Vanguard as trustee

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
RandomPointer
Posts: 291
Joined: Sat Nov 23, 2013 1:38 pm

Vanguard as trustee

Post by RandomPointer »

First, my apology if I use the terms incorrectly, I am not that great with legal terms.

We are drafting a will, and I would like the personal representative to setup a trust to keep our saving until our daughter is ready.

I am thinking to put a binding instruction for my personal representative to setup the trust at Vanguard. I am reviewing this page: https://personal.vanguard.com/us/whatwe ... stservices

If you have a will with similar instructions, is there anything that you can share? What are the things that I should know about putting it in my will?

Thanks.
Not Law
Posts: 222
Joined: Sun Sep 14, 2014 8:05 am

Re: Vanguard as trustee

Post by Not Law »

You should put the terms of the trust in your will. Direct the PR to transfer your estate to your Trustee. Instruct the Trustee to either keep the funds the way received ( your Apple stock or your home, if appropriate for example), or if converted to cash, to invest the proceeds within the Vanguard family (or similar family if Vanguard no longer exists) of funds. Since those funds change over time, specific funds should probably not be named. Your testamentary (created by your will) trust will also direct the trustee as to the timing and conditions of disbursements to the beneficiary. Each state would have different laws relating to this, but as long as the trust pays out during the lifetime of the beneficiary (plus 21 years), it should be acceptable. The attorney drafting your will should know all this.
Topic Author
RandomPointer
Posts: 291
Joined: Sat Nov 23, 2013 1:38 pm

Re: Vanguard as trustee

Post by RandomPointer »

Not Law wrote:You should put the terms of the trust in your will. Direct the PR to transfer your estate to your Trustee. Instruct the Trustee to either keep the funds the way received ( your Apple stock or your home, if appropriate for example), or if converted to cash, to invest the proceeds within the Vanguard family (or similar family if Vanguard no longer exists) of funds. Since those funds change over time, specific funds should probably not be named. Your testamentary (created by your will) trust will also direct the trustee as to the timing and conditions of disbursements to the beneficiary. Each state would have different laws relating to this, but as long as the trust pays out during the lifetime of the beneficiary (plus 21 years), it should be acceptable. The attorney drafting your will should know all this.
I have only index funds in my accounts (and some cash). I am thinking to liquidate everything and move it to a balance index fund (VBINX/VBIAX). I think you are right, I should put some instruction just in case the fund does not exist anymore.
User avatar
CABob
Posts: 4989
Joined: Sun Feb 25, 2007 8:55 pm
Location: Southern California

Re: Vanguard as trustee

Post by CABob »

Don't ignore or forget about assets other than your savings/investment accounts such as real estate, vehicles, personal property, etc.
Bob
Topic Author
RandomPointer
Posts: 291
Joined: Sat Nov 23, 2013 1:38 pm

Re: Vanguard as trustee

Post by RandomPointer »

I called Vanguard and received documentations for the trust service. They have fees on top of the mutual funds fees. I also compared them with Fidelity and Schwab. Both Fidelity and Schwab do not have fees on top of the ETF/Funds.

I am having a second thoughts about using Vanguard here. Any thoughts?
Gill
Posts: 6975
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Vanguard as trustee

Post by Gill »

RandomPointer wrote:I called Vanguard and received documentations for the trust service. They have fees on top of the mutual funds fees. I also compared them with Fidelity and Schwab. Both Fidelity and Schwab do not have fees on top of the ETF/Funds.

I am having a second thoughts about using Vanguard here. Any thoughts?
Your information can't be accurate. There is no way Fidelity or Schwab provide trust services for free.
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
User avatar
HueyLD
Posts: 8011
Joined: Mon Jan 14, 2008 10:30 am

Re: Vanguard as trustee

Post by HueyLD »

"Your annual advisory fee is based on the average daily balance in your account(s), some of which may be aggregated together for purposes of the fee calculation. It is calculated as follows: First, a gross annual fee is calculated based
on your average daily assets, which will range from 0.85% to 1.70%. This gross annual fee amount is then reduced by a minimum
credit amount that re ects the fees, if any, received by Strategic Advisers, Inc., or its af liates from Fidelity and non-Fidelity
mutual funds for investment management or certain other services."

https://www.fidelity.com/bin-public/060 ... ochure.pdf
Afull
Posts: 95
Joined: Mon Nov 28, 2016 2:23 pm

Re: Vanguard as trustee

Post by Afull »

I see some red flags, but most likely just not enough info in your post. Are you drafting your own will with someone who's not an attorney???? Usually if someone is concerned about a minor child one creates a trust that deals with the inheritance as well as your own incapacity. I'd be sure to use a licensed estate attorney.

Beyond that I know nothing about Vanguard trust services, but I'd find out if they are only contacted online and by phone as is their investment services. For me personally I'd want my beneficiaries or their representative to interact face-to-face if need be. You've indicated only funds and cash will be for Vanguard to manage so that's simple, but if your estate grows into other assets need to be sure that's something they can handle.

