Trust Services

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
BillWalters
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Re: Trust Services

Post by BillWalters » Tue Aug 13, 2019 2:19 pm

bsteiner,

I would love to hear a short summary of the litigation you’ve been involved with, along with time frames and outcomes. I’m sure I’m not alone.

bsteiner
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Re: Trust Services

Post by bsteiner » Wed Aug 14, 2019 9:28 am

BillWalters wrote:
Tue Aug 13, 2019 2:19 pm
bsteiner,

I would love to hear a short summary of the litigation you’ve been involved with, along with time frames and outcomes. I’m sure I’m not alone.
1. In one case, the decedent died in 1999. His investments were concentrated in the telecommunications sector, which soon after his death collapsed in the 2000-2003 market decline, which hit the tech sector harder than the market generally. There was a protracted Will contest (the decedent and his wife who died first came to the United States from Europe and didn't have children, and the rest of the family was in Europe, and didn't get along, I assume because they were on opposite sides in World War II). The side that prevailed in the Will contest brought a claim against the preliminary executors for not selling the stocks and diversifying sooner. The case was settled.

2. In another case, a guardian was appointed for an elderly woman because her two daughters didn't get along. After she died, the daughters (with separate counsel) brought several claims against the guardian: (i) for incurring a late filing penalty on a tax return where he didn't apply for an extension or ask that the penalty be waived, (ii) for cashing in U.S. Savings Bonds paying a good interest rate, tax-deferred, and for which the interest could have been accrued on the final return (she died in January of her final year), (iii) for selling appreciated assets and incurring capital gains taxes which could have been avoided by holding the stocks until her death (though one of them was a concentrated position in a stock that declined substantially after it was sold), (iv) for hiring a wirehouse broker and paying 1.4% a year to manage the assets. The judge ruled in favor of the guardian, perhaps because the claims were relatively minor and because they wouldn't have needed an independent guardian if the daughters could have cooperated.

3. In a case that couldn't be brought because the trustee didn't have much in the way of assets, a trust was invested entirely in one stock that collapsed, resulting in an 8-figure loss. Unfortunately the trustee invested his own money in the same stock, so the beneficiary decided there wouldn't be any purpose to bringing a claim.

4. In another case, the husband died in 2012 when the estate tax rate was 35%. The wife died in 2013 (before the husband's estate tax return was due), when the estate tax rate was 40%. He left his estate to her in a marital (QTIP) trust. His executor (who was also her executor) claimed the marital deduction, which resulted in a 40% estate tax rate instead of a 35% estate tax rate, costing the family a couple of million dollars. Claiming the marital deduction also gave up the credit for the tax on prior transfers, which was substantial. I spotted this when reviewing the accounting on behalf of a beneficiary. The statute of limitations for claims against the lawyers and accountants had expired, and the family decided not to bring a claim against the executor.

Gill
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Re: Trust Services

Post by Gill » Wed Aug 14, 2019 9:54 am

bsteiner wrote:
Wed Aug 14, 2019 9:28 am
4. In another case, the husband died in 2012 when the estate tax rate was 35%. The wife died in 2013 (before the husband's estate tax return was due), when the estate tax rate was 40%. He left his estate to her in a marital (QTIP) trust. His executor (who was also her executor) claimed the marital deduction, which resulted in a 40% estate tax rate instead of a 35% estate tax rate, costing the family a couple of million dollars. Claiming the marital deduction also gave up the credit for the tax on prior transfers, which was substantial. I spotted this when reviewing the accounting on behalf of a beneficiary. The statute of limitations for claims against the lawyers and accountants had expired, and the family decided not to bring a claim against the executor.
Bruce, this was indeed a beauty with serious money involved. I'm curious why the Statute of Limitations had run. Couldn't the argument be made that the beneficiary was not aware of this error until you reviewed it in the accounting and therefore the Statute was tolled and did not begin to run until that time? Just wondering...
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

