Trust Account or Trust as Beneficiary

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investor231i
Posts: 12
Joined: Mon Dec 30, 2019 8:56 pm

Trust Account or Trust as Beneficiary

Post by investor231i » Fri Feb 14, 2020 6:58 pm

Hello Experts: One of my self-managed brokerage account at a bank has the option of listing trust as beneficiary. I have done that. The other option at the bank is to open a financial advisor managed brokerage account which would have some minimal fees but can be under the trust. Should I open the new account under the trust. Or leave the current self-managed account as-it-is with the trust as beneficiary. Please advise.

bayview
Posts: 1902
Joined: Thu Aug 02, 2012 7:05 pm
Location: WNC

Re: Trust Account or Trust as Beneficiary

Post by bayview » Fri Feb 14, 2020 8:05 pm

investor231i wrote:
Fri Feb 14, 2020 6:58 pm
Hello Experts: One of my self-managed brokerage account at a bank has the option of listing trust as beneficiary. I have done that. The other option at the bank is to open a financial advisor managed brokerage account which would have some minimal fees but can be under the trust. Should I open the new account under the trust. Or leave the current self-managed account as-it-is with the trust as beneficiary. Please advise.
What advantages (to you, not to this financial advisor) would there be in using him/her?
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

Topic Author
investor231i
Posts: 12
Joined: Mon Dec 30, 2019 8:56 pm

Re: Trust Account or Trust as Beneficiary

Post by investor231i » Fri Feb 14, 2020 9:10 pm

bayview wrote:
Fri Feb 14, 2020 8:05 pm
investor231i wrote:
Fri Feb 14, 2020 6:58 pm
Hello Experts: One of my self-managed brokerage account at a bank has the option of listing trust as beneficiary. I have done that. The other option at the bank is to open a financial advisor managed brokerage account which would have some minimal fees but can be under the trust. Should I open the new account under the trust. Or leave the current self-managed account as-it-is with the trust as beneficiary. Please advise.
What advantages (to you, not to this financial advisor) would there be in using him/her?
I do not see any advantage from the financial advisor to myself.

I was ok to pay the minimal fee (fifty dollars/year) if making the account under trust is a stronger option as compared to listing to trust as beneficiary in the self-managed account.

FoolMeOnce
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Re: Trust Account or Trust as Beneficiary

Post by FoolMeOnce » Fri Feb 14, 2020 10:33 pm

For what purpose? What is the goal? You can find a brokerage that allows trustee-directed trust accounts without needing to pay an in-house advisor

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celia
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Re: Trust Account or Trust as Beneficiary

Post by celia » Fri Feb 14, 2020 10:45 pm

If you are used to managing your own investments, then continue doing that. However, instead of making your trust the beneficiary of your account(s), it is better to re-title the account(s) as owned by the trust instead of being owned by you (the person).

My reasoning here, is that if you become incapacitated, your (successor) trustee will be able to continue managing things for you, including taking your RMD, paying bills, re-balancing your accounts, etc.

If you want to make it easier for your trustee and you trust him/her, then make the trust the account owner.

This proposed change has nothing to do with using an investment advisor, which you can use or not.

JoinToday
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Re: Trust Account or Trust as Beneficiary

Post by JoinToday » Fri Feb 14, 2020 10:56 pm

investor231i wrote:
Fri Feb 14, 2020 6:58 pm
Hello Experts: One of my self-managed brokerage account at a bank has the option of listing trust as beneficiary. I have done that. The other option at the bank is to open a financial advisor managed brokerage account which would have some minimal fees but can be under the trust. Should I open the new account under the trust. Or leave the current self-managed account as-it-is with the trust as beneficiary. Please advise.
1. I don't understand why the options are option #1 or option #2 in terms of account owner and account beneficiary. My accounts are titled in the name of my trust, with a trust as beneficiary. Why not do both

2. Why pay a fee for this? A minimal fee is too much to pay, unless minimal means $0.

3. Are you in California, where lawyer fees and probate time make probate undesireable?
I wish I had learned about index funds 25 years ago

KeepingEyesOpen
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Re: Trust Account or Trust as Beneficiary

Post by KeepingEyesOpen » Fri Feb 14, 2020 11:25 pm

I may be missing something, considering the minimal information provided. If so, please advise and accept my apology. And please pardon the length of this reply - the questions asked necessarily involve complex answers.

There are three considerations presented: 1) Transferring ownership of an existing bank brokerage account into a trust, 2) Naming a trust as beneficiary of the account, and 3) Hiring a financial manager for the brokerage account, either now or when the account ownership is transferred at the death of the current owner. Is this summary correct?

What type of trust is being considered, and what is the purpose of the trust - either for the current owner or for the beneficiary? A revocable living trust could be established in which to place the current brokerage account (and other assets) If the purpose is simply to avoid probate or to minimize estate taxes at the death of the account owner. Various types of irrevocable trusts could be established for either the current owner or a beneficiary for other purposes - a charitable remainder trust, a spendthrift trust, an asset protection trust, or other types of trusts.

For the current account, a revocable living trust can be relatively simple, inexpensive, and worthwhile to avoid probate at the death of the trust creator (“grantor”). For a revocable trust to be effective for this purpose, all but a small portion of a person’s assets should be titled in the name of the trust. A professional trustee is not required, and assets can be self-managed.

