change over time. I would be hesitant to tell someone to invest in this specific fund, sometime in the future. Even if it is good advice now, there might be better alternatives, lower costs, less tax exposure, whatever, in the future.

It would make sense to tell someone "based on what we know of investing now, you should put your money in a diversified portfolio of index funds that includes stocks and bonds, trades little, and charges low fees." It is unlikely to be a good idea to say "invest in XYZ fund". That might not exist when the time comes. If it does, it may have changed investment policies, or been supplanted by something else.

There was a time when the best domestic stock fund available was Vanguard's S&P 500 fund. I would not invest in that now that there is Total Stock Market.
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: [If I die before my spouse, how to direct Vanguard advisors?]

Post by thelimocat » Fri Oct 20, 2017 12:46 pm

1210sda wrote:
Fri Oct 20, 2017 9:31 am
Pennywise, thank you for your input.

I agree that if I did nothing, my wife would be OK. A sort of survival instinct would take over and guide her.

But I see nothing wrong in trying to set a plan in place that would improve her odds of not becoming destitute, of being better able to fulfill our charitable gifting goals and of providing an inheritance for our kids.

I believe that aspiring perfection is the enemy of the good. So, I'm not trying to create a perfect plan for her.

The purpose of this thread was to seek suggestions from like-minded individuals of things that they have done or are doing in this area.

Celia (and others)suggested that a signed letter of instruction to Vanguard would not be valid once I had died. That it would be better if it was a letter of instruction for my wife, who then could direct Vanguard to do as the letter indicated. This is the kind of feedback that I am seeking.

Be that as it may, all viewpoints are welcome. We learn from everyone. :happy

1210
1210,
Please don't take me wrong but all of us have different situations so we speak from our own experience.

Why don't you just call VG and explain you quandary, I expect they will be helpful, they make the rules.

thelimocat

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by delamer » Fri Oct 20, 2017 6:59 pm

pennywise wrote:
Fri Oct 20, 2017 7:31 am
celia wrote:
Fri Oct 20, 2017 4:03 am
Some of the posters above are not giving their spouse enough credit. He/she may defer to your recommendations now, for any number of reasons, but I have yet to meet a widow or widower who did not care about their finances (except for those who had cognitive decline who should have someone else manage their money).
YES! All couples have a division of duties--and the partner who isn't responsible for X doesn't need or have to worry about it. My husband takes the trash out each night and puts the bins out twice weekly. I don't think about doing it, I don't remind him, I don't keep that task on my to-do list in any way. I also don't tell him how he should be emptying the bags or how to place them in the outside cans for that matter. It's his chore, how he handles it is up to him as long as it gets done. I don't care.

However if he weren't around I certainly wouldn't live in filth with garbage overflowing the cans, piling up and never being taken out to be picked up--I'd be the one getting my trash out to be removed. If I weren't around he would figure out how to manage and access our accounts, pay bills etc. And so would all those seemingly clueless wives who never bother their heads about the household budget and money management.

Gentlemen, the reason your lovely wives aren't at all interested, don't know, don't care etc is because YOU have taken on that role in your marriage. If/when you aren't around to do it, I can assure you she will get interested in managing HER money pretty darn quick.

She may not manage it the way you think is absolutely the best (as in the OP trying to jigger holdings from beyond the grave) but rest assured she will be extremely focused on not losing every penny of the funds that support her lifestyle.
As much as I'd like to agree with these sentiments, I am not convinced. The analogy to taking out the trash just doesn't hold up; the difficulty and potential consequences of a mismanaged portfolio are both much more severe than trash collection. And it is easier to tell when trash stinks.

Some women will step up and successfully manage their portfolios. But many won't. My mother was a widow at 79 without any experience with investments. She was in good shape cognitively, but did not have the background or ability to absorb the new information needed to manage her investments.

And what about a widow who is cognitively impaired?

If I was concerned about my spouse's ability to manage a portfolio, I'd do some combination of 1) leave written instructions, 2) try to scare her (or him) straight talking about cognitive decline and 3) vet an institutional adviser to take over either at my death or when I reached a certain age.

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FIREchief
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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by FIREchief » Fri Oct 20, 2017 8:05 pm

NotWhoYouThink wrote:
Fri Oct 20, 2017 7:42 am
I'm not a big fan of corporate trustees, but in some cases they can do some good, or at least prevent some harm. It's something to think about, and discuss with your spouse if you think it's appropriate.
I'm also not a big fan of corporate trustees in situations where they add little value. That said, I think they can be worth their weight in gold in other situations (assuming a properly written trust that provides an appropriate amount of "power"). The OPs situation may certainly be one such scenario.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

spammagnet
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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by spammagnet » Fri Oct 20, 2017 10:28 pm

celia wrote:
Fri Oct 20, 2017 4:03 am
... The one thing I do want to suggest though is that each spouse have a couple of months of living expenses in an account they can access after their spouse's death since it may take time to obtain a death certificate, send it in, and move some accounts around.
Good idea.

malabargold
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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by malabargold » Sat Oct 21, 2017 8:06 am

Wow, I see this problem so many times on these boards.

I am certain your spouse can do this.

That’s the key - to DO, not just to hear!

Don’t just explain it, let your spouse grab the wheel
while you are still around to coach. Saving, investing,
rebalancing, spending, tax loss harvesting, spotting scams, paying taxes, etc.

Same goes for children.


So many people accumulate for loved ones, but then don’t
show them how to maximize the fruits of their labor.

Small Law Survivor
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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by Small Law Survivor » Sat Oct 21, 2017 8:54 am

fishandgolf wrote:
Thu Oct 19, 2017 5:44 pm
This is an interesting thread. I'm in a similar boat as OP. DW has no interest in managing....or even trying to figure out what to do with account after I am past tense. What I have instructed her to do is to contact Vanguard and have the account managed by their Advisory Service.......I don't care about the .30 cost. I just want her to be comfortable and not have to deal with the details; she is set-up as the beneficiary.
This is what I have done. However, I have set up a pretty complex slice/dice portfolio - wonder whether Vanguard AS will ride that out, or sell it all to fit it into their cookie-cutter four-fund portfolio?

afan
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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by afan » Sat Oct 21, 2017 9:29 am

They say they will consider tax implications and not immediately sell if it would generate large capital gains. But they also will gradually convert to their model portfolio. If you want someone to run a slice and dice portfolio for you, look elsewhere.
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

Small Law Survivor
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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by Small Law Survivor » Sat Oct 21, 2017 9:53 am

Does a surviving spouse receive a step-up in basis in securities on death of a spouse? I didn't know that - is it correct? Even of the securities are jointly owned?

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Re: [If I die before my spouse, how to direct Vanguard advisors?]

Post by HueyLD » Sat Oct 21, 2017 10:08 am

Small Law Survivor wrote:
Sat Oct 21, 2017 9:53 am
Does a surviving spouse receive a step-up in basis in securities on death of a spouse? I didn't know that - is it correct? Even of the securities are jointly owned?
For common law states, the surviving spouse gets 50% basis step-up (or DOWN) on jointly owned assets.

For community property states, the surviving spouse receives 100% basis step-up (or DOWN) if assets are titled properly.

Obviously, retirement accounts and annuities do not get basis adjustments.

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