Independent Trustee Actively Managing Trust Account

[longleaf]

Update:

After discussions with the cotrustee and the independent trustee, the independent trustee is willing to invest in funds which I select. They will not reduce the fee (Gill was spot on). I will receive quarterly distributions of income from the investment.

So- should I look into Vanguard High Dividend Yield to get the maximum amount out of the trust as early as possible, or is another fund better for this strategy?

The distributed funds will be invested into Total Stock after I receive them.

Thanks for the guidance as always

I am beneficiary of a trust which has a bank as Independent Trustee. I am charged 1% annually; is there any way I can escape this? I am considering composing a letter which requests that the funds be invested 100% in Vanguard Total Stock Admiral with dividends reinvested which will no longer require their active management. How can this "fiduciary" charge 1% to active manage the account if it is not in my best interest?

Any thoughts/experiences would be welcome. This account will be open for decades; it is worth the fight.

[NotWhoYouThink]

You have a copy of the trust, right? What does it say about how the trustee should manage the money? What does it say about appointing a different independent trustee? What other duties does the trustee have? Tax reporting? Are there other trustees?

Only among this group of die hard independent investors is 1% considered confiscatory. It's a pretty standard industry rate. What does the trustee tell you about how the money is managed, and what do you mean by "active"? Is there frequent trading with high fees on each trade, or is it just more complex than a 3 fund portfolio?

The trustee is in place because the grantor wanted it that way. It isn't your decision. The trustee is to follow the written direction of the grantor, not the investing preferences of the beneficiary.

[longleaf]

You have a copy of the trust, right?
Yes, it is within a will

What does it say about how the trustee should manage the money?
x bank, and any successor bank, shall receive as compensation for its services as independent trustee, the fees it normally charges to similar trusts under its regularly published fee schedule as the same, may from time to time, be amended.

What does it say about appointing a different independent trustee?
If the x bank fails or ceases to serve as co-trustee for any reason, a successor independent trustee shall be appointed in writing by a majority of my children then living and if none, or for want of a majority, by a majority of my descendants then living who have attained the legal age of majority, and if none or for want of a majority, by court competent jurisdiction.

What other duties does the trustee have?
The independent trustee shall distribute 1/3 of trust at age x, 1/2 at age x, remaining at age x. Authorized to purchased life insurance on person eligible to receive income from trust. May distribute from principal of trust to beneficiary before age x to buy home, gain education, start business, etc. if it is deemed in the best interest by independent trustee.

Tax reporting?
I have no information on this; it is generation-skipping

Are there other trustees?
There are two other co-trustees

Only among this group of die hard independent investors is 1% considered confiscatory. It's a pretty standard industry rate. What does the trustee tell you about how the money is managed, and what do you mean by "active"? Is there frequent trading with high fees on each trade, or is it just more complex than a 3 fund portfolio?
In the last statement I counted 34 holdings including individual stocks and two bond funds. As I stated previously, I do not need or want this level of active management; I want 100% VTSAX without the trustee active management fee.

[Gill]

You have a copy of the trust, right? What does it say about how the trustee should manage the money? What does it say about appointing a different independent trustee? What other duties does the trustee have? Tax reporting? Are there other trustees?

Only among this group of die hard independent investors is 1% considered confiscatory. It's a pretty standard industry rate. What does the trustee tell you about how the money is managed, and what do you mean by "active"? Is there frequent trading with high fees on each trade, or is it just more complex than a 3 fund portfolio?

The trustee is in place because the grantor wanted it that way. It isn't your decision. The trustee is to follow the written direction of the grantor, not the investing preferences of the beneficiary.

This pretty well sums it up. This is not an excessive fee for the trustee of a trust such as yours. Furthermore, a beneficiary normally does not have the right to direct investments by the trustee. That is the trustee's job. How is the fee being charged, i.e., all against income or partly against principal? What does the instrument or state law say about charging of the fee? The trustee has many more responsibilities other than just investing the trust assets. The grantor appointed this trustee for a reason and, unless the instrument provides otherwise, you must live with this choice.
Gill

[Gill]

In the last statement I counted 34 holdings including individual stocks and two bond funds. As I stated previously, I do not need or want this level of active management; I want 100% VTSAX without the trustee active management fee.

Sorry, but what you want is not entirely relevant. I'll guarantee you that the trustee will not honor such a request.
Gill

[bsteiner]

It seems odd that the decedent would mandate a corporate trustee but also mandate distributions at specified ages.

Perhaps the trustees would agree to decant the trust to eliminate the mandated distributions and have the bank cease to act at the ages when distributions are presently mandated.

[Gill]

It seems odd that the decedent would mandate a corporate trustee but also mandate distributions at specified ages.

Perhaps the trustees would agree to decant the trust to eliminate the mandated distributions and have the bank cease to act at the ages when distributions are presently mandated.

Coming from a former trust banker, why should the bank agree to this? Not only are the wishes of the grantor being defeated but the trustee appointed by the grantor is giving up the trust. If I was representing the bank in such a situation I believe I'd refuse.
Gill

[bsteiner]

It seems odd that the decedent would mandate a corporate trustee but also mandate distributions at specified ages.

Perhaps the trustees would agree to decant the trust to eliminate the mandated distributions and have the bank cease to act at the ages when distributions are presently mandated.

Coming from a former trust banker, why should the bank agree to this? Not only are the wishes of the grantor being defeated but the trustee appointed by the grantor is giving up the trust. If I was representing the bank in such a situation I believe I'd refuse.
Gill

If they don't go along with this, they'll be giving up the trust on the dates of the mandatory distributions.

