Trust Services

[MikeG62]

...You seem to be assuming that the trust protector role is always "staffed." There are options for allowing the beneficiaries to appoint and remove a trust protector as needed/desired. (I am not a lawyer) If index funds continue to be the superior equity investment for the next forty years (as they have been for the last forty years,) then there may never be a need to hire/pay a trust protector. If the world changes radically, then as somebody else pointed out the trust protector (nuclear) option can be invoked to the extent and duration needed. There are many other good reasons (besides modification of investment directions) for a trust to allow for a trust protector to be appointed.

This is a fair point. The potential problem with this approach is the beneficiary has to know enough about investing to know when they should call upon (appoint) a trust protector to review the investments. If your beneficiaries are not investment savvy, then this is not so straightforward.

Unfortunately, this is my reality. DW is simply not interested in (knowledgable about) investing. As long as the CC's are paid and she has $ in her wallet she is a happy camper. I own a lot of this as I have managed our finances since day one. So her deciding when to call upon a trust protector would be a challenge. And then understanding the case made by each side, that would be another challenge. Once she is gone and the assets pass to our two adult daughters, things might be different. However, neither of them are investment savvy either at the present time. Maybe that changes over time, but maybe not.

I am not saying the use of a trust protector is a bad idea at all. It is just not the easy solution (in every case) you make it out to be.

If a trust clearly directs an independent trustee to invest only in passively managed index funds, perhaps with specific mention of valid examples, then there is absolutely no need for "asset management." Just do what the trust says!

This approach is not without its issues - as has been well covered by afan in this thread.

[FIREchief]

If a trust clearly directs an independent trustee to invest only in passively managed index funds, perhaps with specific mention of valid examples, then there is absolutely no need for "asset management." Just do what the trust says!

This approach is not without its issues - as has been well covered by afan in this thread.

All approaches tend to have issues of some kind. For those who are concerned that their beneficiaries are not investment savvy, I would think they would have an elevated concern with a trust that provided broad investment discretion to a corporate trustee. Who would keep an eye on the money?

[afan]

I went over my notes from two years ago. With the speed with which these things change, please check before assuming the following is still true:

Schwab will serve as administrative trustee if you hire an investment management firm on the (very large) list of Schwab advisors. Schwab charges 0.4% for the administrative work.

The cost for the advisor would be in addition to this.

I found several small firms that would do simple index fund portfolios for a flat fee on the order of $2,000. For a $1M portfolio that would be 0.2% of assets. Since it was a flat fee, the percent of assets would fall for larger trusts.

The sum of the Schwab fee and the advisor fee then would be similar to the Vanguard fee. You would have to deal with two companies, Schwab and your advisor. My main concern was that the advisor companies I identified were so small I did not have a lot of confidence they would be around for the long term. There were plenty of larger firms in the Schwab network but they charged too much.

At that time it was not simple to find the fees for advisors on the Schwab network. Schwab did not publish a list, sortable by fees. So I searched around for suggestions of advisors, then checked whether they had the required link with Schwab. If you wanted to find a low cost advisor on their network I suppose you could contact Schwab and see whether they would direct you to flat fee shops.

This was before Schwab and Fidelity started their own advisory businesses, so I don't know how that has affected the investment approaches they now offer to trusts.

Fidelity did seem to have a similar service for advisors who used Fidelity instead of Schwab. However, the chaos I encountered at Fidelity also extended to trying to get information about their administrative trustee services. I found online a brochure describing the service, but no one at Fidelity knew anything about it. Not ready for prime time.

I mentioned before that having a beneficiary who is not into finance is not a reason to hire a corporate trustee. The beneficiary can still be the trustee and hire Vanguard, Schwab, Fidelity or anyone else to manage investments. You can leave a list of suggested managers for your beneficiary.

You only need to have a corporate trustee if you need something more than investment management.

I did not find out whether Schwab would handle anything other than financial investments in its administrative service. Given the design, I suspect not.

My spouse and our successor trustee can handle the investments, but at some point might want to avoid the paperwork, not that there is much of that. For them, maybe a flat fee advisor and an administrative trustee might be helpful. For the later generations, again, I am hoping that running an index portfolio will become a commodity service and many companies will compete with Vanguard on price. This is already happening for the non-trust part of the business, so I think there is a good chance it will be common in 10 years.

If you wanted full service corporate trustee work, and were willing to pay for it, I came away somewhat impressed with Wilmington Trust. They are a traditional old line trust company, originally established to manage the DuPont money, but opened to the public a long time ago. They were the only ones who had anything at all to say in response to my questions about beneficiary service. They definitely would manage real estate. For the size trust of which I am trustee their fees would have been much too high. If you have assets north of $10 M, they might be competitive.

[FBN2014]

I thought I would revisit this thread since it is only 2 months old. I am going through this exercise currently with trying to decide on a successor trustee for several trusts that my parents (deceased) created for my younger brother. I found these articles by Dan Solin which discuss why it is prudent to separate the asset management function from the trust administration tasks. After looking at all the options that he suggests I thought that even though not perfect, Vanguard Trust Services are most cost effective and in line with my investment philosophy. One thing that concerned me after speaking with one of their reps is that they would be okay with an 80/20 allocation even when the beneficiary is 60 as long as the portfolio generates the required distribution. His explanation was that long term growth is a factor to be considered for the benefit of the younger remainder beneficiaries. Bear in mind that most trusts should have a provision where a majority of the beneficiaries can remove the trustee if they want. So trying to control from the grave has its limitations. A big concern of mine is that the remainder beneficiaries will receive any remaining trust assets outright, not in trust which could be lost in a future divorce situation. I have to look into the possibility of having the trust decanted to fix this flaw.

http://money.usnews.com/money/blogs/on- ... th-adviser

http://www.huffingtonpost.com/dan-solin ... 83450.html

[Laren]

I'll add my 2 cents on trust companies. Please, please build in a way for the beneficiary to remove/replace a corporate trustee. Even if you've chosen the best trust company in the world, things change, companies change hands, corporate philosophies change, company personnel changes. If the beneficiary doesn't have the explicit ability to remove a corporate trustee, they can end up stuck in an extremely difficult and intractable situation with an uncooperative, expensive corporate trustee that they can't remove. And the ability has to be explicit - the default seems to be that a beneficiary cannot remove a corporate trustee, so make sure the documents explicitly say they can.