Last, when we completed a draft of our trust we had our successor trustee (not Vanguard) review the entire document so there would be no surprises for either one of us when the time came.
bsteiner
Posts: 5417
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Vanguard as trustee

Post by bsteiner »

Here are Fidelity's trustee's fees: https://fiws.fidelity.com/app/literatur ... onType=pdf. See page 7.

Here are Vanguard's trustee's fees: https://personal.vanguard.com/pdf/eptsb.pdf. See page 8.

I wasn't able to find Schwab's.

This is in addition to the expenses of the funds. I don't know how any of them would manage the assets (in other words, whether they would use low cost funds).
Topic Author
RandomPointer
Posts: 291
Joined: Sat Nov 23, 2013 1:38 pm

Re: Vanguard as trustee

Post by RandomPointer »

Thanks for the links to the brochures. I talked to the Fidelity rep today, and he said that there is no fee. Apparently that is incorrect.

This is what I see from Schwab. http://www.schwab.com/public/schwab/inv ... s_minimums

I have an attorney drafted the will, and it has a generic provision to set up a trust account. I want to give a specific instruction about the trust account. I do not want the guardian to open a trust account on an institution that has fee and use non-index funds.
talzara
Posts: 1220
Joined: Thu Feb 12, 2009 7:40 pm

Re: Vanguard as trustee

Post by talzara »

bsteiner wrote:I wasn't able to find Schwab's.
I couldn't find it on Schwab's web site. Here is a document from an investment adviser that gives the fees charged by Schwab Bank Personal Trust Services in 2009:
The fee schedule from Schwab Bank:

o First $3 million 40 basis points
o Next $1 million 35 basis points
o Next $1 million 30 basis points
o Next $5 million 20 basis points
o Thereafter 15 basis points
o Minimum annual fee per account $2,500

http://02bf998.netsolhost.com/Docs/Schw ... erview.pdf
bsteiner
Posts: 5417
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Vanguard as trustee

Post by bsteiner »

Has anyone actually had a case where Vanguard or Fidelity was acting as a trustee? If so, how did it work out? How did they manage the assets? How did they deal with the beneficiaries? Did they work well with the attorney?
User avatar
FIREchief
Posts: 5883
Joined: Fri Aug 19, 2016 6:40 pm

Re: Vanguard as trustee

Post by FIREchief »

bsteiner wrote:Has anyone actually had a case where Vanguard or Fidelity was acting as a trustee? If so, how did it work out? How did they manage the assets? How did they deal with the beneficiaries? Did they work well with the attorney?
I would really like to hear about this as well. In particular, I would be interested in hearing:

a) were they willing to stick with a minimal trustee fee and not stack on financial advisor fees?

b) were they willing to invest in a simple two fund or three fund approach and resist the urge to "manage" the portfolio?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Topic Author
RandomPointer
Posts: 291
Joined: Sat Nov 23, 2013 1:38 pm

Re: Vanguard as trustee

Post by RandomPointer »

Talzara, thanks for the Schwab fee schedule.

From my discussion with Vanguard, I was told that they require Vanguard to be the asset manager. I cannot pick a fund like balanced index fund, but I have to use their service.

That requires management fee, and administration fee. They charge 0.55% below five millions. I am concerned that they would pick funds that I do not want (international bonds, for example), and unfortunately, I don't have a choice.

I asked for sample portfolio, and they give me the model portfolio, consisting total US market, total international, short term investment grade, intermediate term investment grade, total bond index, and international bond index.

Given all choices, I prefer a trustee that use only low-cost index funds. I need to call Fidelity and Schwab to get their model portfolio.
JoinToday
Posts: 920
Joined: Sat Mar 10, 2007 9:59 pm

Re: Vanguard as trustee

Post by JoinToday »

RandomPointer wrote:..... I am concerned that they would pick funds that I do not want (international bonds, for example), and unfortunately, I don't have a choice.

I asked for sample portfolio, and they give me the model portfolio, consisting total US market, total international, short term investment grade, intermediate term investment grade, total bond index, and international bond index.

Given all choices, I prefer a trustee that use only low-cost index funds. I need to call Fidelity and Schwab to get their model portfolio.
For what it is worth, if international bonds is the worse thing they do, I think you (& I) will be in good shape with Vanguard. I don't have International Bonds in my portfolio, but don't think it is a terrible choice to have it -- I just don't see much of a compelling reason to complicate my portfolio for a minuscule (if that) improvement in performance/volatility.

I would worry even more about Fidelity managing my money. They are a "for profit" company, and were probably forced to add low cost index funds grudgingly only after losing market share to Vanguard. I doubt if index funds are at the top of the list of their recommendations (speculation on my part).

John Bogle has speculated that Fidelity will be bought (or maybe merged) within 5 years.

Vanguard is specified as a trustee to consider in my trust.
I wish I had learned about index funds 25 years ago
zyxw
Posts: 2
Joined: Mon Jan 02, 2017 3:42 pm

Re: Vanguard as trustee

Post by zyxw »

I am considering the use of Vanguard as a Corporate Trustee and am wondering if there any more current comments available as of February 17, 2018? Has anyone actually signed on with Vanguard Trustee and what are their results?