Since the Will provided for mandatory distributions, if the decedent or his/her lawyer were aware of Revenue Ruling 95-58 issued in 1995, instead of mandatory distributions, the beneficiary would have gained control of the trust (including the power to remove the bank) at those ages.

[NotWhoYouThink]

In the last statement I counted 34 holdings including individual stocks and two bond funds. As I stated previously, I do not need or want this level of active management; I want 100% VTSAX without the trustee active management fee.

You can manage your own money any way you want. This money doesn't belong to you, it belongs to the trust. When it is distributed to you, you can invest it as you choose.

Is this a new trust, set up by a recent passing of a relative? Maybe the bank has been managing this money for years, and didn't just add 34 holdings. Maybe there are tax reasons to keep things the way they are for now. Maybe the grantor personally designed this portfolio, and wanted the bank trust department to keep it intact. Maybe the other beneficiaries trust the bank's judgement more than they trust yours. Maybe they would prefer to invest it all in Bitcoin, and the trustee is keeping them from making big mistakes.

Seek first to understand. How did things get this way, and what do the other beneficiaries and trustees want? Then try to learn to live with the way things are. You've been given what is probably a pretty substantial gift, don't complain about the wrapping it came in.

[longleaf]

In the last statement I counted 34 holdings including individual stocks and two bond funds. As I stated previously, I do not need or want this level of active management; I want 100% VTSAX without the trustee active management fee.

You can manage your own money any way you want. This money doesn't belong to you, it belongs to the trust. When it is distributed to you, you can invest it as you choose.

Is this a new trust, set up by a recent passing of a relative? Maybe the bank has been managing this money for years, and didn't just add 34 holdings. Maybe there are tax reasons to keep things the way they are for now. Maybe the grantor personally designed this portfolio, and wanted the bank trust department to keep it intact. Maybe the other beneficiaries trust the bank's judgement more than they trust yours. Maybe they would prefer to invest it all in Bitcoin, and the trustee is keeping them from making big mistakes.

Seek first to understand. How did things get this way, and what do the other beneficiaries and trustees want? Then try to learn to live with the way things are. You've been given what is probably a pretty substantial gift, don't complain about the wrapping it came in.

Set up this year. There was one large trust which was split into several for the grandchildren following death of a loved one. I am the sole beneficiary of this trust since the main one was divided. I know that the grantor did not set up the holdings as they are now; previous statements from the main trust have confirmed this. There is one holding which is large and a sale would result in significant capital gains.

I might consider purchasing several pieces of property with the trust funds to remove significant amounts from the 1% ball and chain.

[afan]

Depending on the terms of the trust, the trustee might be able to distribute funds to you to purchase the property. It may or may not agree to do this, even if permitted.

You could discuss with the other trustees, I assume individuals, not other banks, the possibility of moving to a different trustee. From the language you quoted it seems the trust requires an independent trustee, but not necessarily a bank or trust company. Depending on the circumstances it may be possible to appoint an individual who would charge you little or nothing to arrange the investments as you prefer.

The bank has lots of expenses and liability exposure by serving as trustee. Although banks and trust companies make much of their investment expertise, their expenses associated with this part of the work are quite low. But keeping the whole operation in business is costly. Even at the fees they charge, many bank trust departments lose money for the institution. There are some banks, particularly in asset protection states, that will do the limited administrative work for a much smaller fee. They delegate the investment management to a person or business of your choosing.

Depending on the size of the trust, this might be worth it to go this route if you follow bsteiner's advice and decant the trust so that it remains in force long term, rather than ending at the specified ages. If you keep the distribution plan in place then it may not be worth going through the hassle to switch. Plus, the banks that do this want big trusts and might not be interested if they knew the amounts would drop sharply and then disappear in a few years.

Although I agree with Gill that there is no reason to expect the bank to discount your fees because it simply puts all the money into an index fund, it might agree to invest that way while charging its standard rates. You would get a better portfolio but still pay the 1%.

If you are in a position to invoke the terms to change the independent trustee and the value of the trust is substantial the current bank might be prepared to negotiate its fees. It will still be a lot by bogleheads standards but less than what you are paying now.

I share the puzzlement at mandating an independent trustee for a trust that will distribute all the assets. The independent requirement protects the assets but that protection ends when the funds come out.

[afan]

If you go the route of finding a different corporate trustee Vanguard will probably charge a lot less and will be quite happy to run an all index fund portfolio. As of a few years ago Schwab would serve as administrative trustee for much less than 1%. You had to arrange for an investment advisor from the Schwab advisor network. Many are traditional active managers, but there are some that would do an all index fund portfolio for a very low fee.

Years ago an estates and trusts attorney told me that, in general, it is not that hard to get a corporate trustee to resign. It was a calm quiet world and the banks were not interested in dealing with unhappy beneficiaries. They would not expose themselves to legal liability by ignoring the terms of the trust, but if they could get out of an unhappy relationship they usually were glad to be rid of it. It may be different if the trust is so large that the revenues are important to the bank, but usually that is not the case.

But before antagonizing the bank, see whether you can arrange to change trustees. Check whether you need a corporate trustee. The language you quoted does not seem to say that.

[NotWhoYouThink]

If a large trust was divided into multiple trusts (one for each beneficiary) and the same bank manages all the trusts, it might be more challenging to break this one out. Maybe it depends on whether the same two non-independent trustees are also the trustees for the other trusts.

