Two Trusts in one joint investment account?

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GeorgiaPapa
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Two Trusts in one joint investment account?

Post by GeorgiaPapa » Sun Mar 08, 2020 4:50 pm

Hello,

My wife an I are in process of moving our assets into our two Living Trusts and setting up an investment account. Our estate planning attorney said it is no problem for both living trusts to share joint ownership in one investment account. However, I heard elsewhere that is not a good idea and causes problems later on, especially for the investment institution (in this case Vanguard). One situation may be where one of us dies and that person's trust becomes irrevocable. Now Vanguard needs to send out two 1099s. (one trust is still a grantor trust taxed at the individual's rate and the other trust now is taxed at compressed trust rates). Not sure how true this is. There may be other issues I'm not aware of.

Thoughts?

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Eagle33
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Re: Two Trusts in one joint investment account?

Post by Eagle33 » Sun Mar 08, 2020 7:54 pm

Sounds like it can be legally done, but may be a bit more complicated to execute the details.
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Gill
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Re: Two Trusts in one joint investment account?

Post by Gill » Sun Mar 08, 2020 8:27 pm

Each trust represents a distinct entity and separate ownership. I don’t see how they can be combined in a single investment account.
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bsteiner
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Re: Two Trusts in one joint investment account?

Post by bsteiner » Sun Mar 08, 2020 9:04 pm

The two trusts could form a partnership to invest together. They might do that in order to meet a minimum investment requirement.

If the original poster is in Georgia, is there some reason for the revocable trusts?

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GeorgiaPapa
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Re: Two Trusts in one joint investment account?

Post by GeorgiaPapa » Thu Mar 26, 2020 11:38 am

The purpose of the trusts is for estate planning, probate avoidance.

My wife and I have various joint accounts with banks so I was planning to do the same with our two revocable trusts. Just simple joint ownership like people do. However, I believe if a creditor successfully comes after one of us, the creditor can get at all the assets in a joint account. Is this true? If so, it must be the same if the joint owners happen to be revocable trusts, right?

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Re: Two Trusts in one joint investment account?

Post by bsteiner » Thu Mar 26, 2020 11:46 am

Your name suggests you're in Georgia. From what I understand, probating a Will in Georgia isn't difficult. Perhaps it would be easier not to create the revocable trusts.

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GeorgiaPapa
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Re: Two Trusts in one joint investment account?

Post by GeorgiaPapa » Thu Mar 26, 2020 2:19 pm

I've heard the same. Probating a will in GA is not difficult. Not sue what all the legal fees are though. And it is all on public record.

The trusts are also part of a complex (for me) estate plan involving us, our daughters, one of whom is Special Needs,

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Re: Two Trusts in one joint investment account?

Post by bsteiner » Thu Mar 26, 2020 3:02 pm

GeorgiaPapa wrote:
Thu Mar 26, 2020 2:19 pm
I've heard the same. Probating a will in GA is not difficult. Not sue what all the legal fees are though. And it is all on public record.

The trusts are also part of a complex (for me) estate plan involving us, our daughters, one of whom is Special Needs,
Most lawyers work on a time basis, so the legal fees to probate the Will may not be any more than the legal fees to create a revocable trust and transfer your assets to it.

You can put the same dispositive provisions in a Will or a revocable trust.

The trust for a child with special needs are for the most part the same as the trust for a child without special needs. Depending on the nature of the special needs, the difference is the degree of control (if any) that the child with special needs will have over her trust.

Most people's Wills aren't of any interest to the media, the general public, or their friends and neighbors. Very few friends and neighbors go the courthouse to look at other people's Wills. I've only had two clients who didn't want dispositive provisions to become public.

One was a public figure who was leaving bequests to several female friends and didn't want that to be publicized. He created a separate trust to receive a sum of money and put those provisions in the separate trust.

The other was the chairman and largest shareholder of a small public company. He didn't want the board to know his business succession plans during his lifetime, so he did something unilaterally (directing his fiduciaries to use their best efforts to do X, Y and Z) that would become effective at his death. He also didn't want his competitors to know his plans even after his death. So he created a revocable trust and put his plans there.

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Re: Two Trusts in one joint investment account?