DRR
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

Have not signed on with Vanguard, or anyone else, for trustee services. From my shopping:

The fees and details change fairly often. So be sure to get up to date information.

Vanguard was simple. It operated in many ways like a traditional bank trustee. Vanguard would manage the investment responsibilities, make distributions. Vanguard would definitely take an index fund approach. It would give you very limited choice about how to invest, largely following Vanguard's model, which would include international bonds. Vanguard would not hold real estate. If you had real estate assets you would need some other trustee to manage those assets.


Schwab was completely different. Schwab would NOT act as a full service trustee. Instead, it would do the administrative trustee work with the investment decisions made by an entity in the Schwab advisor network. There are a huge number o advisors on the network and Schwab acts to serve them, with the advisor being the primary point of contact for the beneficiary. The fees listed by Schwab cover ONLY those services, so there would definitely be more fees on top. With this approach you would have to identify an investment advisor whose approach you liked, hire them as the advisor and they would set you up with Schwab. There are advisors who follow a low cost index fund approach but I could not find a systematic way to identify them.

Fidelity was a mess. Calling their main number got me nowhere. The people who you got had no idea about trust administration. Like did not know Fidelity did it. Ultimately I found that brochure online but using that contact information was no more helpful. Again, no one had a clue. Wanted to send me to a local Fidelity office to get even the rates. Those in the brochure are obscure as to which services are included in things listed a agent for the trustee and the people on the phone had no clue.

After many, many phone calls and emails I finally tracked down someone I believed knew what she was talking about. The news was not good. I explained that I was one of those academic research driven, efficient market types and not a all interested in active management.

When I asked whether Fidelity as trustee would invest in low cost index funds, she said "No way." She explained that the relatively low administrative fees were loss leaders and they made their money on the fund expense ratios. She said that they would be active-only. No index funds in a trust portfolio. She said that the combination of trustee fees and expense ratios would take the costs to about 1.5-2%. "If you want index funds in a trust portfolio, we are not the company for you".

That was enough to put me off, but the sheer torture of trying to find someone to talk to was even worse. I could not imagine putting a beneficiary through that.

This was about 2 1/2 years ago, so it is possible they have gotten their act together. I did not have the courage to make another attempt at contact, but searching for fees online has been no better.

You should know that there is an option called "directed trustee" under which a bank or trust company will do the administrative work while someone else manages the investments. Some banks with trust departments will do thia, others will not. If you have beneficiaries who can handle the investment work themselves this can be a better way to go than any of the above companies. It is similar to the Schwab arrangement but Schwab limits your choice of investment managers to those on their Network. Neither the grantor nor the beneficiary are eligible to manage the money. So you have to pay that extra level of fees and you have to fund a manager who will stuck to low cost index funds.

An alternative approach if you are working with an estate planning expert would be to seek advice as to which trust companies would manage an index portfolio at reasonable cost for a trust your size.
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
Gill
Posts: 6975
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Vanguard as trustee

Post by Gill »

zyxw wrote: Sat Feb 17, 2018 2:29 pm I am considering the use of Vanguard as a Corporate Trustee and am wondering if there any more current comments available as of February 17, 2018? Has anyone actually signed on with Vanguard Trustee and what are their results?

DRR
Vanguard Trust Company is designated successor trustee in my estate plan upon my death or inability to manage my affairs. As of today, I haven't reached that point. :happy
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
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

Gill,

You are uniquely qualified to evaluate corporate trustees. Can you tell us how you thought your way through the question of which company to use?
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
Gill
Posts: 6975
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Vanguard as trustee

Post by Gill »

afan wrote: Sat Feb 17, 2018 5:28 pm Gill,

You are uniquely qualified to evaluate corporate trustees. Can you tell us how you thought your way through the question of which company to use?
It's been a number of years now since I made the decision. Having spent my career in the employ of corporate fiduciaries, I was sold on the need for a corporate trustee for the long term trust established in my estate plan. Although I worked for five of the country's major trustees, I knew enough about their operations and their fees to know I didn't want to use any of them or other banks or trust companies of similar size for my own trust.

I have no other major ties with other institutions and have been a customer of Vanguard for nearly 35 years. I spoke with two officers of Vanguard National Trust Company, felt they have the experience and commitment to operate a successful trust company and so decided to use them in my plans. Perhaps not a very scientific approach, but my long time confidence in Vanguard extends to their wholly owned trust company.
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
User avatar
Sandtrap
Posts: 12446
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona
Contact:

Re: Vanguard as trustee

Post by Sandtrap »

Books on Wills, Trusts, and Estates
Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (And Others)
https://www.amazon.com/gp/product/08873 ... UTF8&psc=1
Wiki Bogleheads Wiki: Everything You Need to Know
FBN2014
Posts: 728
Joined: Sat Mar 08, 2014 3:07 pm

Re: Vanguard as trustee

Post by FBN2014 »