Also, OP said this is a generation skipping trust, and someone (OP's parent?) is entitled to income from it. If that's the case, then the income beneficiary might have an opinion on investments, or the bank at least would have a fiduciary duty to that person. it was a little unclear to me, but this is the part I'm trying to parse.

What other duties does the trustee have?
The independent trustee shall distribute 1/3 of trust at age x, 1/2 at age x, remaining at age x. Authorized to purchased life insurance on person eligible to receive income from trust. May distribute from principal of trust to beneficiary before age x to buy home, gain education, start business, etc. if it is deemed in the best interest by independent trustee.

Tax reporting?
I have no information on this; it is generation-skipping

[Carefreeap]

In the last statement I counted 34 holdings including individual stocks and two bond funds. As I stated previously, I do not need or want this level of active management; I want 100% VTSAX without the trustee active management fee.

You can manage your own money any way you want. This money doesn't belong to you, it belongs to the trust. When it is distributed to you, you can invest it as you choose.

Is this a new trust, set up by a recent passing of a relative? Maybe the bank has been managing this money for years, and didn't just add 34 holdings. Maybe there are tax reasons to keep things the way they are for now. Maybe the grantor personally designed this portfolio, and wanted the bank trust department to keep it intact. Maybe the other beneficiaries trust the bank's judgement more than they trust yours. Maybe they would prefer to invest it all in Bitcoin, and the trustee is keeping them from making big mistakes.

Seek first to understand. How did things get this way, and what do the other beneficiaries and trustees want? Then try to learn to live with the way things are. You've been given what is probably a pretty substantial gift, don't complain about the wrapping it came in.

Set up this year. There was one large trust which was split into several for the grandchildren following death of a loved one. I am the sole beneficiary of this trust since the main one was divided. I know that the grantor did not set up the holdings as they are now; previous statements from the main trust have confirmed this. There is one holding which is large and a sale would result in significant capital gains.

I might consider purchasing several pieces of property with the trust funds to remove significant amounts from the 1% ball and chain.

Lol, you haven't seen Trust charges until the Trust owns real estate. On top of the 1% asset fee you'll have purchase and sale fees, lease management fees et cetera.

Depending on the size of the Trust, the Trustee is unlikely to agree to acquire property since real estate is considered risky and illiquid, never mind the challenge of the Trust securing a mortgage. One of the issues DH had was that the corporate Trustee refused to refinance a seller carry-back mortgage of a commercial property since conventional commercial mortgages were recourse loans. The Trustees were protecting themselves against the remote possibility that a loan that was 50% Loan to Value could get foreclosed on and a shortage would result in the attachment of other Trust assets and that they would be accused of abandoning their fiduciary duty to the beneficiary.

Ultimately we were able to convince the Trustee to sell the property. Quite frankly given the size of the Trust it was an inappropriate investment which wound up costing the Trust over $100k.

[Carefreeap]

I share the puzzlement at mandating an independent trustee for a trust that will distribute all the assets. The independent requirement protects the assets but that protection ends when the funds come out.

Sounds like a spendthrift protection.

DH would have had the same situation had his father (the income recipient of a generational skipping Trust) had died when DH was under 35.

To the OP: what are the distribution ages and how old are you?

[longleaf]

To the OP: what are the distribution ages and how old are you?

25 distribute 1/3, 35 distribute 1/2, 45 distribute remaining. Younger than 25.

Maybe it depends on whether the same two non-independent trustees are also the trustees for the other trusts.
Same for other trusts.

Also, OP said this is a generation skipping trust, and someone (OP's parent?) is entitled to income from it. If that's the case, then the income beneficiary might have an opinion on investments, or the bank at least would have a fiduciary duty to that person. it was a little unclear to me, but this is the part I'm trying to parse.

What other duties does the trustee have?
The independent trustee shall distribute 1/3 of trust at age x, 1/2 at age x, remaining at age x. Authorized to purchased life insurance on person eligible to receive income from trust.

Tax reporting?
I have no information on this; it is generation-skipping

Here are some excerpts from the will:

"My descendants who serve as Executor or Trustee hereunder shall receive no compensation for their services, but shall be reimbursed for out-of-pocket expenses reasonably incurred in the performance of their fiduciary duties, including travel expenses."

"The Independent Trustee shall be authorized in its discretion to purchase as an investment for any of the trusts established hereunder insurance on the life of any person then eligible to receive income or support from such trust and to pay the premiums thereon. The trust purchasing such insurance shall be designated as beneficiary thereof."

"Others shall have the right at any time after my death to add to this trust by depositing additional property with the Trustee hereunder, provided the Trustee determines that such property will not unduly impair the exemption of this trust from the federal government gerneration-skipping transfer tax and such property so deposited shall be held, administered and distributed by the Trustee in all respect as if it had been a part of the property originally..."

[J295]

Consultant legal counsel.

[Carefreeap]

To the OP: what are the distribution ages and how old are you?

25 distribute 1/3, 35 distribute 1/2, 45 distribute remaining. Younger than 25.

Maybe it depends on whether the same two non-independent trustees are also the trustees for the other trusts.
Same for other trusts.

Also, OP said this is a generation skipping trust, and someone (OP's parent?) is entitled to income from it. If that's the case, then the income beneficiary might have an opinion on investments, or the bank at least would have a fiduciary duty to that person. it was a little unclear to me, but this is the part I'm trying to parse.

