Gift Trust - Best thing to do?

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Joined: Sun Mar 04, 2018 12:55 pm

Gift Trust - Best thing to do?

Post by QuercusRubra » Sun Mar 04, 2018 2:55 pm

Hello All,

Looking for feedback on our portfolio and especially what to do with a gift trust provided by my parents. The fund is an American Century Investment's All Cap Growth Fund (TWGTX). It is currently valued a around $36k. I have no immediate goal for it.... we are not high income earners but live modestly and within our means. However, the high expense ratio (1%) is bothersome. I am not sure whether we should move it, leave it, put it towards retirement, the house, etc. Also,not sure about the best way to transfer it so far as capital gains are concerned. Can I move it incrementally to reduce the taxes I will pay? Thoughts and advice appreciated.

A little about us:

Emergency funds: $7k cash savings, $5k Schwab intelligent portfolio
Debt: $174k mortgage at 3.375% fixed, $6k car payment at 3.4%,
Tax Filing Status: Married Filing Jointly
Income: $45K him, $43K her
Age: 32 him, 28 her
Kids: 0
State: MN
Tax Rate: 7.05% State, 25% Fed for 2016

Retirement Assets (Approx. $116k, mostly in Schwab):

His Roth ($58k):
SCHB - 20%
SWEGX - 80%

Her Roth: ($19k)
PRBLX - 36%
SNXFX - 63%

His Rollover IRA ($25k)
SCHX - 37%
SCHF - 29%
SCHA - 27%
SWAGX - 6%

Her Rollover IRA (6k)
VTI - 33%
SWISX - 65%

Employer Sponsored Retirement (Edward Jones - guided solutions FMACX, FWMIX, GCCIX, IHOFX, GIFFX TRGXX, FBOGX):
His Simple IRA: ($5k) Aggressive allocation
Her Simple IRA: ($3k) Aggressive allocation

Thank you - S

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Joined: Thu Mar 01, 2007 8:00 pm

Re: Gift Trust - Best thing to do?

Post by livesoft » Sun Mar 04, 2018 3:11 pm

My son had GiftTrust for a long time. I had him sell his holdings -- half in 2017 and the rest in 2018 when he could do it without paying cap gains taxes -- and move it to Vanguard. He lucked out in 2018 in that he sold before the drop and will buy after when Vanguard believes that he is a real person despite him having Vanguard account for many years now.

If you "move it" in-kind, then no taxes, but I suppose you meant "sell it." Yes, you will have to report those gains and possibly be taxed on them.

You can donate shares to a donor-advised fund and not pay taxes and get a tax break. Then you can use that donor-advised fund to give money to charities and/or your church.

Whatever you decide to do: Stop automatically reinvesting distributions, but have those paid into your checking account to do something else with them.
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Re: Gift Trust - Best thing to do?

Post by Katietsu » Sun Apr 15, 2018 2:59 pm

I saw your comment elsewhere about not getting much response to your previous post and decided to take a look. Have you already made changes or decided to stay put?

I noticed you report an income of $88,000 and most of your savings in tax advantages accounts. This should put you in the 15% tax bracket in 2016/17 and the 12% tax bracket in 2018. It also means that you likely have some space to realize some capital gains at a 0% federal tax rate. You will likely still need to pay state tax. And even 0% capital gains will still increase your AGI and can therefore decrease certain credits in some cases.

I would certainly look to sell at least as much as I could a year while paying zero federal tax. Do you have space for additional contributions in tax deferred accounts with good investment options? If so, you could up your contribution to the tax deferred account while selling the American fund. Use the American Fund proceeds for living expenses. Meanwhile, the tax deferred contribution lowers your AGI and increases the amount of capital gains taxes at 0%.

You should also find out what unrealized gains are in the American fund. You will need to coordinate the method you choose for cost basis with the shares you decide to sell. This will allow you to control the capital gains.

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