bsteiner
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Re: Trust Services

Post by bsteiner » Wed Aug 14, 2019 10:31 am

Gill wrote:
Wed Aug 14, 2019 9:54 am
bsteiner wrote:
Wed Aug 14, 2019 9:28 am
4. In another case, the husband died in 2012 when the estate tax rate was 35%. The wife died in 2013 (before the husband's estate tax return was due), when the estate tax rate was 40%. He left his estate to her in a marital (QTIP) trust. His executor (who was also her executor) claimed the marital deduction, which resulted in a 40% estate tax rate instead of a 35% estate tax rate, costing the family a couple of million dollars. Claiming the marital deduction also gave up the credit for the tax on prior transfers, which was substantial. I spotted this when reviewing the accounting on behalf of a beneficiary. The statute of limitations for claims against the lawyers and accountants had expired, and the family decided not to bring a claim against the executor.
Bruce, this was indeed a beauty with serious money involved. I'm curious why the Statute of Limitations had run. Couldn't the argument be made that the beneficiary was not aware of this error until you reviewed it in the accounting and therefore the Statute was tolled and did not begin to run until that time? Just wondering...
Gill
I checked to refresh my recollection. The executor was an accountant and did the estate tax returns himself (or others in his firm prepared them and he signed them as preparer). (It was actually a revocable trust since they lived in Florida and wanted their accountant in New York to be the personal representative, but Florida requires a personal representative to be either a relative or a Florida resident, so a revocable trust is the most common workaround.) So the claim would have been against him one way or the other.

The statute of limitations in New York generally runs from when the act occurred. However, New York has the concept of continuous representation which may toll the statute of limitations. I didn't check to see whether it would have applied since he was also the fiduciary so they could have brought the claim on that basis, and they didn't want to pursue the matter.

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FIREchief
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Re: Trust Services

Post by FIREchief » Wed Aug 14, 2019 1:45 pm

Thank you for the interesting stories Bruce.
bsteiner wrote:
Wed Aug 14, 2019 9:28 am

1. The side that prevailed in the Will contest brought a claim against the preliminary executors for not selling the stocks and diversifying sooner.

4. His executor (who was also her executor) claimed the marital deduction, which resulted in a 40% estate tax rate instead of a 35% estate tax rate, costing the family a couple of million dollars. Claiming the marital deduction also gave up the credit for the tax on prior transfers, which was substantial.
More reasons why I will never accept an appointment as executor unless I know in advance exactly what I'm getting into. :shock:
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Gill
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Re: Trust Services

Post by Gill » Wed Aug 14, 2019 2:49 pm

bsteiner wrote:
Wed Aug 14, 2019 10:31 am
Gill wrote:
Wed Aug 14, 2019 9:54 am
bsteiner wrote:
Wed Aug 14, 2019 9:28 am
4. In another case, the husband died in 2012 when the estate tax rate was 35%. The wife died in 2013 (before the husband's estate tax return was due), when the estate tax rate was 40%. He left his estate to her in a marital (QTIP) trust. His executor (who was also her executor) claimed the marital deduction, which resulted in a 40% estate tax rate instead of a 35% estate tax rate, costing the family a couple of million dollars. Claiming the marital deduction also gave up the credit for the tax on prior transfers, which was substantial. I spotted this when reviewing the accounting on behalf of a beneficiary. The statute of limitations for claims against the lawyers and accountants had expired, and the family decided not to bring a claim against the executor.
Bruce, this was indeed a beauty with serious money involved. I'm curious why the Statute of Limitations had run. Couldn't the argument be made that the beneficiary was not aware of this error until you reviewed it in the accounting and therefore the Statute was tolled and did not begin to run until that time? Just wondering...
Gill
I checked to refresh my recollection. The executor was an accountant and did the estate tax returns himself (or others in his firm prepared them and he signed them as preparer). (It was actually a revocable trust since they lived in Florida and wanted their accountant in New York to be the personal representative, but Florida requires a personal representative to be either a relative or a Florida resident, so a revocable trust is the most common workaround.) So the claim would have been against him one way or the other.

The statute of limitations in New York generally runs from when the act occurred. However, New York has the concept of continuous representation which may toll the statute of limitations. I didn't check to see whether it would have applied since he was also the fiduciary so they could have brought the claim on that basis, and they didn't want to pursue the matter.
Thanks for the explanation, Bruce.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

robandjeanne
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Re: Trust Services

Post by robandjeanne » Wed Aug 14, 2019 8:10 pm

An update on our quest to find a Successor Trustee to manage our mostly VTI portfolio. Now when I say mostly VTI portfolio I should clarify that presently the portfolio consists of over 30 mutual funds and ETFs with VTI being less than 10%. So imho the present portfolio seems diverse. It certainly is not all high tech or one stock so it seems unlikely that beneficiaries could successfully claim it was not diverse enough. If beneficiaries challenge the Trust and are unsuccessful they get nothing (no contest clause). Also the Trust says we are not using the Prudent Investor rules. I looked at my present portfolio and found that I barely beat the S&P on a 5 or 10 year basis, however I occasionally beat it by 2% on bad years like 2018. So I thought why not simplify things by putting all new money into VTI (if you can't beat them...). Interestingly I just saw a Jack Bogle interview where he disclosed that Warren Buffett was planning to leave 90% of his money to his wife using VTI (he didn't say where the other 10% would be)