Given my personal negative experiences, I would never use a corporate trustee. If needed, I would hire an investment manager to manage the trust assets, and I'd hire a lawyer and accountant to help with trust management. But I would never give a corporation actual control over my assets. I know sometimes control is what you're looking for when thinking about the future of a trust. But if what you really need is trust management, that assistance can be hired without giving away control to a corporate trustee. Once you give away that control, you may not be able to get it back.

[afan]

I have been told that conventional bank trust departments and trust companies would rather e-sign than deal with angry beneficiaries. The problem arises when the beneficiaries cannot agree on what they want and the bank is in the middle. Or they want the bank to do something the trust does not permit.

I agree that you would use a corporate trustee only if you have to. But asset protection concerns can leave that as the only choice.

[Laren]

Unfortunately it was my experience that one corporate trust company preferred to hang on to the assets and ignore any communications from the beneficiaries rather than resign. And then even when we were lucky enough to be able to remove them as trustees, we still had to go to court to have a judge make them release custody of the last of the assets. It was a mess. The relationship started out fine - they were a reputable company, they made lots of promises about "taking care of everything", and seemed all right for a few years (expensive, but otherwise all right). But then when some questionable things about their management became apparent and we wanted to move on, it was a serious (and expensive) fight to get away. And we had the ability to remove them stated in the trust document. If we hadn't had that ability, it would have been an even bigger battle, funded on both sides by trust assets, and I'm not sure we ever could have gotten away.

I completely understand that sometimes a corporate trustee is the only choice. Just don't make that choice lightly, realize that you are giving up control of the assets, and give your beneficiary the ability to get out of a bad situation by making it possible for them to change corporate trustees.

[FBN2014]

I'll add my 2 cents on trust companies. Please, please build in a way for the beneficiary to remove/replace a corporate trustee. Even if you've chosen the best trust company in the world, things change, companies change hands, corporate philosophies change, company personnel changes. If the beneficiary doesn't have the explicit ability to remove a corporate trustee, they can end up stuck in an extremely difficult and intractable situation with an uncooperative, expensive corporate trustee that they can't remove. And the ability has to be explicit - the default seems to be that a beneficiary cannot remove a corporate trustee, so make sure the documents explicitly say they can.

Given my personal negative experiences, I would never use a corporate trustee. If needed, I would hire an investment manager to manage the trust assets, and I'd hire a lawyer and accountant to help with trust management. But I would never give a corporation actual control over my assets. I know sometimes control is what you're looking for when thinking about the future of a trust. But if what you really need is trust management, that assistance can be hired without giving away control to a corporate trustee. Once you give away that control, you may not be able to get it back.

So are you saying that a lawyer should be the successor trustee and the original trustee should give them guidance on which investment manager to hire? The attorney that I used 35 years ago to draw up a simple will for me and wife was convicted several years ago of embezzling trust funds from a client after her death. He was a reputable estate planning attorney in a large firm. I'm not so sure about your conclusions. It seems that the best you can do is put the provisions in the trust to remove a trustee and hope for the best. But any legal proceeding is going to cost someone money even if the correct words are in the trust.

[Laren]

I'm saying that if you must use a corporate trustee, give your beneficiary the explicit ability to remove them. Don't tie them to a specific corporation forever because a corporate trustee can be (or become) just as bad or worse than any other trustee, and you can't assume any trustee will just graciously step down if you ask them to. Trusts seem to be written by default so that a corporate trustee cannot be fired, so make sure your trust documents clearly give your beneficiary more flexibility than that.

Personally, I would choose an individual I trusted to be the trustee, and encourage them to hire the services they need to help them when the time comes. But I recognize that a trusted person isn't always available or apparent, and in that case other choices have to be made. Just give your beneficiary as much flexibility to protect themselves and the trust as you can since no one knows what the future holds.

[afan]

Personally, I would choose an individual I trusted to be the trustee, and encourage them to hire the services they need to help them when the time comes. But I recognize that a trusted person isn't always available or apparent, and in that case other choices have to be made. Just give your beneficiary as much flexibility to protect themselves and the trust as you can since no one knows what the future holds.

I can think of only two broad circumstances where.one would want a corporate trustee.
1. There are no suitable individuals available. That could happen and having a mechanism for appointment of such a trustee if needed makes sense.
2. Depending on the state and the details of the grantor/beneficiary relationship one might get more asset protection from an independent trustee. That does not have to be corporate, but no one is likely to be successful challenging the Independence of a bank or trust company.

Again, an individual trustee can hire an asset manager if they want. They can hire an accountant to do taxes and they can hire a lawyer to to legal work. But that does not make the asset manager, the lawyer or the accountant the trustee.

Our trusts give the beneficiaries the right to remove the trustee and replace. Currently, that replacement has to be corporate, to maximize asset protection, but I am not sure the protection is worth the cost.

[FIREchief]

I will add that in some states (but not all), allowing the trust beneficiary to serve as trustee or co-trustee does NOT reduce asset protection. This is likely the best scenario for many, assuming that the beneficiary is responsible and capable of making wise investment choices.

[Carefreeap]

Based on our experience, I think keeping real estate in a Trust with a corporate Trustee is not a good situation, especially with smaller Trusts which tend to get ignored anyway. The problem is that in addition to being illiquid real estate requires active management and that layers on another set of fees.

DH was a remainderman of a by-pass Trust which was set up in the early 70s. While some of the real estate assets were sold there were a couple of parcels of property that weren't. During the bank merger mania the Trust went through 13 different companies finally winding up with Northern Trust. For ten years the property had not been properly accounted for and one of the Trust accountants questioned why property taxes were being paid on mineral rights. Turns out that one of the parcels was being used by a trucking outfit which had contaminated the dirt with oil, gasoline and other fluids. The Trustees were freaked out about getting in the chain of title of contaminated property and sold the property to the trucking outfit. There was some later drama involved because they carried back a note and then had to start a foreclosure process and sold the note to someone else to finish the foreclosure. The other parcel they did a 1031 exchange into an accessory retail (think of those little shops around a supermarket) in 1989 at the top of the market. Fast forward to 2001 when my FIL passes and DH inherits his father's half of the real estate. Trust won't agree to a refinance because the loan would be recourse to the remaining beneficiary. This despite the loan to value only being 50%. We wound up having to fire the Trust's appointed Property Manager because he was a mean drunk who couldn't handle all my questions. I stepped in and managed the property until we got an unsolicited offer from a broker. We were delighted to sell it in 2005 for less than what the property was purchased for in 1989. The property had been neglected and needed at least $200k in repairs. I knew we would never get the Trust to agree to an improvement plan and I sure didn't want to buy out the other half from the Trust. It was a terrible investment and very inappropriate given the size of the Trust at that point in time.