I also have decided to name Vanguard as successor trustee and use a law firm to deal with any real estate. My conversations with the Vanguard trust official indicated that they only use Vanguard funds and ETFs but would not be limited to passive funds even though that is my preference. They told me that if I stipulated that only their passive funds could be used that they would have to decline the appointment as successor trustee. Not what I wanted to hear but compared to other choices I felt this was the best way to go.
"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
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

I would not want to write in something too restrictive in a trust about how the assets were to be managed. Things change and it takes a lot of confidence to believe that one now knows what will be the best way to manage investments decades into the future. Imagine what your instructions would have said if you had written them 50 years ago? Certainly would not have included index funds.
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
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

Gill wrote: Sat Feb 17, 2018 5:44 pm
afan wrote: Sat Feb 17, 2018 5:28 pm Gill,

You are uniquely qualified to evaluate corporate trustees. Can you tell us how you thought your way through the question of which company to use?
It's been a number of years now since I made the decision. Having spent my career in the employ of corporate fiduciaries, I was sold on the need for a corporate trustee for the long term trust established in my estate plan. Although I worked for five of the country's major trustees, I knew enough about their operations and their fees to know I didn't want to use any of them or other banks or trust companies of similar size for my own trust.

I have no other major ties with other institutions and have been a customer of Vanguard for nearly 35 years. I spoke with two officers of Vanguard National Trust Company, felt they have the experience and commitment to operate a successful trust company and so decided to use them in my plans. Perhaps not a very scientific approach, but my long time confidence in Vanguard extends to their wholly owned trust company.
Gill
You would know whether you needed any of the services that traditional bank trust departments provide that Vanguard does not. Presumably you either made alternative arrangements or decided you did not need them at all. Other than managing real estate or serving as executor, can you think of things that the traditional corporate trustee might offer that may make them a better choice than Vanguard for some people?

I realize some clients highly value face to face meetings with someone local, which Vanguard does not offer. But here I am asking for other services that some people need and could not get from Vanguard.

Maybe managing highly undiversified portfolios that may contain large amounts of one low basis stock? Multigenerational planning for extended family trusts? Privately held assets rather than tradeable securities? Other things that may be difficult for some clients to avoid?
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
smackboy1
Posts: 1239
Joined: Wed Mar 14, 2007 9:41 pm

Re: Vanguard as trustee

Post by smackboy1 »

RandomPointer wrote: Mon Jan 16, 2017 6:10 pmWe are drafting a will, and I would like the personal representative to setup a trust to keep our saving until our daughter is ready.

I am thinking to put a binding instruction for my personal representative to setup the trust at Vanguard. I am reviewing this page: https://personal.vanguard.com/us/whatwe ... stservices
Please make sure to use an experienced trust and estates lawyer. Also, as a general planning strategy, people, circumstances, laws, taxes, corporations change. At the time the trust is established or at some point during it's existence, Vanguard may or may not be the best choice of trustee. Even today Vanguard funds are not automatically the best choice in all situations. Also, it is my belief that Vanguard Trust Services is primarily created as an adjunct to the mutual fund company. As such it may be limited compared to other trust companies e.g. real estate; DFA funds; Delaware situs; directed trustee. Draft the documents with some flexibility in mind so that in the future alternative trustees can be used if Vanguard is not the best choice.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

Binding your trust to Vanguard could backfire and create a mess that would be difficult for beneficiaries to unwind. Not all banks stay in the trust business forever. What if Vanguard gets out of the business or sells it's trust operation to a different company? If you had normal provisions guiding replacing a trustee it becomes a simple matter. If you placed an impossible constraint, or even worse a requirement that it would be possible to follow but would be a bad idea, it might cost the beneficiary a lot of money to fix.

As of the last time I checked Vanguard was up front that they definitely would not manage real estate. If you expect there to be real estate in the trust and you mandate Vanguard then you have created another mess. As of the last I checked Vanguard would not invest in mutual funds from other companies. That is fine with me, since there are only three funds I am interested in- total US stock, total international stock and an intermediate term Muni fund. That is all I need and Vanguard has those.

But again, things can change in the future and you want to make it possible for your heirs to adapt. My kids and their kids will be around for many decades after I die and I don't want them to be stuck with what seemed like a good idea in 2018, but would be foolish in 2048...
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
Gill
Posts: 6975
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Vanguard as trustee

Post by Gill »

afan wrote: Sun Feb 18, 2018 12:34 pm
Gill wrote: Sat Feb 17, 2018 5:44 pm
afan wrote: Sat Feb 17, 2018 5:28 pm Gill,

You are uniquely qualified to evaluate corporate trustees. Can you tell us how you thought your way through the question of which company to use?
It's been a number of years now since I made the decision. Having spent my career in the employ of corporate fiduciaries, I was sold on the need for a corporate trustee for the long term trust established in my estate plan. Although I worked for five of the country's major trustees, I knew enough about their operations and their fees to know I didn't want to use any of them or other banks or trust companies of similar size for my own trust.