What other duties does the trustee have?
The independent trustee shall distribute 1/3 of trust at age x, 1/2 at age x, remaining at age x. Authorized to purchased life insurance on person eligible to receive income from trust.

Tax reporting?
I have no information on this; it is generation-skipping

Here are some excerpts from the will:

"My descendants who serve as Executor or Trustee hereunder shall receive no compensation for their services, but shall be reimbursed for out-of-pocket expenses reasonably incurred in the performance of their fiduciary duties, including travel expenses."

"The Independent Trustee shall be authorized in its discretion to purchase as an investment for any of the trusts established hereunder insurance on the life of any person then eligible to receive income or support from such trust and to pay the premiums thereon. The trust purchasing such insurance shall be designated as beneficiary thereof."

"Others shall have the right at any time after my death to add to this trust by depositing additional property with the Trustee hereunder, provided the Trustee determines that such property will not unduly impair the exemption of this trust from the federal government gerneration-skipping transfer tax and such property so deposited shall be held, administered and distributed by the Trustee in all respect as if it had been a part of the property originally..."

Yeah, at age < 25 you're likely a little impatient and are going to have a credibility problem with changing up the asset allocation. DH was about 40 when he got his Trust assets. The world looks a lot different at age 40 than in your early 20s. When DH's cousins got their distributions they ranged in age from mid fifties down to 20s (their Dad actually pre-deceased their grandfather by a few months). Their share of the Trust was less than $100k and the Trustee just did an outright distribution as it made no sense to administer that small of a Trust. I know one of the younger cousins used his money to attend grad school. That sounds like an option you have to access money in your Trust.

[Gill]

If you were meant to have control of the trust assets the testator would have left them to you outright. The trust was established for good reason by the decedent and the trustee is being compensated a very normal trustee’s fee. You have no authority to direct investment of the trust. Quite likely the trustee is earning its fee just listening to your objections. I also suspect the assets will perform far better in its hands than yours. Why don’t you just forget this mission and seek to do your best with the income and principal as it is eventually distributed to you.
Gill

[afan]

That seems harsh. 1% of assets and 34 investments does not sound like a great service.

It could be worth investigating changing trustees to a company or person who will charge less and give up the active management.
Depending on the size of the trust you could save 0.5% or more per year.


Spendthrift makes more sense when the money stays in the trust, rather than being distributed.

[longleaf]

If you were meant to have control of the trust assets the testator would have left them to you outright. The trust was established for good reason by the decedent and the trustee is being compensated a very normal trustee’s fee. You have no authority to direct investment of the trust. Quite likely the trustee is earning its fee just listening to your objections. I also suspect the assets will perform far better in its hands than yours. Why don’t you just forget this mission and seek to do your best with the income and principal as it is eventually distributed to you.
Gill

The point is not to obtain control of the funds; I do not need/want them now anyway. I want to decrease the expense ratio and hold VTSAX solely in the trust. Seems like a good deal for the bank if they half their fee and hold what I request for decades rather than lose the trust to a different independent trustee.

[Gill]

If you were meant to have control of the trust assets the testator would have left them to you outright. The trust was established for good reason by the decedent and the trustee is being compensated a very normal trustee’s fee. You have no authority to direct investment of the trust. Quite likely the trustee is earning its fee just listening to your objections. I also suspect the assets will perform far better in its hands than yours. Why don’t you just forget this mission and seek to do your best with the income and principal as it is eventually distributed to you.
Gill

The point is not to obtain control of the funds; I do not need/want them now anyway. I want to decrease the expense ratio and hold VTSAX solely in the trust. Seems like a good deal for the bank if they half their fee and hold what I request for decades rather than lose the trust to a different independent trustee.

I can assure you the bank won’t halve their fee. Investing a trust is only one of their many responsibilities as you will see in the future, not the least of which will be acting on your requests for discretionary invasions of principal.
Gill

[longleaf]

What if this suggestion comes from one of the non-independent trustees?

[FIREchief]

OP - I understand your position and fully share your concerns that an independent trustee is likely not maximizing your ultimate trust benefits by investing in 34 active funds and charging a full 1% AUM. Unfortunately, as others have suggested, you're likely up against a brick wall on this.

Assuming your state has adopted the uniform trust code (or similar), your independent trustee is likely required to exercise "special skill" in administering your trust. I don't believe this is rigorously defined anywhere, but it is a great "rule" to hide behind in defending use of a complex portfolio instead of a Boglehead approach. Sure your investments won't do as well. Sure it is clear what is going on in this game. The problem is that there is a strong profit motive for the independent trustee and they are there solely to make a profit. Just be glad you can liberate your funds over the next twenty or so years, and take some comfort that they will be protected from lawsuits and creditors. As others have mentioned, this was likely a more important priority to the Grantor than maximizing investment performance.

[dbr]

OP - I understand your position and fully share your concerns that an independent trustee is likely not maximizing your ultimate trust benefits by investing in 34 active funds and charging a full 1% AUM. Unfortunately, as others have suggested, you're likely up against a brick wall on this.

Assuming your state has adopted the uniform trust code (or similar), your independent trustee is likely required to exercise "special skill" in administering your trust. I don't believe this is rigorously defined anywhere, but it is a great "rule" to hide behind in defending use of a complex portfolio instead of a Boglehead approach. Sure your investments won't do as well. Sure it is clear what is going on in this game. The problem is that there is a strong profit motive for the independent trustee and they are there solely to make a profit. Just be glad you can liberate your funds over the next twenty or so years, and take some comfort that they will be protected from lawsuits and creditors. As others have mentioned, this was likely a more important priority to the Grantor than maximizing investment performance.

