Assuming Control of Mom's Morgan Stanley Acct.

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Topic Author
Middle
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Joined: Tue Feb 08, 2011 7:15 pm

Assuming Control of Mom's Morgan Stanley Acct.

Post by Middle » Wed Nov 06, 2019 5:33 pm

My Mother is just starting to have cognitive decline and I'm stepping in to help manage her finances (I already have Durable Power of Attorney). She's had a brokerage account at Morgan Stanley for years (one taxable account, one tIRA). They are charging her 1.5% AUM. Obviously, I am chomping at the bit to get that money out of there.

My considerations:
1. She has some unrealized capital gains I need to be mindful of.
2. Not sure that there is any tax loss harvesting available.
3. She's 84 (almost) and has maybe 8-12 years?
4. Her living costs are about to escalate as we move her into Assisted Living.
5. Her asset allocation is weighted more heavily in equities than I think are appropriate for this next phase of her life.

My plan.
1. Talk to her about moving her account to Vanguard (immediate savings by eliminating adviser fee)
2. Move account to Vanguard as an in-kind transfer of everything.
3. Turn off reinvestments of dividends, likely necessary anyway because she will need to have a higher draw from account now.
4. Talk to her accountant about tax implications of capital gains.
5. Target the higher ER mutual funds (currently the worst is 0.77%) to begin with for any liquidation purposes to meet current living expenses.
6. Sell the house and use the proceeds to invest in low cost tax efficient index funds.
7. Reduce her equity exposure and increase her bond exposure that is likely better for capital preservation.

My question - Without any further analysis, I'm thinking that for the most part leaving the investments where they are (mostly mutual funds, a small percentage in somewhat lower cost index funds, and a little bit of preferred stock) is probably better than taking a tax hit since it's not all that long before there could be a reset in cost basis, and just not that much time for the cost savings from lower ERs to counteract the tax hits.

Thoughts?
Last edited by Middle on Wed Nov 06, 2019 6:24 pm, edited 1 time in total.

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ResearchMed
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by ResearchMed » Wed Nov 06, 2019 5:42 pm

Middle wrote:
Wed Nov 06, 2019 5:33 pm
My Mother is just starting to have cognitive decline and I'm stepping in to help manage her finances. She's had a brokerage account at Morgan Stanley for years (one taxable account, one tIRA). They are charging her 1.5% AUM. Obviously, I am chomping at the bit to get that money out of there.

My considerations:
1. She has some unrealized capital gains I need to be mindful of.
2. Not sure that there is any tax loss harvesting available.
3. She's 84 (almost) and has maybe 8-12 years?
4. Her living costs are about to escalate as we move her into Assisted Living.
5. Her asset allocation is weighted more heavily in equities than I think are appropriate for this next phase of her life.

My plan.
1. Talk to her about moving her account to Vanguard (immediate savings by eliminating adviser fee)
2. Move account to Vanguard as an in-kind transfer of everything.
3. Turn off reinvestments of dividends, likely necessary anyway because she will need to have a higher draw from account now.
4. Talk to her accountant about tax implications of capital gains.
5. Target the higher ER mutual funds (currently the worst is 0.77%) to begin with for any liquidation purposes to meet current living expenses.
6. Sell the house and use the proceeds to invest in low cost tax efficient index funds.
7. Reduce her equity exposure and increase her bond exposure that is likely better for capital preservation.

My question - Without any further analysis, I'm thinking that for the most part leaving the investments where they are (mostly mutual funds, a small percentage in somewhat lower cost index funds, and a little bit of preferred stock) is probably better than taking a tax hit since it's not all that long before there could be a reset in cost basis, and just not that much time for the cost savings from lower ERs to counteract the tax hits.

Thoughts?
Does she want you to do this?

Do you have a Power of Attorney for her? Preferably a DPoA (Durable PoA)?
If not, is she still competent to sign such documents?
Make sure you've got the proper legal permissions to take care of this for her.

Then deal with the specifics. If you've already got all the proper documents signed, then let us know.

Good luck!

RM
This signature is a placebo. You are in the control group.

NotWhoYouThink
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by NotWhoYouThink » Wed Nov 06, 2019 5:52 pm

Check with the AL facility how much of her costs there are considered medical expenses - it could be a lot. Which means she might have some large tax deductions that will reduce the pain from selling off high cost funds and realizing the capital gains.

I agree that transferring the funds to Vanguard and having the investments in lower cost funds makes sense.