[Peter Foley]

When I took a class on estate planning, trusts were of course discussed in some detail. The prof, an attorney who specialized in estate planning, gave a very clear warning about selecting a trustee, especially a trustee associated with a banking or brokerage firm. That warning was that the trustee may invest in a way much different than you would. Think in-house load mutual funds with high fees.

Some of the discussion here has centered around Vanguard. That seems like a prudent starting point for research regarding trustees.

[FBN2014]

I am revisiting this thread because I am still struggling with how to implement my preference for a directed trustee for administration tasks along with a separate investment manager. I have identified another conundrum in regards to how the beneficiaries can change the trustee if needed and who decides to change the investment manager if needed. Most trust language directs the trustee to distribute a percentage of trust assets each year and also gives the trustee discretion to distribute additional amounts for unforseen needs of the beneficiaries. The trust should also have a mechanism for the beneficiaries to remove the trustee and investment manager. So what if the beneficiary wants more money distributed and decides to remove the trustee and then appoints a "friendly" trustee (close friend) who will follow the beneficiary's wishes for higher distributions or even allow a full distribution thus destroying the original grantors intent of asset protection along with a reasonable distribution percentage (3-4% per year). I would love for some attorneys (bsteiner, you out there) to weigh in as to what steps to take to prevent this scenario.

[Riverman]

A common solution is a trust that allows beneficiaries to fire trustees, but not appoint the replacement (Trust Protector does this). This can create other issues, however.

[Sandtrap]

You can also have a trust company "and" any of your existing successor trustees as 'co-successor trustees'.
It can be handy to assign a "trust protector" to ensure that the trust provisions are followed. A trust protector is able to replace a trustee as detailed by your specific trust provisions.
It is good that you are having thoughts in this direction. Family dynamics and relationships change, but trust institutions will act neutrally over time.
For myself, i have worked with Bank of Hawaii Trust and Northern Trust and looked into several others as co-successor trustees. The beneficiaries cannot fire a trustee in my provisions. Only the line of trust protectors who have no vested interest in the trust.

[GMoney]

Wanted to contribute and hopefully save others time...we're looking for a corporate co-trustee and i've spoken with Fidelity, Vanguard, and Wilmington Trust (referred by the lawyer who created my late sister's trust and now has been assisting us).

Fidelity doesn't seem to have their act together, with different people calling not knowing others have been scheduled to call, and completely not transparent with their fees. Bottom line after multiple back and forth, to give you an idea, for ~$3mn trust, the total fees are expected to be in the 1,1-1.3% range (depending on investments).

Vanguard is super cheap (shocker) at 0.55%. But, and here's the kicker, they only take *partial* fiduciary responsibility. I'm not even entirely sure why, but if lets say a family member sues the trust for administrative reasons (wants more money for example), I as co-trustee, and partially liable. This is not the case with Fidelity or Wilmington Trust. For me, this is a dealbreaker, as our trust is a bit hairy.

Also note, that both Vanguard and Fidelity had me speaking with people that will never deal with us once we move our money to them. True salespeople, another turnoff.

I am in no way endorsing Wilmington Trust and in no way associated with them, but am most impressed by them. Their fees were at the low end of Fidelity's (though for investments they too could not give an exact #, but state they only pass through whatever index funds we choose, so will be minimal). They had no problems sharing the bios of the people that would be on our team, and the person who I was referred to, while wouldn't officially be on the team, is in the same office and willing to be as involved as we'd like (take with a grain of salt, but still far more than the others).

I still need to speak to a bulge bracket firm that my late sister used to manage their money mostly as a courtesy gesture, but will likely go with Wilmington Trust. For those that have simple trusts, and have a perfect situation where there is no fear of any lawsuits by any family member, in-laws, whoever else, Vanguard could be a respectable choice. Best,

[Gill]

Vanguard is super cheap (shocker) at 0.55%. But, and here's the kicker, they only take *partial* fiduciary responsibility. I'm not even entirely sure why, but if lets say a family member sues the trust for administrative reasons (wants more money for example), I as co-trustee, and partially liable. This is not the case with Fidelity or Wilmington Trust. For me, this is a dealbreaker, as our trust is a bit hairy.

Could you elaborate on this please. I have a trust naming Vanguard as successor co-trustee and there is no such language as you suggest. A trustee can't have "partial" fiduciary responsibility unless there is specific language in the instrument.
Gill

[Afull]

I haven't reread this entire thread so hopefully not being redundant.

We have progressed to the point of naming Fidelity as the successor trustee, we've used them as our broker for over 40 years I think. Regarding our experience for trust services:
1. We primarily talked to our Private Client Advisor.
2. We did have two face to face meetings with the trust dept, one a salesman (useless) and one an attorney with trust experience (very usefull).
3. The trust dept. reviewed our trust in draft form and provided a few comments that were not significant to our wishes, but useful for a smoother transition to them when it's time.
4. Estate does need to be simple. We had one item of small value we just transfered ownership to one beneficiary and an illiquid investment that we designated to name a family member beneficiary of the investment rather than the estate or trust. The house(s) Fdelity can manage during our incapacity and sell once we both past.

We had considered a local brick & mortar (larger) trust company, but my difficulty is in the vetting. I felt Fidelity had more transparency than the local trust companies that I talked to. Since it's likely still a few years before we actually need a corporate trustee I felt fine with Fidelity. Note that by the time we need trust services, 5-15 years, all the people you talked to may all be long gone, of course true at Fidelity as well.

Not recomending Fidelity just relaying what our experience has been.