Post by fourwheelcycle » Thu Mar 26, 2020 3:16 pm

I assume GeorgiaPapa and Momma have particular reasons to prefer individual revocable trusts (edit - I just saw the post above, so I understand). My wife and I used to have individual revocable trusts, each with their own account at Vanguard. At some point we decided it was too much hassle to manage separate brokerage accounts and keep track of separate 1099 DIVs at tax time. Now we have moved to a joint revocable trust with a joint account at Vanguard.

This setup will also be easier for our executor/successor trustee son. He will not have to do anything when the first of us dies except perhaps help my wife file a Form 706 for DSUE if I die first. When the second of us dies he will just step into our JRT's existing accounts at Vanguard and BoA, with no probate requirements or delays.

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GeorgiaPapa
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Re: Two Trusts in one joint investment account?

Post by GeorgiaPapa » Fri Mar 27, 2020 12:16 pm

Thanks for the comments. Lots to consider here. What about this.

It's my understanding that if a creditor of a husband gets a judgement, all the assets in a joint husband/wife account are at risk. Is this true? And if so, the same would be true if the joint account comprised two revocable trusts, correct?

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GeorgiaPapa
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Re: Two Trusts in one joint investment account?

Post by GeorgiaPapa » Fri Apr 03, 2020 12:35 pm

I've given further thought to the comments and suggestions above.

A Special Needs Trust (SNT) is significantly different than a trust for a normal child. Preserving government benefits is one of them and requires a specialist in this area to draft a conforming trust. Believe me, it is complex. And expensive. Care and maintenance is also more involved and often require specialists and trust protectors. Trying to direct life proceeds through a will would be daunting and could backfire depending on family circumstance and the prior mental health of the deceased. Thus a trust set up now offers the most protection and flexibility.

I agree most probate does not draw the attention of friends or the media or curiosity seekers. However, it does draw the attention of some investors who absolutely watch for opportunities to profit from someone's death. Sometimes this benefits the heirs but sometimes it does not. Predators also watch probate for opportunities to swoop in and take advantage of people. Again, a trust offers anonymity and protection.

If you own property in multiple states (a vacation home), then you must absolutely perform probate in each and every state where assets are owned. So, a trust makes sense.

Flexibility is more available in a trust. You can also structure so your wishes are met no matter what happens after your death. There are many many examples. Here's one. Suppose you leave your assets in a will to your wife with the expectation your kids will inherit after she dies. Then you die, your wife gets everything. Then your wife remarries. Then your wife dies and her new husband gets all your assets. Your kids whom you meant to get everything after your wife dies, get zero, nada. A trust can prevent this.

A joint trust account for husband and wife? I am on the fence about one trust or two. We currently have two trusts but managing two of everything takes more time and attention than if it were just one. I'm unsure if we should try to combine everything into one. Which brings me back to the question whether it is a good idea or not to open up one Vanguard account owned jointly by both trusts. Are the assets of both husband and wife exposed by a creditor of one of them?

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Re: Two Trusts in one joint investment account?

Post by dcdowden » Fri Apr 03, 2020 12:44 pm

Several years ago, we set up separate revocable trusts for my wife and myself. We opened 2 new trust accounts at Vanguard and directed vanguard how to divide our assets in our joint account. It was mostly just split up everything evenly, but we did hold a number of individual muni bonds that we had to allocate to one account or the other individually. It wasn't all that hard to do, although we did have to go to our bank to get medallion signature guarantees as well as notarizing the paperwork.

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Re: Two Trusts in one joint investment account?

Post by bsteiner » Fri Apr 03, 2020 1:51 pm

GeorgiaPapa wrote:
Fri Apr 03, 2020 12:35 pm

A Special Needs Trust (SNT) is significantly different than a trust for a normal child. Preserving government benefits is one of them and requires a specialist in this area to draft a conforming trust. Believe me, it is complex. And expensive. ...
That's not correct. The trust for a child with special needs is for the most part the same as the trust for the child without special needs. The difference is that, depending on the nature of the disability, the child will special needs will probably have a lesser degree of control (or no control at all) over his/her trust. A large percentage of people have a child with special needs. It should be a routine matter for a good trusts and estates lawyer, and shouldn't cost much more than it would if the child didn't have special needs.
GeorgiaPapa wrote:
Fri Apr 03, 2020 12:35 pm