I have no other major ties with other institutions and have been a customer of Vanguard for nearly 35 years. I spoke with two officers of Vanguard National Trust Company, felt they have the experience and commitment to operate a successful trust company and so decided to use them in my plans. Perhaps not a very scientific approach, but my long time confidence in Vanguard extends to their wholly owned trust company.
Gill
You would know whether you needed any of the services that traditional bank trust departments provide that Vanguard does not. Presumably you either made alternative arrangements or decided you did not need them at all. Other than managing real estate or serving as executor, can you think of things that the traditional corporate trustee might offer that may make them a better choice than Vanguard for some people?

I realize some clients highly value face to face meetings with someone local, which Vanguard does not offer. But here I am asking for other services that some people need and could not get from Vanguard.

Maybe managing highly undiversified portfolios that may contain large amounts of one low basis stock? Multigenerational planning for extended family trusts? Privately held assets rather than tradeable securities? Other things that may be difficult for some clients to avoid?
As for my personal situation, any real estate I own would not end up in the trust but would be dealt with in my probate estate.

Although I ruled out the major trust institutions for myself, I agree that many of them offer services in their trust operation not offered by Vanguard Trust. You have mentioned real estate. Closely held businesses is another good example. One bank I worked for had a family business division that ran family business interests on an ongoing business. As an example, they ran the Schwinn Bicycle Company for many years and were responsible for beginning the development of a large Florida cattle ranch into what is now a city-sized community. My estate doesn't need that depth of service.

The large trust institutions also have administrative talent that I'm sure doesn't exist at Vanguard. Another institution where I spent 18 years had almost all attorneys in their administrative staff. Most of them had experience in a trusts and estates law practice. That type of talent is expensive and not necessarily needed in all situations. Many of them spread this cost over many accounts by assigning officers far more accounts than they can effectively oversee. They will buy you lunch in their expensive dining rooms and invite you to fancy cocktail parties, but you're paying for it all.

The major trust institutions are capable of managing almost any complex situation and Vanguard simply is not. The major trust institutions are also very expensive, much more so than you might ever imagine. As I stated earlier, I know enough about their inner workings, their high costs and their ability to give little attention to all but the highest profile situations to know I didn't want them or need them in my estate plans.

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
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

Very helpful. Thanks
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
User avatar
FIREchief
Posts: 5883
Joined: Fri Aug 19, 2016 6:40 pm

Re: Vanguard as trustee

Post by FIREchief »

Yes, thanks Gill. It is great to hear some wisdom from somebody who has spent years "behind the curtain."
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
brennok
Posts: 244
Joined: Wed Jun 01, 2016 10:18 pm

Re: Vanguard as trustee

Post by brennok »

One thing to keep in mind with Vanguard is they have a 500k minimum per trustee. We looked to Vanguard for my mother and her grandkids, but they would be below the minimum as her account stands right now.
bsteiner
Posts: 5417
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Vanguard as trustee

Post by bsteiner »

brennok wrote: Mon Feb 19, 2018 11:13 pm One thing to keep in mind with Vanguard is they have a 500k minimum per trustee.
Very few other banks or trust companies will take trusts smaller than $500,000.
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

The large national banks in this field typically have minimum trust sizes of several million dollars. One I spoke with would take accounts as low as 3 million but such accounts were placed in a special "small trusts" division at truly painful fees. Others were really not interested in discussing a trust of less than $5 million. All said they might make an exception if the first trust were the beginning of a relationship that would bring in what they considered substantial assets. If you were starting with only $3 million but planned later to have the bank manage $15 million then they would be happy to talk with you.

I was told that smaller banks and trust companies would have lower minimums but $500,000 is really low for trusts. It seems there are high fixed costs to assuming the responsibilities of being trustee and spreading these over a small asset base leads to unreasonably high fees as a percent of assets.

For the big trust companies fees as a percent of assets get well under half a percent starting price once the assets get large enough. But those are assets that only a tiny fraction of the population will ever approach.

When I first spoke with an attorney about a bank trustee he said this was a last resort. He knew that my situation was similar to Gill in that there were no complex assets. The attorney said that the big advantage of banks over individual trustees was that banks don't steal. They may charge extremely high rates, but they do not take off over night with the money. If you have a trustworthy individual who will serve as trustee for low or no cost that is usually going to be a better solution.

If you have someone who is trustworthy but does not have the background to manage the money that person can always hire an advisor or use Vanguard PAS which is cheaper than having them be the trustee.
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
Mitchell777
Posts: 1155
Joined: Mon May 21, 2007 6:32 am

Re: Vanguard as trustee

Post by Mitchell777 »

afan wrote: Sun Feb 18, 2018 12:34 pm
Gill wrote: Sat Feb 17, 2018 5:44 pm
afan wrote: Sat Feb 17, 2018 5:28 pm Gill,

You are uniquely qualified to evaluate corporate trustees. Can you tell us how you thought your way through the question of which company to use?
It's been a number of years now since I made the decision. Having spent my career in the employ of corporate fiduciaries, I was sold on the need for a corporate trustee for the long term trust established in my estate plan. Although I worked for five of the country's major trustees, I knew enough about their operations and their fees to know I didn't want to use any of them or other banks or trust companies of similar size for my own trust.