It would seem the trust exists specifically because the grantor wanted to be sure the beneficiaries would be prevented from managing the assets too soon. It appears the purpose of the grantor is being well served by this trust. The provisions in interest of the beneficiaries seem to be fairly liberal in fact.

[letsgobobby]

Are you paying 1% for investments in addition to a fee to manage the trust? Or is the 1% the all in fee? If the latter then you are getting a good deal. Many institutions charge twice that.

[Carefreeap]

If you were meant to have control of the trust assets the testator would have left them to you outright. The trust was established for good reason by the decedent and the trustee is being compensated a very normal trustee’s fee. You have no authority to direct investment of the trust. Quite likely the trustee is earning its fee just listening to your objections. I also suspect the assets will perform far better in its hands than yours. Why don’t you just forget this mission and seek to do your best with the income and principal as it is eventually distributed to you.
Gill

The point is not to obtain control of the funds; I do not need/want them now anyway. I want to decrease the expense ratio and hold VTSAX solely in the trust. Seems like a good deal for the bank if they half their fee and hold what I request for decades rather than lose the trust to a different independent trustee.

I can assure you the bank won’t halve their fee. Investing a trust is only one of their many responsibilities as you will see in the future, not the least of which will be acting on your requests for discretionary invasions of principal.
Gill

I've often thought this was the real work of a professional Trustee; listening to the whining and complaining of people living beyond their means. Those "mean" Trustees who won't let them have access to their money!

And it can get worse with the greedy spouses who don't/won't understand that the Trust is not their money to spend either. FIL's 3rd wife and her adult children had a hard time with the concept that once FIL died the gravy train and monthly invasions to the Trust's principle were over. DH's grandmother did not intend for FIL's third wife to "live in the style to which SHE had been accustomed." I assume this is a common problem Trustees have when the income beneficiary passes and the assets pass to the remainderman.

[afan]

If you can invoke the provisions to change trustees, then you may be able to reduce the cost and get a more rational portfolio.

It is unlikely anyone would accept the responsibility of trustee and agree to invest 100% in a domestic stock fund. Maybe they would agree to do a single balanced fund. Or a mix of 2-4 index funds. Even if a consideration of YOUR assets would make 100% stock in the trust a diversified portfolio overall, the trustee would have to worry about who comes in line after you- your yet to be conceived children, for example.

Depending on the size of the trust you may be able to negotiate a lower fee from the bank. This would be determined by what they typically charge for trusts of your size and with your relatively low investment complexity.

If your current rates are already good by the standards of the bank- as they may be if they are crediting you with the assets in other trusts set up by the same person- then you could look elsewhere.

For the bank to talk to you or for moving to a different trustee to be possible, you need to be prepared to invoke the process for changing trustees. If you cannot make that happen and your prices are already good by the current trustee's scale, then you may be stuck.

[NotWhoYouThink]

I assume this is a common problem Trustees have when the income beneficiary passes and the assets pass to the remainderman.

Speaking of which..

OP - is there an income beneficiary of this trust? Or does all income stay in the trust?

If you really want to change something, the path to do that is not to complain to the bank. The path is to work with the other 2 trustees, and the people who have to vote to change the trustee. There probably is a better way to manage this money, but you won't get there by telling the bank the grantor chose to quit doing things the way they've always done them. You have no leverage with the bank, and they've heard complaining beneficiaries before.

[bsteiner]

Are you paying 1% for investments in addition to a fee to manage the trust? Or is the 1% the all in fee? If the latter then you are getting a good deal. Many institutions charge twice that.

Banks and trust companies typically charge about 1%, a bit more on small trusts and less on large ones. That includes the investment management. The bank or trust company would say that their fee is primarily for the investment management, since they would charge about the same (perhaps slightly less) to manage money not in a trust.

[ZWorkLess]

Well, if you can convince the deciding trustees to switch to Vanguard, you could get fees of 0.55% on the first 5 million and substantially less on funds over the first 5 million.

https://investor.vanguard.com/financial ... t-services

Personally, I'll likely be using Vanguard as co-trustee on the trust we're establishing in our own estate planning . . . Along with other family/friend "adult" trustees (as in, over 30 and well versed in financial management over many years of doing so responsibly for themselves and others). And, for sure, my purpose in doing so would be to help ensure the survival of the funds throughout the beneficiaries "younger" years . . .

I agree that the grantor of the trust designed it this way expressly to prevent you/other beneficiaries from controlling/accessing the funds prior to the designated ages. I'd suggest you work to appreciate the huge gift you've been given and to respect the grantor's wishes in the administration and management of the trust. There's a reason for what they did -- the main reason is to *protect you from your own folly and those who might prey on your inexperience* -- those things are generally more of a risk at younger ages (and elderly ages when dementia kicks in)*. You may or may not understand those reasons better as you grow older and are planning for the wellbeing of your own descendants.

[afan]

I agree that the grantor of the trust designed it this way expressly to prevent you/other beneficiaries from controlling/accessing the funds prior to the designated ages. I'd suggest you work to appreciate the huge gift you've been given and to respect the grantor's wishes in the administration and management of the trust. There's a reason for what they did -- the main reason is to *protect you from your own folly and those who might prey on your inexperience* -- those things are generally more of a risk at younger ages (and elderly ages when dementia kicks in)*. You may or may not understand those reasons better as you grow older and are planning for the wellbeing of your own descendants.

