What to do with inherited trust

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Topic Author
snowyday24
Posts: 8
Joined: Fri Apr 05, 2024 1:54 pm

What to do with inherited trust

Post by snowyday24 »

I recently inherited a trust valued at about $1.5 million. It is held at a top 10 bank with their wealth management group. The trust officer and investment team would obviously like to keep the funds with them and I am trying to figure out what to do. They do have a relationship with members of my extended family but are located in a different city from me and I have never met with them in person or been given an opportunity to understand any value they might bring. I feel they may pick up on my naivete and the fact that my main financial guide is now gone, and haven't given me many options or much information and assume I will just stay with them. Management fees look to be around 1.4% which while standard seems ridiculous, especially when I see posts here that say to imagine you are writing a check for that amount, not just having it automatically deducted from your account.

I’m not exactly clear on my options. Potentially --

- Transfer in-kind and keep with them (quickest way to "control" the money)
- Sell everything and open a MMA with them while I attempt to learn everything I can about investing and make a decision about how to invest it going forward (will take time for me to learn and figure out a plan but at least the money will be out of limbo and transferred to me while I come up with a plan)
- Sell everything and then transfer cash to some self-managed funds. (This will leave the money in its current limbo state longer while I figure out a plan, but will skip the middle account while I learn)
I imagine with the last two options there will be significant taxes but then I would have the option not to be tied to one institution going forward.

The bulk of my family’s assets (mine individually and other accounts I am the beneficiary of) are held with another institution that charges about .63% in fees due to the amount of assets. These are local people we see regularly for check-ins and I know they would love the business, but I’m wondering if it’s time to try some of the principles here and not pay any advisor. I guess a 4th option would be to transfer to this institution since at least the fees are lower and then figure out from there.

I'm not in a hurry to access the money at all but this is one of many open items I'm trying to figure out and take off my list. Thank you.
BirdFood
Posts: 494
Joined: Sat Mar 23, 2024 12:15 pm

Re: What to do with inherited trust

Post by BirdFood »

Why not "transfer in-kind to another institution"?

Is there a reason (weird proprietary investments, say) why you would have to sell everything in order to transfer?
Topic Author
snowyday24
Posts: 8
Joined: Fri Apr 05, 2024 1:54 pm

Re: What to do with inherited trust

Post by snowyday24 »

BirdFood wrote: Tue Jun 11, 2024 2:55 pm Why not "transfer in-kind to another institution"?

Is there a reason (weird proprietary investments, say) why you would have to sell everything in order to transfer?
I doubt there is anything unique about the holdings I just didn't realize this was an option, so thank you for your reply.

How does the step up in basis work with this kind of transfer? If the new advisors think changes should be made to the portfolio once they take it over, would the step up still apply if they advise to sell some of the holdings then?
RetiredAL
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Re: What to do with inherited trust

Post by RetiredAL »

snowyday24 wrote: Tue Jun 11, 2024 2:28 pm I recently inherited a trust valued at about $1.5 million. .....
There are many kinds of Trusts. You first need to know what the Trust allows you to do (limitations).
BirdFood
Posts: 494
Joined: Sat Mar 23, 2024 12:15 pm

Re: What to do with inherited trust

Post by BirdFood »

snowyday24 wrote: Tue Jun 11, 2024 3:07 pm
BirdFood wrote: Tue Jun 11, 2024 2:55 pm Why not "transfer in-kind to another institution"?

Is there a reason (weird proprietary investments, say) why you would have to sell everything in order to transfer?
I doubt there is anything unique about the holdings I just didn't realize this was an option, so thank you for your reply.
Ignoring the trust issue--for example, if you were just moving your private brokerage account from one brokerage to another--it would normally be an option, so I think it's worth pursuing.
toddthebod
Posts: 6738
Joined: Wed May 18, 2022 12:42 pm

Re: What to do with inherited trust

Post by toddthebod »

snowyday24 wrote: Tue Jun 11, 2024 2:28 pm I recently inherited a trust valued at about $1.5 million. It is held at a top 10 bank with their wealth management group. The trust officer and investment team would obviously like to keep the funds with them and I am trying to figure out what to do. They do have a relationship with members of my extended family but are located in a different city from me and I have never met with them in person or been given an opportunity to understand any value they might bring. I feel they may pick up on my naivete and the fact that my main financial guide is now gone, and haven't given me many options or much information and assume I will just stay with them. Management fees look to be around 1.4% which while standard seems ridiculous, especially when I see posts here that say to imagine you are writing a check for that amount, not just having it automatically deducted from your account.

I’m not exactly clear on my options. Potentially --

- Transfer in-kind and keep with them (quickest way to "control" the money)
- Sell everything and open a MMA with them while I attempt to learn everything I can about investing and make a decision about how to invest it going forward (will take time for me to learn and figure out a plan but at least the money will be out of limbo and transferred to me while I come up with a plan)
- Sell everything and then transfer cash to some self-managed funds. (This will leave the money in its current limbo state longer while I figure out a plan, but will skip the middle account while I learn)
I imagine with the last two options there will be significant taxes but then I would have the option not to be tied to one institution going forward.