Do you have siblings, and do they trust you to do this?

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JoeRetire
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by JoeRetire » Wed Nov 06, 2019 5:58 pm

Middle wrote:
Wed Nov 06, 2019 5:33 pm
My Mother is just starting to have cognitive decline and I'm stepping in to help manage her finances.
You cannot just choose to step in without permission to do so.
Don't be a lemming.

Topic Author
Middle
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by Middle » Wed Nov 06, 2019 6:20 pm

Sorry, I should have made this clear in the beginning. But yes, I already have durable power of attorney and account access. I have siblings that I'm communicating with before any action taken and they are in agreement. And of course, nothing happens without my Mother's approval.

retired@50
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by retired@50 » Wed Nov 06, 2019 6:34 pm

Middle wrote:
Wed Nov 06, 2019 5:33 pm

6. Sell the house and use the proceeds to invest in low cost tax efficient index funds.


My question - Without any further analysis, I'm thinking that for the most part leaving the investments where they are (mostly mutual funds, a small percentage in somewhat lower cost index funds, and a little bit of preferred stock) is probably better than taking a tax hit since it's not all that long before there could be a reset in cost basis, and just not that much time for the cost savings from lower ERs to counteract the tax hits.

Thoughts?
You might want to consider renting out the house while she is still alive. You'd receive rent each month to help with costs of assisted living, and when she passes you'd get a step-up in cost basis for the house too. This could be substantial, depending on the total capital gain in play.

Regards,

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Wiggums
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by Wiggums » Wed Nov 06, 2019 6:35 pm

Middle wrote:
Wed Nov 06, 2019 5:33 pm
My Mother is just starting to have cognitive decline and I'm stepping in to help manage her finances (I already have Durable Power of Attorney). She's had a brokerage account at Morgan Stanley for years (one taxable account, one tIRA). They are charging her 1.5% AUM. Obviously, I am chomping at the bit to get that money out of there.

My considerations:
1. She has some unrealized capital gains I need to be mindful of.
2. Not sure that there is any tax loss harvesting available.
3. She's 84 (almost) and has maybe 8-12 years?
4. Her living costs are about to escalate as we move her into Assisted Living.
5. Her asset allocation is weighted more heavily in equities than I think are appropriate for this next phase of her life.

My plan.
1. Talk to her about moving her account to Vanguard (immediate savings by eliminating adviser fee)
2. Move account to Vanguard as an in-kind transfer of everything.
3. Turn off reinvestments of dividends, likely necessary anyway because she will need to have a higher draw from account now.
4. Talk to her accountant about tax implications of capital gains.
5. Target the higher ER mutual funds (currently the worst is 0.77%) to begin with for any liquidation purposes to meet current living expenses.
6. Sell the house and use the proceeds to invest in low cost tax efficient index funds.
7. Reduce her equity exposure and increase her bond exposure that is likely better for capital preservation.

My question - Without any further analysis, I'm thinking that for the most part leaving the investments where they are (mostly mutual funds, a small percentage in somewhat lower cost index funds, and a little bit of preferred stock) is probably better than taking a tax hit since it's not all that long before there could be a reset in cost basis, and just not that much time for the cost savings from lower ERs to counteract the tax hits.

Thoughts?
Your plan is reasonable.

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CAsage
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by CAsage » Wed Nov 06, 2019 6:44 pm

You should be able to get a clear statement about what her unrealized capital gains are now from Morgan Stanley (and in any case, before you tip them off or move, as sometimes they aren't as... available to help afterwards). That will help her accountant determine how to optimally sell them off, to spread the taxes. Her deductions may climb if she is getting more help. And you should consider what the capital gains are on the house, based on it's current value and it's cost basis (may have been reset if she held it jointly with any previously deceased Dad for example?). Of course, you pay taxes on any house proceeds after expenses and less $25OK, it's time to check out that cost basis as well (and any improvements). I'm rambling a bit but just topics to look into!
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

HomeStretch
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by HomeStretch » Wed Nov 06, 2019 6:55 pm

Your plan seems reasonable if your mom concurs.

Once you have a list of the Taxable account’s holdings, you can lookup each holding on Vanguard’s website to see if it will transfer in-kind. If not, the decision about which holdings to sell may be made for you if you want to get the MS account closed.

When you talk to her tax accountant about the tax implications of capital gains, be sure s/he is also considering whether the gains will push your mom into IRMAA surcharges.