The one potential ST seems to be dragging his feet, so we'll see what happens there. Schwab seems almost overly responsive (I wonder if they are falling on hard times) and initially indicated they would be more than happy to manage the existing portfolio for 0.5%, although they would want to move the assets to Schwab (they indicated this was a move in kind without selling). As expected they suggested acting as Trustees right away, but we said we were only interested in them as Successor Trustees. We shall see. .

robandjeanne
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Re: Trust Services

Post by robandjeanne » Thu Aug 15, 2019 1:30 am

I have heard some say beneficiaries would be unhappy receiving an amount that varied with market performance. I mentioned our RLT has a minimum yearly amount of $20 K, so this is an amount each beneficiary could count on. Any additional amount due to market growth should be considered a bonus. I wonder, however, if it would be wiser to pick a larger yearly base amount value that would potentially still allow a legacy trust. I'm getting the sense that some beneficiaries may value a consistent amount they can count on, more than a boom amount some years.

bsteiner
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Re: Trust Services

Post by bsteiner » Thu Aug 15, 2019 7:58 am

robandjeanne wrote:
Thu Aug 15, 2019 1:30 am
I have heard some say beneficiaries would be unhappy receiving an amount that varied with market performance. I mentioned our RLT has a minimum yearly amount of $20 K, so this is an amount each beneficiary could count on. Any additional amount due to market growth should be considered a bonus. I wonder, however, if it would be wiser to pick a larger yearly base amount value that would potentially still allow a legacy trust. I'm getting the sense that some beneficiaries may value a consistent amount they can count on, more than a boom amount some years.
No one knows what the future will bring. It's almost always better to give the trustees discretion to decide on distributions. That way, they can take into account the circumstances as they exist from time to time.

bsteiner
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Re: Trust Services

Post by bsteiner » Thu Aug 15, 2019 8:00 am

BillWalters wrote:
Tue Aug 13, 2019 2:19 pm
bsteiner,

I would love to hear a short summary of the litigation you’ve been involved with, along with time frames and outcomes. I’m sure I’m not alone.
We also had a couple of cases, one of which is still pending, where the administrator misappropriated the assets. In one case the court required a bond so we were able to go after the bonding company. In the other case the decedent owned an LLC that owned a rental property, so we were able to get the property sold, and the proceeds are being held in escrow pending a determination of how much rent the former administrator misappropriated (so it can be charged against her share).

robandjeanne
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Re: Trust Services

Post by robandjeanne » Thu Aug 15, 2019 10:37 am

Thanks to bsteiner for the court room view of Trusts and Wills. It seems most of the malfeasance cases are pretty clear (Trustee owning one stock...). I wondered if there have been successful cases against a Trustee that holds a Bogle-like portfolio? I know anything is possible, but it would seem a losing proposition to go against a Trustee who managed a portfolio of VTI and dozens of other mutual funds. Does the "no contest clause" in any of these cases make a difference?

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FIREchief
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Re: Trust Services

Post by FIREchief » Thu Aug 15, 2019 2:19 pm

robandjeanne wrote:
Thu Aug 15, 2019 10:37 am
I wondered if there have been successful cases against a Trustee that holds a Bogle-like portfolio?
I highly doubt it, simply because I've never seen a report of an independent trustee investing trust assets in a manner that a boglehead would (i.e. entirely low cost, passively managed index funds). That's one of the things we complain about in these threads. :annoyed
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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FIREchief
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Re: Trust Services

Post by FIREchief » Thu Aug 15, 2019 2:23 pm

robandjeanne wrote:
Wed Aug 14, 2019 8:10 pm
Also the Trust says we are not using the Prudent Investor rules..
Does the trust provide directions that supersede the prudent investor rules, or does it just somehow state that compliance is not required? I don't understand how that would work. :confused
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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FIREchief
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Re: Trust Services