[robandjeanne]

Just starting the funding process of our Living Revocable Trust I also am having trouble finding a successor trustee I trust. I would be happy to find an ST that would invest only in passive ETFs like VTI or the S&P, but most want to sell everything (no cap gains due to step up at death) and use their geniuses to invest their way. Someone mentioned finding an ST that would manage passively, would they care to share? My present portfolio is not perfect, but it seems to be able to beat the S&P by close to 3%. My experience with Vanguard was the worst. Since VG invented the S&P index fund, I expected them to be happy with passive management. The "salesperson" I talked to kept coming back to bonds and suggested ETFs that had 5 year returns of 3%,while refusing to be ST on a VTI like portfolio. I presently envision a legacy trust with no bonds that is totally S&P type growth or better (nothing too wild and no bit coin). I know I'm being naive at this point but isn't there a company out there willing to be ST on a legacy trust where they have to do little investing, and only have to write 7 checks each year and pay the taxes, for about $40K per year?

[Earl Lemongrab]

Why do you want the trust hanging around? The successor trustee could distribute the assets immediately, either directly or in individual trusts for the beneficiaries with them as the trustees.

[FoolStreet]

Why do you want the trust hanging around? The successor trustee could distribute the assets immediately, either directly or in individual trusts for the beneficiaries with them as the trustees.

Can’t speak for the previous poster, but for me it’s for minors.

[Afull]

Just starting the funding process of our Living Revocable Trust I also am having trouble finding a successor trustee I trust. I would be happy to find an ST that would invest only in passive ETFs like VTI or the S&P, but most want to sell everything (no cap gains due to step up at death) and use their geniuses to invest their way. Someone mentioned finding an ST that would manage passively, would they care to share? My present portfolio is not perfect, but it seems to be able to beat the S&P by close to 3%. My experience with Vanguard was the worst. Since VG invented the S&P index fund, I expected them to be happy with passive management. The "salesperson" I talked to kept coming back to bonds and suggested ETFs that had 5 year returns of 3%,while refusing to be ST on a VTI like portfolio. I presently envision a legacy trust with no bonds that is totally S&P type growth or better (nothing too wild and no bit coin). I know I'm being naive at this point but isn't there a company out there willing to be ST on a legacy trust where they have to do little investing, and only have to write 7 checks each year and pay the taxes, for about $40K per year?

I don't know of ST to recommend, but the trust attorney could include your guidence in your trust for investing. I caution about being too restrictive as the investing/taxes/etc nuaces change over the decades. We have named Fidelity as ST, but with limited restictions. We provided instuctions such as some accts for income, some for growth, etc.

[Murgatroyd]

I haven't reread this entire thread so hopefully not being redundant.

We have progressed to the point of naming Fidelity as the successor trustee, we've used them as our broker for over 40 years I think. Regarding our experience for trust services:
1. We primarily talked to our Private Client Advisor.
2. We did have two face to face meetings with the trust dept, one a salesman (useless) and one an attorney with trust experience (very usefull).
3. The trust dept. reviewed our trust in draft form and provided a few comments that were not significant to our wishes, but useful for a smoother transition to them when it's time.
4. Estate does need to be simple. We had one item of small value we just transfered ownership to one beneficiary and an illiquid investment that we designated to name a family member beneficiary of the investment rather than the estate or trust. The house(s) Fdelity can manage during our incapacity and sell once we both past.

We had considered a local brick & mortar (larger) trust company, but my difficulty is in the vetting. I felt Fidelity had more transparency than the local trust companies that I talked to. Since it's likely still a few years before we actually need a corporate trustee I felt fine with Fidelity. Note that by the time we need trust services, 5-15 years, all the people you talked to may all be long gone, of course true at Fidelity as well.

Not recomending Fidelity just relaying what our experience has been.

I could have written your post. You and I may be alone using Fidelity as successor trustee.

[robandjeanne]

Thanks for your help so far on successor trustees. So far every potential ST has tried to impress me with the awesome fiduciary responsibility they are taking on, meaning they plan on selling everything and letting their financial geniuses pick stocks and bands that are suitable for my beneficiaries. I try to tell them my adult beneficiaries do not need this money to live on and therefore I want a growth oriented portfolio with no bonds. The reason I am going for a legacy trust is in my opinion none of my beneficiaries (or even the charities) are frugal, and therefore I believe it would be better for them to receive a check every year based on half the portfolio growth rather than a lump sum. I do agree that the step up basis on death is a huge chance to get rid of some funds that are barely keeping up with the S&P yet generating lots of distributions. However I want the ST to invest this new money in ETFs like VTI (the whole stock market) or ETFs that on a 5 year annualized basis have beaten the S&P like VHT. I sense that as soon as you sound like you know what you're talking about, most potential STs (and you are really only talking to salesmen) get disillusioned. Still looking for a good, responsive ST in Virginia.

[bsteiner]

As for successor trustees, we often give the last acting trustee the power to name successors, and if the last acting trustee doesn't name a successor, we usually give the primary beneficiary (or his/her guardian) the power to name a trustee.

We also often (where it's appropriate) give each child, upon reaching a specified age, the power to become a trustee and to remove and replace his/her co-trustees, provided the replacement trustee isn't a close relative or subordinate employees. That tends to work where the client would have left the assets to the child outright but wants a trust to keep the child's inheritance out of his/her estate, or to protect against the child's creditors and spouses, and Medicaid.

If you want to bifurcate the responsibilities, there are some trust companies, mainly in asset protection states such as Alaska, Delaware, Nevada and South Dakota, that will act as administrative trustee and handle custody, recordkeeping and (if desired) distributions for a low cost (typically $3,000 to $10,000 a year) provided they're not responsible for investing (and someone else is), and the assets are in an LLC that someone else controls. That's sometimes but not always appropriate, and of course you'll have to select or provide a means for selecting the someone else who will be responsible for the investing.

[afan]

Interesting comments about Wilmington Trust. Years ago I look at that firm and was impressed by their operation but the fees were extremely high. If they have gotten them down to be competitive with Vanguard that would be a major plus.

I don't quite get the goal of using a purely administrative trustee as bsteiner notes. As he says, you still have to find a person or entity to manage the investments. That means dealing with two companies if you don't have an individual to do that. I get it for asset protection purposes, but for most of us, that may be overkill.

