Trust fund help

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Big Worm
Posts: 148
Joined: Thu Apr 18, 2013 10:20 am

Trust fund help

Post by Big Worm » Sun Jun 05, 2016 12:54 pm

I am a trustee of the following assets:

Money market:
$15,703.00

Stocks and such:
KO COCA COLA COM 220 $45.04 $9,908.80
LLY LILLY & CO 200 $75.12 $15,024.00
IBB ISHARES NASDAQ BIOTECH ETF 50.0976 $281.77 $14,116.00
DIA SPDR DOW JONES INDUST AV ETF TRUST 222.1721 $178.06 $39,559.96
UTX UNITED TECHS CORP COM 100 $100.43 $10,043.00
VOO VANGUARD 500 INDEX FUND SHS ETF 1,050 $192.92 $202,566.00

Corporate bonds:
T22A AT&T INC GLB 02.625% DEC 01 2022 50,000 $98.8390 $49,426.79
CPB22 CAMPBELL SOUP CO GLB 02.500% AUG 02 2022 25,000 $100.5150 $25,338.81
GENERAL ELEC CAP CORP SER NOTZ FLT% MAR 15 2023 50,000 $99.75 $50,056.53
MICROSOFT CORP GLB 02.125% NOV 15 2022 50,000 $101.3870 $50,746.62

Government bonds:
U.S. TREASURY NOTE 1.000% AUG 31 2016 01.000% AUG 31 2016 30,000 $100.1450 $30,120.94

Municipal bonds:
WINN AREA CMNTY SCH DIST MICH LT OID AGM EBD JUN09 04.000%MAY01 2021 25,000 $105.8220 $26,544.38
ILLINOIS ST TOLL HWY AT HWY RV SR SER A-1 RF JUL10 05.000%JAN01 2026 20,000 $111.85 $22,792.22

Preferred stock:
GOLDMAN SACHS GROUP INC 3M LIBOR +75, 3.75% FLR NON-CUM FLOAT RATE PFD 1,500 $20.04 $30,060.00

At this point the assets are worth about $600,000.

The assets are held in a commercial brokerage at present. There is no management fee. The brokerage makes money when assets are bought or sold. I don't know exactly what the fees are but my guess is that they are 1-2% of the transaction value. At this point the assets are status quo and there are no plans to buy or sell. The trusts fund has it's own unique Tax ID number. The advisor is not a big fan of mutual funds for reasons unclear. Something about difficulty with planning for taxes.

The beneficiary of the trust is a parent who has no real need for any immediate distributions.

I don't think I am really happy with the fund investments at this point. It seems really bloated. My preference is to keep it as simple as possible (3 or 4 funds). I am not excited about investing in individual stocks and bonds. Although I am not incurring any fees right now per se, if I start to change the investments around there would be transaction fees that are not insignificant. I have inquired at Vanguard where I presently hold a few accounts and it doesn't seem like it would be too much trouble to move the assets there.

My goals are to:

Minimize tax burden
Provide some regular distributions
Preserve and grow capital

I really am having trouble deciding where to start and wonder if I should get some professional advice (other than the current advisor).

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Raymond
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Location: Texas

Re: Trust fund help

Post by Raymond » Sun Jun 05, 2016 1:17 pm

Do the trust documents have any requirements regarding where the investments are to be held (a particular brokerage) or specify the types of investments (stocks, bonds, etc.)?

Does the advisor have trading authority on the account? If so, you may want to take that away from him/her in case they decide to churn the account to generate commissions.

What is the beneficiary's current asset allocation account in his or her own investments?
"Ritter, Tod und Teufel"

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patrick013
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Joined: Mon Jul 13, 2015 7:49 pm

Re: Trust fund help

Post by patrick013 » Sun Jun 05, 2016 3:06 pm

Your investments really aren't that bad, not reckless or anything.

Trust income is taxed at a higher rate if not distributed, but you
probably already know that.

Opening up a trust brokerage account at Vanguard would be quite simple
with the commissions much lower also.