I have no other major ties with other institutions and have been a customer of Vanguard for nearly 35 years. I spoke with two officers of Vanguard National Trust Company, felt they have the experience and commitment to operate a successful trust company and so decided to use them in my plans. Perhaps not a very scientific approach, but my long time confidence in Vanguard extends to their wholly owned trust company.
Gill
You would know whether you needed any of the services that traditional bank trust departments provide that Vanguard does not. Presumably you either made alternative arrangements or decided you did not need them at all. Other than managing real estate or serving as executor, can you think of things that the traditional corporate trustee might offer that may make them a better choice than Vanguard for some people?

I realize some clients highly value face to face meetings with someone local, which Vanguard does not offer. But here I am asking for other services that some people need and could not get from Vanguard.

Maybe managing highly undiversified portfolios that may contain large amounts of one low basis stock? Multigenerational planning for extended family trusts? Privately held assets rather than tradeable securities? Other things that may be difficult for some clients to avoid?
This goes back about 10 years (so hope I recall correctly), but when I had to look into this, Vanguard would not act as Power of Attorney. Not needed for most but it may be when no heirs and you're concerned about incapacitation. Couple local banks would act as POA but they wanted to also be Trustee. The one that did not require being Trusteee, wanted around $250K with them to proceed (10 years ago)
Gill
Posts: 6975
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Vanguard as trustee

Post by Gill »

afan wrote: Tue Feb 20, 2018 9:40 am The attorney said that the big advantage of banks over individual trustees was that banks don't steal. They may charge extremely high rates, but they do not take off over night with the money.
They also don't die, get sick, go on vacation. They have the benefit of group judgment, perpetual existence, financial responsibility, many sets of auditors, and experience which no individual can offer.
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
Posts: 5417
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Vanguard as trustee

Post by bsteiner »

Gill wrote: Tue Feb 20, 2018 3:42 pm
afan wrote: Tue Feb 20, 2018 9:40 am The attorney said that the big advantage of banks over individual trustees was that banks don't steal. They may charge extremely high rates, but they do not take off over night with the money.
They also don't die, get sick, go on vacation. They have the benefit of group judgment, perpetual existence, financial responsibility, many sets of auditors, and experience which no individual can offer.
They'll invest in a reasonable way. They won't churn the account. They won't invest in load funds. They won't forget to file annual fiduciary income tax returns.

They generally charge about 1% a year, a little more on smaller trusts and less on larger ones. While that's more than Vanguard, and in most cases more than an individual, I wouldn't call it "extremely high." Other than a few cents a share in commissions, there won't be any additional investment expenses unless the family wants non-traditional investments.
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

In the years since I had been trustee shopping Schwab changed their offering. They now WILL serve as a full service trustee, providing both administration and investment management. Fees start at 0.5% of assets for trusts up to $5M, with lower percent of assets for larger balances.

The brief summary I found did not discuss their appoach to investment management, whether they would do all index, whether they would stuck to low cost funds or any other details.

They will hold residential real estate and vacation properties for $3,000 per property per year. That seems a great price. Even better if you just want them to hold this real estate for under a year until it sells. This does not mention doing the more complex things that Gill was discussing. If you need a business run for example it seems you still need a conventional bank.

Since this appears to be a new approach by Schwab, I assume they cannot be doing it with home grown talent. Few of us have Gill's ability to judge the expertise of the people working in the trust division, but at least the prices and services are right:

https//www.schwab.com/public/schwab/investing/ ... vices#fees
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
J295
Posts: 2795
Joined: Sun Jan 01, 2012 11:40 pm

Re: Vanguard as trustee

Post by J295 »

While I understand the focus of the discussion on trustee fees, when we had minor children and designated a corporate trustee in our plans it was a solid local bank where I knew the owners and trust officers were solid and reasonable and would work well with the guardians of our children and eventually our children. Sure, fees are important; but more important to me was our family being taken care of in the unlikely event both my spouse and I died prematurely. We all know the future is impossible to predict, and I wasn’t going to try and rule all of this from the grave. Instead, I wanted to put a solid corporate trustee in place, which we did.
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

Well, costs matter.

The people who work at a bank can move on. Get better jobs, leave town, retire... No matter how much one might like them, it is not realistic to assume they will be there long term.

But where an institution positions itself along the cost spectrum is likely to be more stable. Vanguard has had well publicized turnover at the top. I can only assume there has been plenty of turnover at the lower ranks. But is is still the first place to look for low cost investing.

I can use their reputation to expect that to continue. I can use their size and ownership structure to say they will not be bought out by some other investment company.

But a personal relationship with a specific individual at Vanguard? If I had one that might be nice. However, I would not expect that person to stick around. Look at the turnover in Flagship reps. Not a problem, but "I like my flagship rep" is not a good reason to invest with Vanguard.

For a trust for one's children, particularly if it will stay around once they are adults, the stability and character of the institution count for a lot. The cost probably has some stability.

