Trust Services

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MikeG62
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Re: Trust Services

Post by MikeG62 » Sat Apr 22, 2017 7:07 am

FIREchief wrote:...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.
FIREchief wrote: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.
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FIREchief
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Re: Trust Services

Post by FIREchief » Sat Apr 22, 2017 3:19 pm

MikeG62 wrote:
FIREchief wrote: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?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

afan
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Re: Trust Services

Post by afan » Sat Apr 22, 2017 6:58 pm

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.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

FBN2014
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Re: Trust Services

Post by FBN2014 » Thu Jun 22, 2017 2:38 pm

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
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

Laren
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Re: Trust Services

Post by Laren » Thu Jun 22, 2017 3:46 pm

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
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Re: Trust Services

Post by afan » Thu Jun 22, 2017 3:58 pm

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.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Laren
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Re: Trust Services

Post by Laren » Thu Jun 22, 2017 4:13 pm

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
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Re: Trust Services

Post by FBN2014 » Thu Jun 22, 2017 4:24 pm

Laren wrote: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.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

Laren
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Re: Trust Services

Post by Laren » Thu Jun 22, 2017 4:43 pm

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
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Re: Trust Services

Post by afan » Thu Jun 22, 2017 5:18 pm

Laren wrote:
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.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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FIREchief
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Re: Trust Services

Post by FIREchief » Thu Jun 22, 2017 5:20 pm

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.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Carefreeap
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Re: Trust Services

Post by Carefreeap » Thu Jun 22, 2017 9:05 pm

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.

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Peter Foley
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Re: Trust Services

Post by Peter Foley » Thu Jun 22, 2017 9:21 pm

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
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Re: Trust Services

Post by FBN2014 » Thu Oct 26, 2017 8:30 am

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.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

Riverman
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Re: Trust Services

Post by Riverman » Thu Oct 26, 2017 8:39 am

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.

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Sandtrap
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Re: Trust Services

Post by Sandtrap » Thu Oct 26, 2017 9:51 am

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
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Re: Trust Services

Post by GMoney » Mon Feb 11, 2019 12:03 pm

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
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Re: Trust Services

Post by Gill » Mon Feb 11, 2019 12:10 pm

GMoney wrote: ā†‘
Mon Feb 11, 2019 12:03 pm

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
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Afull
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Re: Trust Services

Post by Afull » Mon Feb 11, 2019 1:13 pm

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.

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