BlueCable
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by BlueCable » Wed Nov 06, 2019 6:58 pm

If there are large capital gains, I wouldn't be in a rush to sell the funds that have a higher expense. Fees could be a lot worse then 0.77%.

The tax costs of selling could be much greater than the extra costs of the fees over your mother's life.

Do you expect her to need to sell the funds to support her expenses during her life?

Topic Author
Middle
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by Middle » Wed Nov 06, 2019 7:01 pm

Yes, my stepfather passed almost 2 years ago, so she became sole owner then. My understanding is that the half of the home she then acquired from him at that point gets a step up in cost basis. But that's a good point, that she would be responsible for any capital gains that would be above $250k. Might be close. Where would I get that step up cost basis?

And yes, BlueCable, that's what I'm thinking on minimizing tax implications. As far as whether we need to sell her current funds - yes, current dividend yield is not sufficient for her new living costs and proceeds from the sale of the house might not happen until Spring.
Last edited by Middle on Wed Nov 06, 2019 7:08 pm, edited 1 time in total.

HomeStretch
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by HomeStretch » Wed Nov 06, 2019 7:05 pm

Middle wrote:
Wed Nov 06, 2019 7:01 pm
Where would I get that step up cost basis?
The executor of your stepfather’s estate likely has the info. You need the fair market value as of date of death (or alternate valuation date, if used by the estate). The FMV likely came from an appraiser or real estate broker and should be in writing.

Your mom’s Taxable investments if inherited from husband or jointly owned should also have received a full or 1/2 step-up too. You might want to check with your mom/MS to see that it was done (and you can confirm by looking at cost basis detail).

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CAsage
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by CAsage » Wed Nov 06, 2019 7:56 pm

Middle wrote:
Wed Nov 06, 2019 7:01 pm
Yes, my stepfather passed almost 2 years ago, so she became sole owner then. My understanding is that the half of the home she then acquired from him at that point gets a step up in cost basis. But that's a good point, that she would be responsible for any capital gains that would be above $250k. Might be close. Where would I get that step up cost basis?
To a rough approximation, her 1/2 cost basis is what they paid for the house (find the old escrow or purchase papers) plus any major improvements (somewhat vague, that). If the house passed to her 2 years ago, it may or may not have been appraised at that point (there are ways to inherit that do not require that). But any decent local realtor can help you come up with a reasonable estimate of what home prices in that local area have appreciated since that date. That should really help, if 1/2 the house doesn't have too much gain. In most areas of the country, deducting her $250K after expenses (about 10% cost to sell a house) should knock the capital gains down quite a bit. When my mom sold her house, we did our best to estimate it and that was good enough to file her taxes (and pay a small tax on the net gain).
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

RetiredAL
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by RetiredAL » Wed Nov 06, 2019 8:08 pm

Middle wrote:
Wed Nov 06, 2019 5:33 pm
My Mother is just starting to have cognitive decline and I'm stepping in to help manage her finances (I already have Durable Power of Attorney). She's had a brokerage account at Morgan Stanley for years (one taxable account, one tIRA). They are charging her 1.5% AUM. Obviously, I am chomping at the bit to get that money out of there.
How many stocks/ETFs/funds are held? If a lot, you might want to consider Schwab or Fidelity just to avoid the trading costs.

Earlier this year, I moved one of my Dad's previously managed IRA's to Schwab. It had 60 stocks in it. Schwab comp'd the trading fees, saving us $300. His other IRA was only a handful of funds. and Schwab comp'd the $95 closure fee. I kept his taxable with the original house, sans management. I was able to use last years dip to avoid a big tax bill when I simplified the holdings. Sometime luck happens.

I had chipped at my Dad for a couple of years about doing this. He had a long relationship with the advisor and liked him. My Dad is competent, but has no interest in managing his finances. He has physical issues that require assistance around the clock in an A-L Facility.

Otherwise, your logic is very similar to what I did.

Make sure your Mom's care plan is doctor signed off as medically needed and you have a copy of it, then you should be able to use the A-L costs, in excess of any LTC insurance payments, as a medical deduction. The A-L can help you with this and may have required it prior to placement. In my Dad's Case, the Rehab Nursing Center's Doctor did the assessment/sign-off, but his regular doctor would have done it.

gd
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by gd » Wed Nov 06, 2019 8:57 pm

I've had and had visibility into other MS accounts, and there was not a flat 1.5% AUM fee. I believe a relative pays something like this, for extra advisory and planning services. Are you sure this is required vs. an optional service?