Northern Trust is not going to start competing on price to bring in half million dollar trust accounts. Vanguard is not going to start charging 3% of assets to do active management.

Since there is no reason to think a 2% of assets manager will be better than a 0.5% of assets one, cost is one of the few things that seem reliably predictable.
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
selfdirected
Posts: 6
Joined: Wed Aug 22, 2018 10:11 am

Re: Vanguard as trustee

Post by selfdirected »

i called Vanguard trust department and this is what i was told. they will not discuss anything unless i bring them completed trust document. They require trust to be irrevocable. That means when provisions are set up i am not allowed to change it. Provisions are basically asset allocation. So if i require 70% fixed income, 30% equities, it looks like they will comply with it. I did not ask but i am assuming even with irrevocable trust i can still take it away from Vanguard and move it to Fidelity or Schwab. then they said something pretty strange. while trust is set up for me basically to pay for my expenses, they also have to manage trust for my beneficiary, so if my beneficiary is someone very young, i am not even sure they will comply with trust asset allocation. I really dont care what beneficiary gets.

Basically i have to give them portfolio i have and they will most likely sell most of holdings and manage it according to their methodology that they are not explaining. For example my portfolio has IWD, i can probably find similar vanguard fund to replace it, but i was told that if they decide to sell it and replace it with equivalent fund for sp500, they can do it. I also have individual investment grade intermediate corporate bonds, i was told that they will be sold immediately and replaced with bond funds. The fact that bonds will be sold at loss (while i want to hold them to maturity), is not their concern. In fact i was told that this simply makes them liable to hold corporate bonds, even if they AAA. I really dont get this madness. iF I HAVE ENOUGH CASH IN PORTFOLIO TO PAY FOR MY EXPENSES FOR LONG TIME, WHY THEY HAVE TO SELL BONDS? I know you will tell me to go to attorney who will write trust document but it appears like total waste of money.

No corporate trust department wants to have anything to do with income oriented self directed investor. what i want is to turn someone my portfolio, have access to corporate trust services and not to make any changes for remainder of my life. All i want trust department to collect income and pay for my expenses. Vanguard trust services fee are very reasonable. What am i missing? It appears there is no way to do what i want. And custodian accounts are not available for this purpose. Any suggestion to achieve what i want? There is no individual i can trust to do what i want.
chemocean
Posts: 292
Joined: Mon Dec 19, 2016 9:45 pm

Re: Vanguard as trustee

Post by chemocean »

This thread has been opportune and helpful. Our children are thirty-ish and are becoming more mature. Five years ago, my wife and I wrote our wills to set up a taxable and non-taxable testamentary trusts for each child, which are dissolved when they reach 40. My sister is both executor of our wills and trustee of all trusts. I knew that being executor and trustee would be a lot of work and I arranged to have her helped by an attorney for executing the will, and an accounting firm and a financial manager for maintaining the trust in advance. My father recently died and I am executor of his small estate and coordinator of a significant non-probate "estate" (PODS, TODS, JTWROS). My father's situation is simple without a Trust and being an Executor is a LOT of work. I am becoming familiar with form 1041 even for a small estate. I realize that I am asking my sister to do too much even with the pre-arranged professional help. I called the Vanguard Trust Department and asked about having Vanguard and my sister being co-Trustees, with Vanguard doing the administrative tasks (accounting and asset allocation) and my sister being primary in the distribution aspects. I was told that this approach was doable. Reading the thread, it appears that having Vanguard as a co-Trustee might be more complicated that I thought. I was talking to the Vanguard Trust representative in general and did not get into the details of the asset allocation (using only passive index funds) and other legal issues.

Since most of the non-taxable assets were derived from three inheritance to us, I am considering naming the children direct beneficiaries for non-taxable financial assets in a new will for which we just began researching. My main concern for establishing a trust is that our children might redeem their inherited IRA transferred directly to them as beneficiaries in a manner that will maximize their taxes, which is exactly the opposite effect that I have achieved in minimizing my taxes over my professional career. Reading "Beyond the Grave" since writing our present wills, I realize that a Trust protects Trust assets from bankruptcy and divorce in most states. With the recent Supreme Court ruling that non-spousal IRA are not protected from bankruptcy, a trust seems more appropriate. Also instead of dissolving the trust, it might be more prudent to name each child as the successor Trustee to the my sister for each of their Trusts when they reach the yet-to-be revised specified age. Also, I need to ask my lawyer if the stretch provisions of an inherited IRA are preserved if the assets come out of a trust upon dissolution of the trust. My sister and children are all numbers people so the rebalancing assets would not be problem, but continuing the Trustee would definitely require advanced accounting help. I will examine this thread extensively to ask Vanguard Trust more detailed questions in my current research.
User avatar
FIREchief
Posts: 5883
Joined: Fri Aug 19, 2016 6:40 pm

Re: Vanguard as trustee

Post by FIREchief »

chemocean wrote: Wed Aug 22, 2018 12:11 pm I realize that a Trust protects Trust assets from bankruptcy and divorce in most states.
I believe this should read "all states." Although, it would require that the trust be drafted properly (e.g. as an accumulation trust and not a conduit trust for qualified assets)
With the recent Supreme Court ruling that non-spousal IRA are not protected from bankruptcy, a trust seems more appropriate. Also instead of dissolving the trust, it might be more prudent to name each child as the successor Trustee to the my sister for each of their Trusts when they reach the yet-to-be revised specified age.