It is easy to agree with this without agreeing that active management and 1% fee are reasonable. If the OP can get the right people to act, the trust could have this protection along with a lower cost and more rational portfolio.

But don't just go with Vanguard. Shop around for other alternatives. The directed trustee approach, with one entity doing the administration and another handling the investment might also save you money.

[afan]

Banks and trust companies typically charge about 1%, a bit more on small trusts and less on large ones. That includes the investment management. The bank or trust company would say that their fee is primarily for the investment management, since they would charge about the same (perhaps slightly less) to manage money not in a trust.

This may be true. But just as Vanguard drove down the cost of mutual funds, it may help reduce the cost of trusts. Whether the 1% rate is competitive with banks now depends on the size of the trust. However, banks are no longer the only game in town.

Like active managers, banks might want to ignore Vanguard and hope it goes away Even if the bank were doing a good job managing the investment the price is higher than it should be.

[trustquestioner]

Many seem to be expressing an attitude that confirms suspicions regarding corporate trustees. Beneficiaries are greedy brats, good thing the old man hired the bank to save them from themselves.

34 individual stocks is terrible management, period. The OP is completely justified in wanting it simplified and changed. And don't assume "that's how the trustor wanted it." Rich people aren't usually trust experts (or investment experts, for that matter), and often rely on their lawyers, who can suffer from selective disclosure of their potential conflicts of interest.

[bsteiner]

Banks and trust companies typically charge about 1%, a bit more on small trusts and less on large ones. That includes the investment management. The bank or trust company would say that their fee is primarily for the investment management, since they would charge about the same (perhaps slightly less) to manage money not in a trust.

This may be true. But just as Vanguard drove down the cost of mutual funds, it may help reduce the cost of trusts. Whether the 1% rate is competitive with banks now depends on the size of the trust. However, banks are no longer the only game in town.

Like active managers, banks might want to ignore Vanguard and hope it goes away Even if the bank were doing a good job managing the investment the price is higher than it should be.

Vanguard is 0.55% on the first $5 million, and less above $5 million: https://personal.vanguard.com/pdf/s341.pdf?2210071322. (See page 11.)

Has anyone had any experience with Vanguard as trustee where someone named Vanguard as a trustee and has died so that the trusts under his/her Will have taken effect? How is their interaction with the beneficiaries? How do they determine how much to distribute?

[afan]

Vanguard is 0.55% on the first $5 million, and less above $5 million: https://personal.vanguard.com/pdf/s341.pdf?2210071322. (See page 11.)

Has anyone had any experience with Vanguard as trustee where someone named Vanguard as a trustee and has died so that the trusts under his/her Will have taken effect? How is their interaction with the beneficiaries? How do they determine how much to distribute?

There have been a number of threads asking this question, with no one that I have seen having an answer. A few that have Vanguard as trustee, but the people were still alive and did not report on Vanguard's beneficiary service.

My point had more to do with whether 1% was a good estimate of the cost of INVESTMENT MANAGEMENT. Vanguard may (or may not) skimp on client service. But If they were failing at investment management we would not have to wait for testamentary trusts to come into being to know about the failures.

Vanguard is not the only place that will do the work at lower cost. Schwab will do the administrative trustee role for 40 basis points on the first $3M, 20 basis points on the next $7M. You have to hire an investment advisor through their advisor network. The last time I looked there were advisors who would do a simple all index fund portfolio for a low flat fee. This could easily be cheaper than Vanguard.

http://www.schwab.com/public/file/P-10180944

[FIREchief]

Are you paying 1% for investments in addition to a fee to manage the trust? Or is the 1% the all in fee? If the latter then you are getting a good deal. Many institutions charge twice that.

Market pricing? Yes. Fair price? Maybe. "Good deal," I will tend to disagree. 1% per year for anybody to "manage" a large pool of money doesn't sound like a good deal to me; especially since we as Bogleheads know that the investment management shouldn't take more than an hour a year. I think the drivers here are lack of economies of scale (there simply isn't enough trust activity out there to spur development of highly competitive gorillas in the market) and liability.

The real actionable item from this thread is for those who are in the process of setting up their own trusts. This is the time to think about putting boundaries on investment strategies and providing beneficiaries with quick/easy ways to control who is serving as trustee. A trust can override all state prudent investor laws by simply requiring passive index investing of trust financial assets.

[bsteiner]

Vanguard is 0.55% on the first $5 million, and less above $5 million: https://personal.vanguard.com/pdf/s341.pdf?2210071322. (See page 11.)

Has anyone had any experience with Vanguard as trustee where someone named Vanguard as a trustee and has died so that the trusts under his/her Will have taken effect? How is their interaction with the beneficiaries? How do they determine how much to distribute?

There have been a number of threads asking this question, with no one that I have seen having an answer. A few that have Vanguard as trustee, but the people were still alive and did not report on Vanguard's beneficiary service.

My point had more to do with whether 1% was a good estimate of the cost of INVESTMENT MANAGEMENT. Vanguard may (or may not) skimp on client service. But If they were failing at investment management we would not have to wait for testamentary trusts to come into being to know about the failures.

Vanguard is not the only place that will do the work at lower cost. Schwab will do the administrative trustee role for 40 basis points on the first $3M, 20 basis points on the next $7M. You have to hire an investment advisor through their advisor network. The last time I looked there were advisors who would do a simple all index fund portfolio for a low flat fee. This could easily be cheaper than Vanguard.
...