Naming a trust as the beneficiary typically involves an irrevocable trust for a specific purpose - a spendthrift trust to protect against irresponsible behavior or protect against creditors, an asset protection trust to preserve assets while enabling qualification for government benefits, a charitable remainder trust to provide beneficiary income while leaving assets to charity, family/marital trust pairs to minimize estate taxes, and other trusts for other purposes.

Creation of any trust should be done by a competent estate planning attorney before assets or titled or trust beneficiaries are designated.

An irrevocable trust can be expensive, as a professional trustee is typically required, and there can be ongoing financial management fees for professional asset management. In my opinion, an irrevocable trust would not be economically feasible for assets of less than $500,000 if a professional trustee and financial manager are used.

Regarding a bank financial manager-advised brokerage account: these accounts are usually associated with very high fees. The original post suggested “minimal fees”, but does this stand up under scrutiny? What about ongoing management fees, typically charged as a percentage of assets under management? As a comparison, Vanguard Personal Advisor Services® charges 0.3% of assets under management on an annual basis

Luckywon
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Re: Trust Account or Trust as Beneficiary

Post by Luckywon » Sat Feb 15, 2020 12:55 am

KeepingEyesOpen wrote:
Fri Feb 14, 2020 11:25 pm
A revocable living trust could be established in which to place the current brokerage account (and other assets) If the purpose is simply to avoid probate or to minimize estate taxes at the death of the account owner.
Assets in a revocable living trust are included in the estate of the grantor so do not minimize estate taxes of the grantor.

KeepingEyesOpen
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Re: Trust Account or Trust as Beneficiary

Post by KeepingEyesOpen » Mon Feb 17, 2020 11:45 pm

Luckywon wrote:
Sat Feb 15, 2020 12:55 am
KeepingEyesOpen wrote:
Fri Feb 14, 2020 11:25 pm
A revocable living trust could be established in which to place the current brokerage account (and other assets) If the purpose is simply to avoid probate or to minimize estate taxes at the death of the account owner.
Assets in a revocable living trust are included in the estate of the grantor so do not minimize estate taxes of the grantor.
Yes, correct. A RLT by itself does not directly affect estate taxes. A properly-constructed RLT can minimize estate taxes, however, if it includes a provision to create certain testamentary trusts for spouse and family beneficiaries.

My post was already long. For the sake of brevity I left out mention of tax-planning features such as provisions to create testamentary trusts (marital and family trusts). One effect of these marital and family trusts in one's estate plan is to preserve the estate tax exemption equivalent of the deceased. Some couples lose the exemption of the first spouse to die because they do not have a RLT with tax-planning features (or neglect to use the portability provision - see below).

Recent changes in tax law have occurred that could possibly eliminate the need for testamentary marital/family trusts. One of these changes is the substantial increase in the estate tax exemption amount, currently $11.8 million per individual. Presidential and Congressional elections are looming, however, and changes could occur. While some Republicans hope to make the recently-doubled exemption amount permanent, Democratic presidential hopefuls advocate reverting to the 2009 level of $3.5 million, with a graduated tax rate up to 77%, compared to today’s flat 40% rate.

Another recent change in estate tax law is a provision called "Portability". This provides that the surviving spouse can effectively "inherit" the unused exemption amount of the first spouse to die, eliminating the need for the marital/family trusts mentioned above. This portability election is irrevocable and requires the timely filing of IRS form 706 by the surviving spouse, however. Timely tax and legal advice is required to avoid mistakes. One useful tax-planning provision is inclusion in the RLT optional or conditional provisions for testamentary trusts, enabling either the testamentary trusts or ultimate use of the portability provision to deal with the estate tax exclusion amount.

These considerations are complicated, and estate tax laws are subject to change. Periodic review of one's estate plan is advised.

A good base point for an estate plan is a revocable living trust, into which one's financial assets and home can be titled. At the very least, court probate can be avoided when the trust maker or grantor dies. Tax planning provisions in the trust are optional and can be changed as changes in tax law occur.

bsteiner
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Re: Trust Account or Trust as Beneficiary

Post by bsteiner » Tue Feb 18, 2020 8:41 am

KeepingEyesOpen wrote:
Fri Feb 14, 2020 11:25 pm
...
There are three considerations presented: 1) Transferring ownership of an existing bank brokerage account into a trust, 2) Naming a trust as beneficiary of the account, and 3) Hiring a financial manager for the brokerage account, either now or when the account ownership is transferred at the death of the current owner. ...
Is there any reason to do any of these? What are you trying to accomplish?

As to #3, after you die the account will no longer be yours, so someone else will decide how to invest it.

KeepingEyesOpen
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Joined: Sat Dec 12, 2015 10:49 pm

Re: Trust Account or Trust as Beneficiary

Post by KeepingEyesOpen » Tue Feb 18, 2020 1:01 pm

bsteiner wrote:
Tue Feb 18, 2020 8:41 am

... As to #3, after you die the account will no longer be yours, so someone else will decide how to invest it.
Yes, exactly. But once an investment account is established with an investment manager, inertia usually prevails. It is likely that the beneficiary will leave the account with the same investment manager, at least for a while.

The original poster suggested a bank-associated investment manager. Despite the original poster's claim of low fees, this type of investment manager usually charges high fees - typically a percentage of asset under management substantially higher than that charged by a lower-cost manager such as Vanguard. This is why I suggested earlier to the original poster that a low-cost manager (or self management) be considered.

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