[FIREchief]

Just starting the funding process of our Living Revocable Trust I also am having trouble finding a successor trustee I trust. I would be happy to find an ST that would invest only in passive ETFs like VTI or the S&P, but most want to sell everything (no cap gains due to step up at death) and use their geniuses to invest their way. Someone mentioned finding an ST that would manage passively, would they care to share? My present portfolio is not perfect, but it seems to be able to beat the S&P by close to 3%. My experience with Vanguard was the worst. Since VG invented the S&P index fund, I expected them to be happy with passive management. The "salesperson" I talked to kept coming back to bonds and suggested ETFs that had 5 year returns of 3%,while refusing to be ST on a VTI like portfolio. I presently envision a legacy trust with no bonds that is totally S&P type growth or better (nothing too wild and no bit coin). I know I'm being naive at this point but isn't there a company out there willing to be ST on a legacy trust where they have to do little investing, and only have to write 7 checks each year and pay the taxes, for about $40K per year?

I don't know of ST to recommend, but the trust attorney could include your guidence in your trust for investing. I caution about being too restrictive as the investing/taxes/etc nuaces change over the decades. We have named Fidelity as ST, but with limited restictions. We provided instuctions such as some accts for income, some for growth, etc.

I believe that "guidance" for how to invest is worthless, as a trustee will hide behind a state's prudent investing requirements and invest the way other trustees invest (i.e. active management with high fees/ERs). Only a specific requirement of a trust (i.e. not just "guidance") will trump the prudent investor rules. Hopefully Bruce will correct me if I am wrong.

[robandjeanne]

"I believe that "guidance" for how to invest is worthless, as a trustee will hide behind a state's prudent investing requirements and invest the way other trustees invest (i.e. active management with high fees/ERs). Only a specific requirement of a trust (i.e. not just "guidance") will trump the prudent investor rules. Hopefully Bruce will correct me if I am wrong."

Very well stated. Has anyone drafted a specific investment requirement to get around the prudent investing requirement, and avoid the high fees and low performance that seems likely with STs. My most responsive candidate ST said jokingly if I stipulated a certain type of investing they would probably have a dozen or so release forms for me to sign. Depending on what the forms say, that would probably be OK with me. It seems STs are asking a lot when they want free reign over what they do with your money. I thought trusts were becoming more popular and therefore there should be more responsive STs out there. As I mentioned before after the dust settles, the ST will be getting around $40K per year for life (or for the life of the legacy trust), all for writing 7 checks and doing the taxes every year. Maybe I should look for a successor trustee in some poor state where this would be a valued job even when they have to follow certain rules.

[trustquestioner]

One possible solution, with educated beneficiaries, is to give them the ability to replace the trustee, within certain parameters. This effectively gives them the ability to negotiate fees and dictate a low cost, broadly diversified investment approach. In our case, we have a bank serving as corporate trustee and investment manager for about 70 basis points a year. Definitely not cheap, but seems ok compared to the alternatives.

[afan]

One of the major appeals of Vanguard as trustee is that their default approach to investment management is what most bogleheads would want. Of course, this could change at some point in the future, but right now, if you go with Vanguard you will get a rational approach without expensive money-wasting active management.

When I was shopping for trustees a while ago I contacted a long list of companies. Vanguard was the only one that did not want to regale me with stories of their brilliant investment geniuses. That just seems to be the way trustee services are sold.

[smackboy1]

I don't quite get the goal of using a purely administrative trustee as bsteiner notes. As he says, you still have to find a person or entity to manage the investments. That means dealing with two companies if you don't have an individual to do that. I get it for asset protection purposes, but for most of us, that may be overkill.

Using a directed trustee is just another tool in the toolbox. By splitting up the trustee functions of administration and investing it may allow grantor and beneficiaries the flexibility to have their cake and and eat it too. There may be no existing professional trustees that meets all the parameters for cost, choice of trust + tax + corporate + creditor protection laws, low cost investment style, financial stability, etc.. Using a directed trustee may prevent having to choose the least bad choice amongst traditional trustees. Yes, it's more work to set up and operate, but there are clear advantages for the right client.

For example: An AK directed trustee could be chosen because of favorable state laws. The fees would be low because they only perform administrative work and have reduced liability. Some directed trustees charge a flat fee instead of % because the amount of work is unrelated to AUM. If necessary the AK trustee could be replaced without affecting the trust investments. The investment decisions could be delegated to a person, or committee. The investment manager could be a 3rd party or even a beneficiary and invest in low cost index funds or any other investments they decide - Vanguard mutual funds, Fidelity ETF, DFA, etc.. Or a professional manager with the desired investment style could be hired - Vanguard Advisory Services, BAM, Cardiff Park etc.. Fees are negotiable. If necessary the company could be replaced with no effect on the AK trustee. It's entirely possible that in the long run such a plan could have higher returns net of fees and taxes plus better safeguards for the beneficiaries.

[robandjeanne]

I may have to check with Vanguard again. The person I first contacted about ST services said they would flatly refuse an all growth portfolio such as an S&P style index or ETF. This didn't seem reasonable coming from VG since they invented the index fund. That person definitely sounded biased against passive investing. Also VG will not sell a house or auction its contents, so the split in responsibilities between administrative and investing might be a good idea.

[FoolStreet]

I may have to check with Vanguard again. The person I first contacted about ST services said they would flatly refuse an all growth portfolio such as an S&P style index or ETF. This didn't seem reasonable coming from VG since they invented the index fund. That person definitely sounded biased against passive investing. Also VG will not sell a house or auction its contents, so the split in responsibilities between administrative and investing might be a good idea.

Presumably, they would have a mix of their core 4, like a life strategy fund.

What did they say should be done with the real estate?

[afan]

Vanguard will not accept real estate as an asset of a trust of which they are trustee. So Vanguard would do absolutely nothing with real estate- they will never have responsibility for it.

All this talk of writing in language directing how the assets are to be invested simply assumes you can find a corporate trustee who will go along with it. I have not heard from someone who has included such language and has had Vanguard, or any other company, agree to manage the trust that way. I suspect none would.