I've got issues with MS including forcing you to talk to a broker vs. web transactions, slow cash sweeps to bank deposit instead of interest-bearing money market, lack of index products, brokers focused on push lists, and annual fees on IRAs, but with a low-activity account it wasn't particularly expensive aside from active-managed fund costs.

Topic Author
Middle
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by Middle » Thu Nov 07, 2019 12:18 pm

RetiredAl - Only two preferred stocks and maybe 10 or 12 funds. But that's a good consideration. And thanks for the tip on the medical referral for tax purposes.

gd - Well the adviser disclosed to me directly that he charges a 1.5% fee. I asked him if he had a flat fee or any other arrangement and he said no.

gd
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by gd » Thu Nov 07, 2019 6:46 pm

Middle wrote:
Thu Nov 07, 2019 12:18 pm
RetiredAl - Only two preferred stocks and maybe 10 or 12 funds. But that's a good consideration. And thanks for the tip on the medical referral for tax purposes.

gd - Well the adviser disclosed to me directly that he charges a 1.5% fee. I asked him if he had a flat fee or any other arrangement and he said no.
He's not going to jump at the chance of losing the 1.5% by giving you a straight answer. I'm just an anonymous internet poster, and my opinion is worth every penny you pay for it. MS appears to have the straight transactional account, and a premium "wrap account" that charges typically 1% AUM. Here's everything I know about it:
https://www.brokerage-review.com/online ... eview.aspx

I had a MS account for decades and paid nothing but commissions, loads and yearly IRA flat fees, and same with a relative's recently.

I'd *guess* you're also paying for an additional advisory service. As I wrote first, I have a relative who pays more for extra services-- financial review of their assets, and a financial plan to take them into and through retirement. Basically a salesman acting as a financial planner. They get value out of it (ok, one does, the other concedes for marital harmony). A 5 minute search doesn't come up with any description of it, but... that's MS. Their marketing model relies heavily on artful obfuscation. I'd ask some blunt questions along the lines of "can I have a MS account without paying this 1.5%, such as dropping your advisory services".

the 12-ish count of investments is MS's standard sweet spot (and probably every full-service broker), just complicated enough to be intimidating, but not much work on their part other than turning over dogs into the push of the month. OTOH, I discovered, to my chagrin, that for a trust I manage their high-cost products were actually more suitable to the quirky tax situation than Fido/Vanguard.

Topic Author
Middle
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by Middle » Fri Nov 08, 2019 12:30 pm

All I can say is that is what he told me, 1.5% and one of the statements I looked at seemed to confirm it. Maybe that's not a model they offer now but this would have been arranged years ago. And yes, it's for advisory services. My Mother has not had interest in managing her own money. I think she could easily have been in a worse arrangement or have made poor choices if she did it on her own. But now there is an opportunity to save her some money while still working toward her goals.

Katietsu
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Re: Assuming Control of Mom's Morgan Stanley Acct.

Post by Katietsu » Fri Nov 08, 2019 7:13 pm

RetiredAL wrote:
Wed Nov 06, 2019 8:08 pm
Make sure your Mom's care plan is doctor signed off as medically needed and you have a copy of it, then you should be able to use the A-L costs, in excess of any LTC insurance payments, as a medical deduction. The A-L can help you with this and may have required it prior to placement. In my Dad's Case, the Rehab Nursing Center's Doctor did the assessment/sign-off, but his regular doctor would have done it.
In addition, in order for assisted living expenses to be tax deductible, the resident must be considered "chronically ill." This means a doctor or nurse has certified that the resident either:
1) cannot perform at least two activities of daily living, such as eating, toileting, transferring, bath, dressing, or continence
2) requires supervision due to a cognitive impairment (such as Alzheimer's disease or another form of dementia)

Usually about 1/3 will be designated as medical costs. But if you can stipulate that the primary reason for being in assisted living is medical and not custodial, then the room and board component can be deducted as well.

As far as FMV of the house at the time of step father’s death, I would consider hiring a certified appraiser if this was not done at the time. You tell the appraiser that you want the value on August 10, 2017 or whatever the date was. I would not always recommend this but it sounds like their has been a significant increase in the value of the property. Note that a $500k exclusion is available if the home is sold within two years of the date of death of the spouse.

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