... Care and maintenance is also more involved and often require specialists and trust protectors. ...
That's correct. If the trustees want to preserve the beneficiary's eligibility for means-tested government benefits, they can't make any distributions tht would jeopardize those benefits. The trustees may need to consult with counsel knowledgeable with respect to those benefits regarding what distributions may be made without jeopardizing the benefits.
GeorgiaPapa wrote:
Fri Apr 03, 2020 12:35 pm

... Trying to direct life proceeds through a will would be daunting and could backfire depending on family circumstance and the prior mental health of the deceased. Thus a trust set up now offers the most protection and flexibility. ...
It's no harder to name trusts under a Will as the beneficiaries of life insurance as it is to name trusts under a separate trust instrument as the beneficiaries of life insurance, or vice versa.

The protection and flexibility are the same either way.
GeorgiaPapa wrote:
Fri Apr 03, 2020 12:35 pm
...
I agree most probate does not draw the attention of friends or the media or curiosity seekers. However, it does draw the attention of some investors who absolutely watch for opportunities to profit from someone's death. Sometimes this benefits the heirs but sometimes it does not. Predators also watch probate for opportunities to swoop in and take advantage of people. Again, a trust offers anonymity and protection.
...
Investors generally don't go to the courthouse to look at people's Wills, and if they did, they wouldn't learn very much.

The exception is that whenever we probate a Will in New York County (Manhattan), we get mail from real estate brokers and auction houses asking if they can be of assistance.
GeorgiaPapa wrote:
Fri Apr 03, 2020 12:35 pm
...
If you own property in multiple states (a vacation home), then you must absolutely perform probate in each and every state where assets are owned. So, a trust makes sense. ....
That depends on the state. Some states require ancillary probate, while other states don't. However, since the ancillary state has to give full faith and credit to the order admitting the Will to probate in the home state, there isn't as much to do in the other states.
GeorgiaPapa wrote:
Fri Apr 03, 2020 12:35 pm
...
Flexibility is more available in a trust. You can also structure so your wishes are met no matter what happens after your death. There are many many examples. Here's one. Suppose you leave your assets in a will to your wife with the expectation your kids will inherit after she dies. Then you die, your wife gets everything. Then your wife remarries. Then your wife dies and her new husband gets all your assets. Your kids whom you meant to get everything after your wife dies, get zero, nada. A trust can prevent this. ....
That's not correct. You may put the same dispositive provisions either in a Will or in a revocable trust.
GeorgiaPapa wrote:
Fri Apr 03, 2020 12:35 pm
...
A joint trust account for husband and wife? I am on the fence about one trust or two. We currently have two trusts but managing two of everything takes more time and attention than if it were just one. I'm unsure if we should try to combine everything into one. Which brings me back to the question whether it is a good idea or not to open up one Vanguard account owned jointly by both trusts. Are the assets of both husband and wife exposed by a creditor of one of them?
A joint revocable trust works in a community property state, and is commonly used in California (since it's the largest of the community property states by population and the one where probating a Will is said to be difficult). Georgia isn't a community property state.

However, if you and your spouse each have a revocable trust, the two trusts could form a partnership and invest the partnership assets in a single account. I think it would be simpler for the two of you to hold the account either jointly or as tenants in common, but if you want both revocable trusts and a single account, the above is a way you could accomplish that.

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Re: Two Trusts in one joint investment account?

Post by afan » Fri Apr 03, 2020 9:53 pm

Would an LLC be equivalent to a partnership for this purpose?
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bsteiner
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Re: Two Trusts in one joint investment account?

Post by bsteiner » Sat Apr 04, 2020 9:37 am

afan wrote:
Fri Apr 03, 2020 9:53 pm
Would an LLC be equivalent to a partnership for this purpose?
Yes. An LLC is generally treated as a partnership (or a sole proprietorship) for income tax purposes.

You might form a limited partnership or an LLC if you want to limit liability, if you want to centralize management and control, if you want to restrict transfers, or if you want valuation discounts.

But in this case if it’s just to pool investments for a couple, a general partnership would be simpler, though a joint account or a tenant in common account would be even simpler.

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