I wouldn't like the muni's, I'd rather have the premium in the pocket and
buy something else.

Stocks ? My usual idea is sell the ones at a gain you can and wait 1 year
to sell the others hoping they will rise in price in the business cycle. A TLH
can leave one money behind.

I see you have the DJI and S&P 500. Consider a VG mid-cap index for diversification.
With interest rates sputtering nowhere a short term and intermediate
term corp or bond index fund would be better than a long term bond fund
if rates do start rising noticeably.

Right now most securities are overbought so it's a better time to sell or
hold than to buy IMO.

Hope the above helps a little bit.
age in bonds, buy-and-hold, 10 year business cycle

Big Worm
Posts: 148
Joined: Thu Apr 18, 2013 10:20 am

Re: Trust fund help

Post by Big Worm » Sun Jun 05, 2016 3:19 pm

Raymond wrote:Do the trust documents have any requirements regarding where the investments are to be held (a particular brokerage) or specify the types of investments (stocks, bonds, etc.)?

Does the advisor have trading authority on the account? If so, you may want to take that away from him/her in case they decide to churn the account to generate commissions.

What is the beneficiary's current asset allocation account in his or her own investments?
Thanks for your reply.

There are no restrictions as to where the assets are kept. Where they are kept is a joint decision between myself and the other trustee (sibling).

I don't know if the advisor has trading authority on the account or not but I will find out. it really is a moot point though as I keep a close eye on things and the advisor knows not to trade without an explicit request to change assets.

I don't know the beneficiary's current asset allocation although suffice it to say it is conservative and the beneficiary is older and probably should not have any real need for distribution from the trust. Any distribution from the trusts is likely to be "fun" money.

SpaceCowboy
Posts: 869
Joined: Sun Aug 12, 2012 12:35 am

Re: Trust fund help

Post by SpaceCowboy » Sun Jun 05, 2016 3:28 pm

Because of the taxes, you probably want to distribute the income from the trust - dividends, interest and cap gain distributions.
If you're not going to trade the assets, no need to move them. If you do want to change the composition, probably best to do it sooner rather than later assuming this was from a recent tragic event so as to minimize the cap gains. You should move it to Vanguard, Fido, Schwab or wherever you feel most comfortable. All will give you free trades probably for bringing in that amount of new money. TD will probably even pay you.
Rejiggering the bonds is tougher because of the lack of pricing transparency in the bond market. You may want to let them just mature over the next 6-7 years.

Lafder
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Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Trust fund help

Post by Lafder » Sun Jun 05, 2016 6:58 pm

I am rather surprised a "large commercial brokerage" is only charging fees for transactions and no ongoing management fees besides expense ratios.

I would set all dividends to go to a sweep/money market account instead of reinvesting.

And be sure the advisor can not make trades without your permission as suggested.

I would also look at the cost basis of everything to get an idea if any can be sold with losses canceling gains, or if all are gains.

It look like 30k in bonds are maturing August 2016 so that frees up some cash.

lafder

lhl12
Posts: 613
Joined: Mon May 27, 2013 8:24 am

Re: Trust fund help

Post by lhl12 » Mon Jun 06, 2016 12:58 am

Big Worm wrote:
Raymond wrote: What is the beneficiary's current asset allocation account in his or her own investments?
I don't know the beneficiary's current asset allocation although suffice it to say it is conservative and the beneficiary is older and probably should not have any real need for distribution from the trust. Any distribution from the trusts is likely to be "fun" money.
If the beneficiary is older and has no real need for distributions then what happens to the trust upon the death of the beneficiary? The answer to that question could drive the answer to your original question.