Perhaps if you had a very large trust, hundreds of millions, the old line trust companies would be willing to negotiate on the investment terms. Much seems to be negotiable for large trusts. They would ensure that they collected enough in fees to make it worth their while, but they might be happy to put the money all in Vanguard index funds, while charging 1% of assets to do so.


I still don't see the value of a trust protector. Seems to add complexity without gaining anything. If the beneficiaries don't like the way the current trustee is managing the money this is easily solved if they have the power to change trustees: They shop for alternatives, find one that will invest they way they want, and move the trust to that trustee.
Under the trust protector route their task is more complicated to end up the same place: The beneficiaries still have to find an alternate trustee. WIthout that there is no point in changing anything. Once they have found this new trustee, instead of simply transferring the trust, the beneficiaries now have to find and engage a trust protector. Rather than simply transferring the trust, the beneficiaries have to get the trust protector to alter the terms of the trust. THEN they, or the protector, gets to move the money.

This is just another hurdle. I would omit it entirely by letting the beneficiaries pick a different trustee.

If one goes with a directed trustee and separate investment manager, then the beneficiaries could change trustee or manager without disturbing the other relationship. But they would have to deal with two entities, which adds complexity. The major appeal is that it seems to be a lot easier to find investment managers who will do a simple index fund portfolio.

Right now, we plan for our heirs to be their own investment managers. They would only need corporate trustees if they lost the ability or inclination to manage the assets themselves. They might, at their option, choose to appoint a directed trustee. I have not checked how many banks will serve in this capacity while letting the beneficiary manage the assets. Most seem to assume a different company, not the beneficiary, will manage the investments.

[smackboy1]

I still don't see the value of a trust protector. Seems to add complexity without gaining anything. If the beneficiaries don't like the way the current trustee is managing the money this is easily solved if they have the power to change trustees: They shop for alternatives, find one that will invest they way they want, and move the trust to that trustee.

Some trusts should have a protector (a.k.a. appointer), others not. This is where an experienced lawyer comes in. The role of a protector is to provide oversight of the trustee. This is especially true in a discretionary trust where trustee has full discretion over almost everything. A discretionary trust has many advantages, but with great power comes great responsibility. A protector is a safety valve. Some of a protector's special powers cannot be held by grantor, trustee, or beneficiaries because of conflict of interest, or it would affect the tax benefits, creditor protection, or some other aspect of the trust.

Creditor protection is another area a protector can be valuable. Let's say the trustee can be replaced with a majority vote of the beneficiaries. What if a creditor obtains a judgment against all the beneficiaries? Maybe an accident at a family wedding? Maybe a family business transaction gone bad? It's possible the creditor convinces a judge to order the beneficiaries to vote to replace the trustee with creditor's agent and force a payment to the creditor. A protector could prevent that scenario.

[afan]

Wouldn't that have the creditors' agent violating their fiduciary responsibility as trustee? Beneficiaries could sue if the agent did that. Might be able to sue to prevent the transfer.

Curious to hear what actually happened in cases like that.

I suspect one could get very close to the same protection by requiring that the replacement trustee be a trust company or trust department of a bank. Credotir would need to control one that was willing to immediately violate the terms of the trust.

This also assumes the judge could order the beneficiaries to appoint an agent of the creditor as trustee, but that the judge could not order the trust protector to do so.

But my comments referred to using a trust protector to make sure the trust company invests as you want. For that goal it still seems like more trouble than needed. Beneficiaries should be able to change trustee without having to appoint a trust protector to do this.

[robandjeanne]

Trying to fine tune our Revocable Living Trust. Because we have many spendthrift beneficiaries we have decided to go with a "legacy" trust that may go on as long as the portfolio growth allows (no limit in VA). Even though Successor Trustees will get a fat fee every year (over $50 K) most are reluctant to manage a VTI based (total US stock market) portfolio. An alternative to legacy would be to distribute to beneficiary trust all at once, but not sure how to slow down spendthrifts from spending it all in 2 or 3 years, or protect from divorce, or to spread money to grand nieces and nephews and so on per stirpes.

I realize no one is a tax expert here, but since the trust is taxed at the highest rate going but all beneficiaries are in much lower brackets, it seems wise to distribute yearly the interest, dividends, and maybe short term cap gains to beneficiaries. The long term cap gains could optionally be held in the trust where the 20% or so tax rate applies. This seemed to be verified in Investopedia although I wasn't exactly sure what accumulated proncipal meant with respect to mutual funds. https://www.investopedia.com/ask/answer ... -taxes.asp as follows:

Beneficiaries of a trust typically pay taxes on distributions they receive from the trust's income, rather than the trust itself paying the tax. However, they are not subject to taxes on distributions from the trust's principal.


When a trust makes a distribution, it deducts the income distributed on its own tax return and issues the beneficiary a tax form called a K-1. The K-1 indicates how much of the beneficiary's distribution is interest income versus principal and, thus, how much the beneficiary is required to claim as taxable income when filing taxes.


KEY TAKEAWAYS
Trusts are subject to different taxation than ordinary investment accounts.
The beneficiaries of a trust must pay taxes on income and other distributions that they receive from the trust, but not on the return of principal.
IRS forms K-1 and 1041 are required for filing tax returns that receive trust disbursements.
Interest Versus Principal Distributions
When a trust beneficiary receives a distribution from the trust's principal balance, he does not have to pay taxes on it: The Internal Revenue Service (IRS) assumes this money was already taxed before it was placed into the trust. Once money is placed into the trust, the interest it accumulates is taxable as income, either to the beneficiary or the trust itself. The trust must pay taxes on any interest income it holds and does not distribute past year-end. Interest income the trust distributes is taxable to the beneficiary who receives it.

The amount distributed to the beneficiary is considered to be from the current-year income first, then from the accumulated principal. This is usually the original contribution plus subsequent ones and is income in excess of the amount distributed. Capital gains from this amount may be taxable to either the trust or the beneficiary. All the amount distributed to and for the benefit of the beneficiary are taxable to him or her to the extent of the distribution deduction of the trust.

[FIREchief]

Interesting to see this thread come back to life.

Even though Successor Trustees will get a fat fee every year (over $50 K) most are reluctant to manage a VTI based (total US stock market) portfolio.