Post by FIREchief » Thu Aug 15, 2019 2:35 pm

robandjeanne wrote:
Wed Aug 14, 2019 8:10 pm
Interestingly I just saw a Jack Bogle interview where he disclosed that Warren Buffett was planning to leave 90% of his money to his wife using VTI (he didn't say where the other 10% would be)
I've most frequently seen Buffet quoted as stating that he is recommending to his trustee that 90% of the assets left to his wife be invested in an S&P 500 index fund and the other 10% in treasuries. This has often puzzled me because a grantor of a trust (even one with as many billions as Buffet has) can't simply "recommend" something to a trustee and expect it to be adhered to after his demise. A trustee will do what the trust and state laws require. Language in the trust can trump prudent investor laws, but verbal recommendations can not. I more easily believe that Buffet is just making a statement to the rest of us that the bulk of our long term investments should be invested in high quality stocks.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

bsteiner
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Re: Trust Services

Post by bsteiner » Thu Aug 15, 2019 3:35 pm

robandjeanne wrote:
Thu Aug 15, 2019 10:37 am
Thanks to bsteiner for the court room view of Trusts and Wills. It seems most of the malfeasance cases are pretty clear (Trustee owning one stock...). I wondered if there have been successful cases against a Trustee that holds a Bogle-like portfolio? I know anything is possible, but it would seem a losing proposition to go against a Trustee who managed a portfolio of VTI and dozens of other mutual funds. Does the "no contest clause" in any of these cases make a difference?
The no contest provision applies to who gets what. If I leave $100,000 to child A and the rest to child B, and I say that anyone who contests the Will forfeits his/her bequest, child A will be discouraged from contesting the Will.

It would be hard to object to an accounting if a trustee had dozens of mutual funds unless they were all in one sector, or otherwise insufficiently diversified, and that resulted in a loss.

bsteiner
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Re: Trust Services

Post by bsteiner » Thu Aug 15, 2019 3:41 pm

FIREchief wrote:
Thu Aug 15, 2019 2:35 pm
robandjeanne wrote:
Wed Aug 14, 2019 8:10 pm
Interestingly I just saw a Jack Bogle interview where he disclosed that Warren Buffett was planning to leave 90% of his money to his wife using VTI (he didn't say where the other 10% would be)
I've most frequently seen Buffet quoted as stating that he is recommending to his trustee that 90% of the assets left to his wife be invested in an S&P 500 index fund and the other 10% in treasuries. This has often puzzled me because a grantor of a trust (even one with as many billions as Buffet has) can't simply "recommend" something to a trustee and expect it to be adhered to after his demise. A trustee will do what the trust and state laws require. Language in the trust can trump prudent investor laws, but verbal recommendations can not. I more easily believe that Buffet is just making a statement to the rest of us that the bulk of our long term investments should be invested in high quality stocks.
You may be right. He may be saying that to tell the public that they should invest mainly in S&P 500 type stocks or funds. We'll probably find out after his death when we see his Will.

He's more likely to recommend than to direct the trustees. No one knows what the future will bring. But as long as his recommendation is practical, and there's no compelling reason to do otherwise, the trustees will likely follow it. Given the size of his estate, assuming he leaves enough of it in trust for his wife, she'll be fine no matter how the trustees invest the assets.

Broken Man 1999
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Re: Trust Services

Post by Broken Man 1999 » Thu Aug 15, 2019 3:51 pm

Hopefully Mr Buffett has a will. If not, he wouldn't be the only very rich person who doesn't/didn't have a will, but he would probably be the richest. :oops:

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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FIREchief
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Re: Trust Services

Post by FIREchief » Thu Aug 15, 2019 4:07 pm

bsteiner wrote:
Thu Aug 15, 2019 3:41 pm
But as long as his recommendation is practical, and there's no compelling reason to do otherwise, the trustees will likely follow it. Given the size of his estate, assuming he leaves enough of it in trust for his wife, she'll be fine no matter how the trustees invest the assets.
Absolutely. I posted that (hopefully) for the benefit of the forum readers who are trying to understand these issues. I've seen multiple instances of folks who report establishment of a trust with usual wide discretion for investments, but then suggest that they'll have something like a letter of instruction asking the trustee to invest in a three fund portfolio or similar passive, index-based investments. I believe that the risk of failure (of their plan actually being carried out) is high in these situations. I could of course be wrong.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

2wendyliu
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Re: Trust Services

Post by 2wendyliu » Thu Aug 15, 2019 9:56 pm

FYI, I came across this article about Schwab's Administrative Trustee Services for those who wish to separate investment from administration of the trust - https://www.ifa.com/pdfs/schwab-trustee-services.pdf

2wendyliu
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Re: Trust Services

Post by 2wendyliu » Thu Aug 15, 2019 10:43 pm

Fee schedule for Schwab's Administrative Trustee Services - https://www.schwab.com/public/file/P-10180944
It's nice to be able to separate administration from investing of trust assets. Not only can you make decisions independently, there may be protection from conflict of interest as well.