There are some trust companies that will act as administrative trustee in the $5,000 to $10,000 a year range, so long as the assets are in an LLC (so they don't have to get involved in purchases and sales), and someone else manages the LLC and is responsible for the investments. That includes deciding on distributions.

Many trust companies will do what Schwab does at about the same price. They don't care how the assets are managed so long as they're not responsible for managing the assets.

Sometimes that's appropriate. However, sometimes you need a bank or trust company to handle the investments because the family can't deal with it. In those cases, Vanguard is less expensive. The question is whether people have been satisfied with Vanguard in that role. It sounds like it's too early to tell -- not very many people name a corporate trustee in their Wills, not very many of those have picked Vanguard, and not very many of those have died yet.

[afan]

I have heard that other trust companies would do this but I had so much finding them a while ago when I was searching that I gave up. Among the appeals of Vanguard and Schwab are their large national presence and preparedness to deal with clients where ever they live. In my search many companies wanted me to come in and meet in person.

Even for those that had an office in town the notion of blowing half a day to get information they should have posted online or at least emailed me seemed absurd. It gave me a negative view of that part of the industry.

It is that sort of old world traditional practice that probably makes it difficult for the banks to compete on price.

[letsgobobby]

Are you paying 1% for investments in addition to a fee to manage the trust? Or is the 1% the all in fee? If the latter then you are getting a good deal. Many institutions charge twice that.

Market pricing? Yes. Fair price? Maybe. "Good deal," I will tend to disagree. 1% per year for anybody to "manage" a large pool of money doesn't sound like a good deal to me; especially since we as Bogleheads know that the investment management shouldn't take more than an hour a year. I think the drivers here are lack of economies of scale (there simply isn't enough trust activity out there to spur development of highly competitive gorillas in the market) and liability.

The real actionable item from this thread is for those who are in the process of setting up their own trusts. This is the time to think about putting boundaries on investment strategies and providing beneficiaries with quick/easy ways to control who is serving as trustee. A trust can override all state prudent investor laws by simply requiring passive index investing of trust financial assets.

Since I am a trustee I can assure you that it is far, far more than just investment management. I agree - that is the easy part. It’s the rest which takes time, thought, and effort, to say nothing of the liability exposure.

You can find a good independent fee-only AUM manager for 1%, and not feel like you are gettting gouged. Although it may be less, that wouldn’t be a crazy fee to pay. Consider the additional responsibilities of a trustee and 1% total seems quite good.

I have read of a number of trust houses charging closer to 2%.

https://www.barrons.com/articles/trust- ... 1425094199

[Gill]

Since I am a trustee I can assure you that it is far, far more than just investment management. I agree - that is the easy part. It’s the rest which takes time, thought, and effort, to say nothing of the liability exposure.

Most trust departments, at least during my career, were set up with two officers, an administrative officer and an investment officer for every trust. Much of my career was spent as an administrative officer prior to becoming responsible for the entire department . In many trusts the investment officer hardly knew the client. I can assure you, with most trusts far more work was done on the administrative side than on the investment side.
Gill

[FIREchief]

Are you paying 1% for investments in addition to a fee to manage the trust? Or is the 1% the all in fee? If the latter then you are getting a good deal. Many institutions charge twice that.

Market pricing? Yes. Fair price? Maybe. "Good deal," I will tend to disagree. 1% per year for anybody to "manage" a large pool of money doesn't sound like a good deal to me; especially since we as Bogleheads know that the investment management shouldn't take more than an hour a year. I think the drivers here are lack of economies of scale (there simply isn't enough trust activity out there to spur development of highly competitive gorillas in the market) and liability.

The real actionable item from this thread is for those who are in the process of setting up their own trusts. This is the time to think about putting boundaries on investment strategies and providing beneficiaries with quick/easy ways to control who is serving as trustee. A trust can override all state prudent investor laws by simply requiring passive index investing of trust financial assets.

Since I am a trustee I can assure you that it is far, far more than just investment management. I agree - that is the easy part. It’s the rest which takes time, thought, and effort, to say nothing of the liability exposure.

You can find a good independent fee-only AUM manager for 1%, and not feel like you are gettting gouged. Although it may be less, that wouldn’t be a crazy fee to pay. Consider the additional responsibilities of a trustee and 1% total seems quite good.

I have read of a number of trust houses charging closer to 2%.

https://www.barrons.com/articles/trust- ... 1425094199

No disagreement. I have no problem accepting that 1% is a fair trustee fee for a modest estate with anything approaching high maintenance beneficiaries. For those situations that require an independent trustee, that may very well be a fair and wise price to pay. My point was that those setting up trusts currently should think long and hard about why they may need or want an independent trustee. There is obviously much money to be saved/made if the beneficiary(s) can serve as their own trustee but enlist the services of others if situations change (incapacitation, asset protection concerns, etc.).

To your other point, I highly doubt there is any AUM manager out there charging 1% where I would not feel like I am getting "gouged." I would tend to use a stronger word, but appreciate the need to keep the forum G rated.

[Gill]

Acting as an asset manager and as a trustee are two quite different things.
Gill

[celia]

Are you paying 1% for investments in addition to a fee to manage the trust? Or is the 1% the all in fee? If the latter then you are getting a good deal. Many institutions charge twice that.

Market pricing? Yes. Fair price? Maybe. "Good deal," I will tend to disagree. 1% per year for anybody to "manage" a large pool of money doesn't sound like a good deal to me; especially since we as Bogleheads know that the investment management shouldn't take more than an hour a year.