This continues to puzzle me. If I were a corporate trustee and a trust grantor wanted to name me successor trustee of a trust that clearly directed me to invest substantially all trust assets in VTI, I would be jumping for joy (regardless of whether or not I thought this was an awful approach for the beneficiaries). I could manage the investments in less than one hour a year and I would have a bullet proof defense if ever sued by a beneficiary. There may be easier ways to make $50K for a few hours work each year, but since I'm not a professional athlete or celebrity, I'm not sure what they would be.

In rereading this thread, it sounds like even though some have been "assured" by VG that their trust funds would be managed in a passive, low cost manner; there are just as many (if not more) reports that VG would do the exact opposite. In any case, I highly doubt they would commit to anything in writing.

[smackboy1]

Even though Successor Trustees will get a fat fee every year (over $50 K) most are reluctant to manage a VTI based (total US stock market) portfolio.

With proper planning and the correct successor trustee chosen this should not happen unless the total assets under the trust approaches maybe 8-9 figures. If all the trust assets were invested in a low cost, passive, indexed based, Boglehead style, it would probably make no sense to pay a traditional corporate trustee to manage investments. It would be much more efficient to use a directed trustee and hire a separate low cost investment manager, maybe even Vanguard PAS. Directed trustee fees where the trustee is relieved of investment management are comparatively low and in some cases are not calculated based on % AUM. This is where an experienced and well connected estates and trust lawyer comes in. These fees are not published on websites.

[robandjeanne]

I agree totally. I want a successor trustee to write 7 checks to 7 beneficiaries, and do the taxes for over $50K per year. I want them to do this for so many years they could make this a retirement job. OK, maybe I'm simplifying this a little because we want the money to go to the beneficiary per stirpes. But still, I am getting so tired of hearing how the potential ST is so worried about being sued by the beneficiaries for being invested in VTI, because they wouldn't be acting prudently. How is investing money in 2% bonds prudent? How would we find "a directed trustee and hire a separate low cost investment manager" By the way, VG will not manage a trust only or mostly invested in their own VTI. Instead (you guessed it) they want to have bond and international and other diversified holdings. Jack should be rolling over about this VG attitude, since he invented the index fund.

[LilyFleur]

Why do you want the trust hanging around? The successor trustee could distribute the assets immediately, either directly or in individual trusts for the beneficiaries with them as the trustees.

It depends. The trustee has to take care of all of the loose ends for the deceased (get death certificates, cancel cell phone, pay funeral costs, sell real estate, pay medical bills, cancel social security benefits, change ownership of any commissions/royalties (including mineral rights), do tax returns, etc. before disbursing funds to the beneficiaries. You'd be surprised at how long it takes. Then the bulk of the estate might be disbursed, and the trustee might hold back a not insignificant pot of money in order to file the last tax return for the trust (this could be a year after the deceased's date of death). It is more complicated than you would think.

A good reason to keep one's own finances streamlined--for the sake of one's heirs.

[afan]

Just note that Vanguard will not settle the estate even if it is the trustee.

[robandjeanne]

Bridgeford Trust appears to be one outfit that talks about Directed Trustees. Although I could probably change the situs of our Trust to South Dakota, I wonder if there are similar outfits in Virginia? Don't yet know what the total fees would be, but Bridgeford hints they will be less.

[bsteiner]

...
Perhaps if you had a very large trust, hundreds of millions, the old line trust companies would be willing to negotiate on the investment terms. Much seems to be negotiable for large trusts. They would ensure that they collected enough in fees to make it worth their while, but they might be happy to put the money all in Vanguard index funds, while charging 1% of assets to do so.
...

If the trust is in the hundreds of millions of dollars a bank or trust company will charge substantially less than 1% a year. It will be substantially less than 1% if it's in the tens of millions, and even less if it's in the hundreds of millions.

...
I still don't see the value of a trust protector. Seems to add complexity without gaining anything. If the beneficiaries don't like the way the current trustee is managing the money this is easily solved if they have the power to change trustees: ...

Our clients usually give each beneficiary the right to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee) after reaching a specified age.

However, until the beneficiary reaches the specified age, or if there's a reason not to give a particular beneficiary that power, then one might want to give someone else that power, or give the beneficiary that power but only with the consent of someone else, or limit the replacement trustee to a bank or trust company.

Trying to fine tune our Revocable Living Trust. Because we have many spendthrift beneficiaries we have decided to go with a "legacy" trust that may go on as long as the portfolio growth allows (no limit in VA). ...

"Our" revocable trust? Virginia isn't a community property state.

...
I realize no one is a tax expert here, ....

Many of us are.

...
With proper planning and the correct successor trustee chosen this should not happen unless the total assets under the trust approaches maybe 8-9 figures. If all the trust assets were invested in a low cost, passive, indexed based, Boglehead style, it would probably make no sense to pay a traditional corporate trustee to manage investments. It would be much more efficient to use a directed trustee and hire a separate low cost investment manager, maybe even Vanguard PAS. Directed trustee fees where the trustee is relieved of investment management are comparatively low and in some cases are not calculated based on % AUM. This is where an experienced and well connected estates and trust lawyer comes in. These fees are not published on websites.

That's an interesting combination: a trust company that doesn't manage the assets and then having Vanguard manage the assets. There are many trust companies in Alaska, Delaware, Nevada and South Dakota that will charge in the mid-4 figures a year if they're not responsible for the assets. You'll probably also need an LLC to hold the assets so the trust company doesn't have to be involved each time there's a trade, though that might not be necessary if Vanguard manages the assets with a small number of mutual funds and doesn't rebalance very often. Vanguard will then charge 0.3% on the first $5 million, sliding down to 0.05% above $25 million (plus the costs of the underlying funds): https://personal.vanguard.com/web/c1/fi ... al-advisor.

Of course, as set forth above, as the amount involved gets larger, the fees at conventional banks and trust companies decrease significantly as a percentage of the value of the trust.

Depending on who will be the initial trustees, this may apply just as much to the initial trustees as to successor trustees. Of course, the identity of the successor trustees may not be known for a while.