In addition to the Delaware company that serves as trust administrator only, Schwab also has a Nevada company that operates more like VG with similar fee schedule (0.5% vs 0.55% for first 5 million).

Quick summary of Schwab Administrative's benefits over Vanguard:
1. Supports administrative only
2. Supports real estate and private foundation

robandjeanne
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Re: Trust Services

Post by robandjeanne » Fri Aug 16, 2019 12:44 am

Firechief is absolutely right about the need to direct the Successor Trustee to do what you want. I had a quite productive meeting with one potential ST and his Senior Portfolio Manager. The ST was suggesting we use language like "prefer" to state what we wanted. Toward the end of the meeting the Portfolio Manager admitted if we said "prefer" he would just do things his way. I thought that was amazingly honest, and will probably list this Trust Corp as one of our STs. Also on the idea of writing what you want rather than conveying it in some other way, I think with a chuckle of the Code of Hammurabi (1754 BC). It is almost ridiculously strict since the penalty for any serious offense was death. If they caught a man and woman together no matter what they said if they could not produce a written document saying they were married, the penalty was death. Perhaps Warren Buffett could learn from Hammurabi. Incidentally I've watched several interviews with Buffett on YouTube, he absolutely loved the S&P 500 index (not just the companies), and most recently loved VTI.

bsteiner
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Re: Trust Services

Post by bsteiner » Fri Aug 16, 2019 8:36 am

FIREchief wrote:
Thu Aug 15, 2019 4:07 pm
bsteiner wrote:
Thu Aug 15, 2019 3:41 pm
But as long as his recommendation is practical, and there's no compelling reason to do otherwise, the trustees will likely follow it. Given the size of his estate, assuming he leaves enough of it in trust for his wife, she'll be fine no matter how the trustees invest the assets.
Absolutely. I posted that (hopefully) for the benefit of the forum readers who are trying to understand these issues. I've seen multiple instances of folks who report establishment of a trust with usual wide discretion for investments, but then suggest that they'll have something like a letter of instruction asking the trustee to invest in a three fund portfolio or similar passive, index-based investments. I believe that the risk of failure (of their plan actually being carried out) is high in these situations. I could of course be wrong.
Nothing is certain. But if you give each child the right to become a trustee, the co-trustee can't invest the assets without the child/trustee's approval. And if you give the child the right to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee (which our clients usually do unless there's a reason not to do so in a given case), the co-trustee is likely to be responsive to the child.
2wendyliu wrote:
Thu Aug 15, 2019 10:43 pm
Fee schedule for Schwab's Administrative Trustee Services - ...
It's nice to be able to separate administration from investing of trust assets. Not only can you make decisions independently, there may be protection from conflict of interest as well.
...
There are many trust companies in Alaska, Delaware, Nevada and South Dakota that will act as a trustee for about $5,000 a year so long as they're not responsible for investing the assets.
robandjeanne wrote:
Fri Aug 16, 2019 12:44 am
Firechief is absolutely right about the need to direct the Successor Trustee to do what you want. ...
Also the initial trustees.

robandjeanne
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Re: Trust Services

Post by robandjeanne » Mon Aug 19, 2019 10:48 pm

Our thanks to 2wendylu, afan, Firechief, FBN2014 et al for suggesting Schwab, which by far has been our best candidate for Successor Trustee. In our area of Northern VA, Schwab says they can handle our entire Trust (not just administrative). In our case we want a "Legacy Trust" which will distribute half the portfolio growth to 7 beneficiaries. We have a hodgepodge of 30 some mutual funds and ETFs which have managed to equal and on bad years (2018) do 3% better than the market (VTI). However since few beat the market on a 5 or 10 year average, we specified that all future money be invested in VTI. Schwab said no problem, but when the time comes for them to act as STs they would want to move the assets in kind (without selling) to a Schwab brokerage account They will charge 0.5%/year for this ST service. Sounded great to me!

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