The trustee has to do a lot more than make yearly re-balancing changes in the investments. They have to notify beneficiaries periodically. They have to answer phone calls from lawyers and beneficiaries (even those who want to change the investments ). They have to explain things to newbies, such as why they are doing what they are doing. Possibly they have to file tax returns or at least generate yearly K-1 statements so the beneficiaries can claim the income on their taxes.

OP, Even if you pick a relative to be your trustee, they are often allowed to collect 1% a year for their efforts, although many don't take anything if they are also a beneficiary. If you were appointed the trustee for your aunt's trust, but not her beneficiary, would you gladly do it for 0.5% or would you expect 1% a year? What if the grantor was your neighbor?

[FIREchief]

Are you paying 1% for investments in addition to a fee to manage the trust? Or is the 1% the all in fee? If the latter then you are getting a good deal. Many institutions charge twice that.

Market pricing? Yes. Fair price? Maybe. "Good deal," I will tend to disagree. 1% per year for anybody to "manage" a large pool of money doesn't sound like a good deal to me; especially since we as Bogleheads know that the investment management shouldn't take more than an hour a year.

The trustee has to do a lot more than make yearly re-balancing changes in the investments. They have to notify beneficiaries periodically. They have to answer phone calls from lawyers and beneficiaries (even those who want to change the investments ). They have to explain things to newbies, such as why they are doing what they are doing. Possibly they have to file tax returns or at least generate yearly K-1 statements so the beneficiaries can claim the income on their taxes.

Okay, so if the trust has $1M in assets, that's $10K per year to answer a few phone calls and talk to the beneficiaries. Then hire somebody to file the tax return (or do it themselves in a few hours if the trust simply consists of a brokerage account or two). Pretty sweet deal for $10K!

[daveydoo]

Many seem to be expressing an attitude that confirms suspicions regarding corporate trustees. Beneficiaries are greedy brats, good thing the old man hired the bank to save them from themselves.

34 individual stocks is terrible management, period. The OP is completely justified in wanting it simplified and changed. And don't assume "that's how the trustor wanted it." Rich people aren't usually trust experts (or investment experts, for that matter), and often rely on their lawyers, who can suffer from selective disclosure of their potential conflicts of interest.

+1. The OP makes good points and they all center on how these assets are invested and managed -- and not how he/she can get a piece of this. Wasting 1% annually for decades is not something that any BH would tolerate. Plus, I suspect that this is 1% for the management plus a high-ER for 34 funds that participate in revenue-sharing with the custodian. The latter part is just a guess, but why would a self-serving custodian leave money on the table?

[Gill]

Many seem to be expressing an attitude that confirms suspicions regarding corporate trustees. Beneficiaries are greedy brats, good thing the old man hired the bank to save them from themselves.

34 individual stocks is terrible management, period. The OP is completely justified in wanting it simplified and changed. And don't assume "that's how the trustor wanted it." Rich people aren't usually trust experts (or investment experts, for that matter), and often rely on their lawyers, who can suffer from selective disclosure of their potential conflicts of interest.

+1. The OP makes good points and they all center on how these assets are invested and managed -- and not how he/she can get a piece of this. Wasting 1% annually for decades is not something that any BH would tolerate. Plus, I suspect that this is 1% for the management plus a high-ER for 34 funds that participate in revenue-sharing with the custodian. The latter part is just a guess, but why would a self-serving custodian leave money on the table?

Daveydoo, you’re a bit wide of the mark. No trustee would hold 34 funds. That’s 34 individual securities. Furthermore, a trustee can’t self deal by collecting fees on funds in which it invests. If it does receives fees on self managed funds it is required to reduce its fee accordingly. This is a trustee, not a custodian. Are you familiar with the difference?

Gill

[afan]

OP, Even if you pick a relative to be your trustee, they are often allowed to collect 1% a year for their efforts, although many don't take anything if they are also a beneficiary. If you were appointed the trustee for your aunt's trust, but not her beneficiary, would you gladly do it for 0.5% or would you expect 1% a year? What if the grantor was your neighbor?

An independent trustee need not be a corporate trustee.
I am an independent trustee for a testamentary trust. I am not a beneficiary. The testator was an older close friend and the beneficiary was a child of the testator. The trust is invested all in index funds. I manage distributions to the beneficiary. I have hired an enrolled agent to do the tax returns. I have never charged a cent.

1% of assets is 1% of assets. The trustee in a trust like this has almost nothing to do. 1% is an absurd amount for holding a few index funds and setting up distributions. Vanguard's 0.55% is still a lot for what little they need to do. But it is way better than 1%. Plus deduct the cost of the trustee's active management and the difference is more than 0.45%.

[celia]

For a different perspective, I was a trustee and beneficiary of a (childless) relative's trust (and had medical POA). It was a LOT of work, I had a full time job, a family to support, and the relative was sick for several years before passing away. The hardest part was obtaining and following up on the relative's health care. Next hardest was maintaining, clearing out, and selling the property they owned, the third hardest was working with a lawyer to go to court to let a judge decide who the beneficiaries were (the trust had been amended several times, the last time incorrectly).

Investments were simplified and mostly moved to Vanguard. That was the easy part. I never took a fee since I didn't know how long the relative might live. But it felt like a second full time job some days.

[longleaf]

There is no real estate in the trust.

I am to receive the income from the trust; I assume this occurs at the end of the year because this split trust has not existed for a year, and I do not recall receiving income.

The trust was not the entire inheritance.

Boglehead greediness of low expense ratio perhaps...