Big Worm
Posts: 148
Joined: Thu Apr 18, 2013 10:20 am

Re: Trust fund help

Post by Big Worm » Sun Oct 07, 2018 12:37 pm

Update:

Thought about moving the trust fund assets to a local financial planner type guy but just couldn't stomach the thought of all those fees. Rolled everything over to Vanguard without too much problem. Sold the individual stocks. Kept everything else so now the portfolio is as follows:


VOO VANGUARD S&P 500 INDEX ETF 0.04% 1,054.717 $264.540 $279,014.84
IBB ISHARES NASDAQ BIOTECHNOLOGY ETF 0.47% 150.040 $116.530 $17,484.16
DIA SPDR DOW JONES INDUSTRIAL AVERAGE ETF 0.17% 222.735 $264.320 $58,873.32


AT&T INC GLBL NOTE CPN 2.62500 % MTD 2022-12-01 DTD 2012-12-11 50,000.000 $95.165 $47,582.50
CAMPBELL SOUP CO NOTE CPN 2.50000 % MTD 2022-08-02 DTD 2012-08-02 25,000.000 $94.316 $23,579.00
GENL ELECTRIC CAP CORP INTERNOTES VAR SURVIVOR OPTION CPN 1.23000 % 50,000.000 $100.482 $50,241.00
GWINN AREA CMNTY SCH DIST MI AGM B/E OID @99.062 4.1% CPN 4.00000 % 25,000.000 $100.676 $25,169.00
ILLINOIS ST TOLL HWY AUTH REV RFDG SR SER A1 B/E PTC CPN 5.00000 % 20,000.000 $103.301 $20,660.20
MICROSOFT CORP NOTE CPN 2.12500 % 50,000.000 $95.473 $47,736.50

I plan to just let the bonds mature to avoid and costs associated with selling them.

There is a approximately $152,000 in a money market fund from previous cash as well as the sale of the individual stocks.

Total portfolio value is $723,054.56.

Target allocation is approximately 60/40 stocks/bonds.

I am planning to hold out approximately $20,00 to pay taxes on some of the gains that have been locked in.

Excluding the money market funds the portfolio is now 62.3% stocks and 37.7% bonds which is close to the allocation I want.

The big hump was getting the trust moved over to Vanguard. They aren't doing any advising, just holding the assets.

I would like to either invest in either fund(s) that have a high percentage of qualified dividend income and/or tax efficient bonds or other vehicle.

Vanguard Balanced Index Fund Investor Shares (VBINX) seems ideal. It is described as follows: This index fund offers investors an easy, low-cost way to gain exposure to stocks and bonds. The fund invests roughly 60% in stocks and 40% in bonds by tracking two indexes that represent broad barometers for the U.S. equity and U.S. taxable bond markets. The fund’s broad diversification is important, because one or two holdings should not have a sizeable impact on the fund. Investors with a long-term time horizon who want growth and some income—and who are willing to accept stock and bond market volatility—may wish to consider this as a core holding in their portfolio.

Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) also seems ideal. It is a described as follows: As part of Vanguard’s series of tax-managed investments, this fund provides exposure to the mid- and large-capitalization segments of the U.S. stock market with about 50% of assets, while the balance of assets are invested in federally tax-exempt municipal bonds. The stock component’s unique index-oriented approach attempts to track its benchmark, while minimizing taxable dividend income. Investors in higher tax brackets who are seeking some growth of principal and who are able to tolerate the risks that come from the volatility of the stock and bond markets may wish to consider this fund.

I prefer to keep things simple, maybe invest half of the cash in one and half in the other.

Any thoughts? Thanks!

Big Worm
Posts: 148
Joined: Thu Apr 18, 2013 10:20 am

Re: Trust fund help

Post by Big Worm » Fri Oct 12, 2018 8:36 am

Wondering if anyone has some thoughts on this. I am about to pull the trigger. Thanks.

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BL
Posts: 8290
Joined: Sun Mar 01, 2009 2:28 pm

Re: Trust fund help

Post by BL » Fri Oct 12, 2018 9:16 am

If you were putting everything in a balance fund, then I would like your idea.

Since you already have stock funds, I don't see it as a simplification.

Perhaps consider total stock market, which covers more of the market, or even more S&P 500 for the stock portion and leave the rest in Prime MM (2.16%) now while bonds keep losing NAV with increasing interest rates, or buy CDs from Vanguard (more work).

Is this the long term care self-insurance for parents? Age? tax bracket?

I am not an expert!

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