... I want a successor trustee to write 7 checks to 7 beneficiaries, and do the taxes for over $50K per year. I want them to do this for so many years they could make this a retirement job. OK, maybe I'm simplifying this a little because we want the money to go to the beneficiary per stirpes. But still, I am getting so tired of hearing how the potential ST is so worried about being sued by the beneficiaries for being invested in VTI, because they wouldn't be acting prudently. How is investing money in 2% bonds prudent? How would we find "a directed trustee and hire a separate low cost investment manager" By the way, VG will not manage a trust only or mostly invested in their own VTI. Instead (you guessed it) they want to have bond and international and other diversified holdings. Jack should be rolling over about this VG attitude, since he invented the index fund.

Trustees have to consider all of the facts and circumstances in deciding how to invest. However, assuming a reasonable asset allocation, it would be hard to imagine a claim against a trustee for investing the equity portion in VTI (Vanguard Total Stock Market ETF). A trustee probably wouldn't invest 100% in equities unless no distributions were anticipated for a long time, and even then a trustee might want some percentage of the assets in bonds.

If there are 7 beneficiaries, if they're at the same generation, you would probably have 7 separate trusts, one for each of them, since their situations might be different, which might require different asset allocations and different levels of distributions.

The above applies just as much to the initial trustees as to the successor trustees.

... The trustee has to take care of all of the loose ends for the deceased (get death certificates, cancel cell phone, pay funeral costs, sell real estate, pay medical bills, cancel social security benefits, change ownership of any commissions/royalties (including mineral rights), do tax returns, etc. before disbursing funds to the beneficiaries. You'd be surprised at how long it takes. Then the bulk of the estate might be disbursed, and the trustee might hold back a not insignificant pot of money in order to file the last tax return for the trust (this could be a year after the deceased's date of death). It is more complicated than you would think.
...

These are usually the executor's job. The executor has the short-term job of collecting the assets, paying the debts, expenses and taxes, and distributing the balance to the beneficiaries (which can be and often are trusts). The trustees have the long-term job of managing the assets and deciding on distributions.

[robandjeanne]

I'm getting estimates of 1% (seems all successor trustees got together) to be STs for "our" trust. Of the six candidate STs we've talked with, only one sounds like they wouldn't fight us on investing our portfolio in VTI. So 1% managing a Trust with a portfolio approaching 8 figures seems to be the norm with non-directed STs. There is a "No Contest Clause" in our Trust where unsuccessful challengers lose everything, and I can't believe anyone could win saying VTI was not a prudent investment. Given this, I fail to see why STs are so worried about being sued. If I were to make a impolite statement about STs, it would be they don't care how low your portfolio return is as long as they cover themselves from lawsuits. They heck with the beneficiaries, the ST gets his fee no matter what.

[FIREchief]

I'm getting estimates of 1% (seems all successor trustees got together) to be STs for "our" trust. Of the six candidate STs we've talked with, only one sounds like they wouldn't fight us on investing our portfolio in VTI. So 1% managing a Trust with a portfolio approaching 8 figures seems to be the norm with non-directed STs. There is a "No Contest Clause" in our Trust where unsuccessful challengers lose everything, and I can't believe anyone could win saying VTI was not a prudent investment. Given this, I fail to see why STs are so worried about being sued. If I were to make a impolite statement about STs, it would be they don't care how low your portfolio return is as long as they cover themselves from lawsuits. They heck with the beneficiaries, the ST gets his fee no matter what.

I don't think it has anything to do with lawsuits. I believe you're butting up against a business model where the 1% AUM fee is the admitted fee but they are building in another .5% to 1% hidden profit through utilization of selected high ER funds. I'm guessing they would call it the old "reasonable and customary." I believe that the typical prudent investor rules require exercise of "special skills," which likely manifests themselves as "complicated" investments (which conveniently reward the custodian with high expenses).

[Gill]

I'm getting estimates of 1% (seems all successor trustees got together) to be STs for "our" trust. Of the six candidate STs we've talked with, only one sounds like they wouldn't fight us on investing our portfolio in VTI. So 1% managing a Trust with a portfolio approaching 8 figures seems to be the norm with non-directed STs. There is a "No Contest Clause" in our Trust where unsuccessful challengers lose everything, and I can't believe anyone could win saying VTI was not a prudent investment. Given this, I fail to see why STs are so worried about being sued. If I were to make a impolite statement about STs, it would be they don't care how low your portfolio return is as long as they cover themselves from lawsuits. They heck with the beneficiaries, the ST gets his fee no matter what.

I don't think it has anything to do with lawsuits. I believe you're butting up against a business model where the 1% AUM fee is the admitted fee but they are building in another .5% to 1% hidden profit through utilization of selected high ER funds. I'm guessing they would call it the old "reasonable and customary." I believe that the typical prudent investor rules require exercise of "special skills," which likely manifests themselves as "complicated" investments (which conveniently reward the custodian with high expenses).

That is not the case at all. Corporate trustees cannot double dip and self deal. They can invest in their own funds but must reduce their trustee fee by the income earned on the funds.
Gill

[trustquestioner]

My frustration isn’t so much the active management - our corporate trustee has so many positions it more or less mirrors the market - it’s the constant trading for no discernible reason, generating trading fees and tax problems.

[bayview]

I'm getting estimates of 1% (seems all successor trustees got together) to be STs for "our" trust. Of the six candidate STs we've talked with, only one sounds like they wouldn't fight us on investing our portfolio in VTI. So 1% managing a Trust with a portfolio approaching 8 figures seems to be the norm with non-directed STs. There is a "No Contest Clause" in our Trust where unsuccessful challengers lose everything, and I can't believe anyone could win saying VTI was not a prudent investment. Given this, I fail to see why STs are so worried about being sued. If I were to make a impolite statement about STs, it would be they don't care how low your portfolio return is as long as they cover themselves from lawsuits. They heck with the beneficiaries, the ST gets his fee no matter what.

I think that the resistance is because (please all, correct me if I am wrong), the defense by a fiduciary against charges of mismanagement is to essentially have done what everyone else is doing. Perhaps a three-fund portfolio will nowadays fall into this category; maybe even a 60/40 portfolio of VTI and Treasuries (my preference, btw.) But all you would need is one snippy beneficiary who saw his/her check go down in a year when US stocks drop to instigate a lawsuit. No trustee wants to put up with that.

I understand your goals, but you might have to accept that controlling from the grave is pretty dang hard to do, at least successfully.