The bulk of my family’s assets (mine individually and other accounts I am the beneficiary of) are held with another institution that charges about .63% in fees due to the amount of assets. These are local people we see regularly for check-ins and I know they would love the business, but I’m wondering if it’s time to try some of the principles here and not pay any advisor. I guess a 4th option would be to transfer to this institution since at least the fees are lower and then figure out from there.

I'm not in a hurry to access the money at all but this is one of many open items I'm trying to figure out and take off my list. Thank you.
You gotta take a huge step back here. Are you the successor trustee or the beneficiary of the trust? If you are beneficiary, is the bank the trustee, and do you have the power to replace the trustee?

By the way, AUM fees for a corporate trustee are not comparable to the AUM for just investment services.
mikejuss
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Re: What to do with inherited trust

Post by mikejuss »

What is the composition of the trust--what stocks and bonds are held within it, OP?
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Wiggums
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Re: What to do with inherited trust

Post by Wiggums »

You first need to understand what you have and the options.

Although you told us about the 1.4% AUM fee, you are probably well over 2% when you add the expense ratio. 1.4% is a $21,000 annual fee to get the same portfolio each year. An annual fee based on your portfolio balance is insane.
"I started with nothing and I still have most of it left."
bsteiner
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Re: What to do with inherited trust

Post by bsteiner »

snowyday24 wrote: Tue Jun 11, 2024 3:07 pm ...
How does the step up in basis work with this kind of transfer? If the new advisors think changes should be made to the portfolio once they take it over, would the step up still apply if they advise to sell some of the holdings then?
There's usually no basis step-up upon the death of a beneficiary of a trust. However, there would be if the trust were included in the deceased beneficiary's estate, for example upon the surviving spouse's death in a QTIP trust, or if the beneficiary had a general power of appointment (which is sometimes used to avoid generation-skipping transfer (GST tax). There would also be a basis step-up if the trust were fully subject to GST tax upon the deceased beneficiary's death.
toddthebod wrote: Tue Jun 11, 2024 3:58 pm ...
By the way, AUM fees for a corporate trustee are not comparable to the AUM for just investment services.
Surprisingly, they're either the same or only slightly higher for a trust. The bank sees itself as primarily managing the assets.
aristotelian
Posts: 12558
Joined: Wed Jan 11, 2017 7:05 pm

Re: What to do with inherited trust

Post by aristotelian »

snowyday24 wrote: Tue Jun 11, 2024 2:28 pm I recently inherited a trust valued at about $1.5 million. It is held at a top 10 bank with their wealth management group. The trust officer and investment team would obviously like to keep the funds with them and I am trying to figure out what to do. They do have a relationship with members of my extended family but are located in a different city from me and I have never met with them in person or been given an opportunity to understand any value they might bring. I feel they may pick up on my naivete and the fact that my main financial guide is now gone, and haven't given me many options or much information and assume I will just stay with them. Management fees look to be around 1.4% which while standard seems ridiculous, especially when I see posts here that say to imagine you are writing a check for that amount, not just having it automatically deducted from your account.

I’m not exactly clear on my options. Potentially --

- Transfer in-kind and keep with them (quickest way to "control" the money)
- Sell everything and open a MMA with them while I attempt to learn everything I can about investing and make a decision about how to invest it going forward (will take time for me to learn and figure out a plan but at least the money will be out of limbo and transferred to me while I come up with a plan)
- Sell everything and then transfer cash to some self-managed funds. (This will leave the money in its current limbo state longer while I figure out a plan, but will skip the middle account while I learn)
I imagine with the last two options there will be significant taxes but then I would have the option not to be tied to one institution going forward.

The bulk of my family’s assets (mine individually and other accounts I am the beneficiary of) are held with another institution that charges about .63% in fees due to the amount of assets. These are local people we see regularly for check-ins and I know they would love the business, but I’m wondering if it’s time to try some of the principles here and not pay any advisor. I guess a 4th option would be to transfer to this institution since at least the fees are lower and then figure out from there.

I'm not in a hurry to access the money at all but this is one of many open items I'm trying to figure out and take off my list. Thank you.
Who is the trustee? You could start by asking them if it is possible to transfer the assets to another custodian. If they won't help you may need to speak to an attorney
Topic Author
snowyday24
Posts: 8
Joined: Fri Apr 05, 2024 1:54 pm

Re: What to do with inherited trust

Post by snowyday24 »

bsteiner wrote: Tue Jun 11, 2024 4:16 pm
snowyday24 wrote: Tue Jun 11, 2024 3:07 pm ...
How does the step up in basis work with this kind of transfer? If the new advisors think changes should be made to the portfolio once they take it over, would the step up still apply if they advise to sell some of the holdings then?
There's usually no basis step-up upon the death of a beneficiary of a trust. However, there would be if the trust were included in the deceased beneficiary's estate, for example upon the surviving spouse's death in a QTIP trust, or if the beneficiary had a general power of appointment (which is sometimes used to avoid generation-skipping transfer (GST tax). There would also be a basis step-up if the trust were fully subject to GST tax upon the deceased beneficiary's death.

toddthebod wrote: Tue Jun 11, 2024 3:58 pm ...
By the way, AUM fees for a corporate trustee are not comparable to the AUM for just investment services.
Surprisingly, they're either the same or only slightly higher for a trust. The bank sees itself as primarily managing the assets.
My father used his power of appointment in his will to name me. I do have the original trust document I can review for further things to look for.
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