I think you should do this, although it would likely be worded along the lines of "beneficiary will be allowed to serve as their own trustee, etc, etc."
Also, I need to ask my lawyer if the stretch provisions of an inherited IRA are preserved if the assets come out of a trust upon dissolution of the trust.
I believe that the inherited IRA's could be transferred out of the trust, upon dissolution, while still preserving the stretch. (see my signature)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Amy2017
Posts: 112
Joined: Wed Oct 11, 2017 12:02 pm

Re: Vanguard as trustee

Post by Amy2017 »

afan wrote: Sat Feb 17, 2018 3:45 pm You should know that there is an option called "directed trustee" under which a bank or trust company will do the administrative work while someone else manages the investments. Some banks with trust departments will do thia, others will not. If you have beneficiaries who can handle the investment work themselves this can be a better way to go than any of the above companies.
I wonder whether the local trust company my attorney strongly recommends is what you called "directed trustee". Here is what he said.

"xxx's standard Trustee fee schedule starts at 0.6% per year and goes down from there, with our clients historically paying 0.5% or less, depending on the amount of assets in trust. xxx's Executor fee is 3% or less. You should note two things. First, these fees are significantly less than an individual can charge under state law. Second, Vanguard and most other brokerage houses who have gotten into the trust business really do not want to deal with assets that are not marketable securities and hence do not want to do anything difficult or time consuming, hence they are only dipping their toe in the trust company world. My thoughts are not to go with a low cost provider who is not all in and do not chose a trust company who has the best website. Go with the best options under the circumstances and based on your needs. In your case, this means xxx and you can choose Vanguard or other desired investment advisor to manage the trust assets."

Since the trusts will include real estates, which are intended for minor children, I think we may go along with the attorney's recommendation. If we do choose this local trust company and then choose Vanguard as the investment advisor, based on Vanguard's current fee structure, does that mean we only need to pay Vanguard 0.3% investment management fee instead of 0.55%, which includes 0.25% trust management fee?

I trust my attorney's expertise, still trust, but verify. Thanks a lot for many thoughtful advice here.
Mitchell777
Posts: 1155
Joined: Mon May 21, 2007 6:32 am

Re: Vanguard as trustee

Post by Mitchell777 »

I wonder how far down the 3% max executor fee goes. As an example I had all my money at Vanguard, or anywhere, in three funds, and I had no debt, it does not seem like there would be much more work if I had $3M vs $300K. Also, what does a bank, or Vanguard, do for the trust management fee if it does not include the investing decisions.
selfdirected
Posts: 6
Joined: Wed Aug 22, 2018 10:11 am

Re: Vanguard as trustee

Post by selfdirected »

Vanguard would not take trust unless they make investment decisions. In directed trust (no investment decisions) trust distribute funds, files tax returns. I cant find any companies that will do directed trust services only
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

It seems the attorney is recommending a directed trustee approach. Given what the bank will charge for this plus the Vanguard PAS fee you will be paying 0.8-0.9% of assets. That is not much cheaper than what you could get anywhere else. Depending on the size of the trust, perhaps more expensive. So it would be worth shopping around.

The fee for the bank to be executor is pretty stiff. I don't know how it compares to other banks doing the same work. If you have an estate large enough that banks want to serve as trustee then 3% of that is a lot of money. For most estates the work is routine. If you collect all your assets and document what and where they are during life the bank will only have to file a few forms. Paying them 3% would come to a lot of money for not very much work.

If you have an individual who will do it for free, say an adult beneficiary, that person can hire a lawyer on an hourly basis to guide them through the process. It will be much cheaper.

There are banks that will do directed trusts. You have to shop to find them. Also, ask your trusts and estates lawyer for suggestions. Schwab will do it, for example.

In addition to managing the investments, someone has to make distributions from the trust, adjust its allocation based on the needs of the beneficiaries, consider the interests of the current beneficiaries and the remainder people, file tax returns and so forth. There is real work to be done so expect to pay for it.

On several threads on this topic I hear people saying that even Vanguard will not promise to do a three fund portfolio. They will not speculate in wheat futures to try to beat the market but they may do something more involved than a simple cap weighted portfolio.

I cannot believe it is true that Vanguard requires an irrevocable trust. It has been some time since I looked but when I did they were clear that they would handle revocable trusts.

It also sounds strange that they would refuse to hold corporate bonds. Maybe they meant that they would not continue to buy new corporate bonds as opposed to investing in a bond fund?
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
afan
Posts: 5387
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard as trustee

Post by afan »

The logic of an administrative trustee plus a separate investment manager only makes sense if you have a person or entity that will do the investment management the way you like. If you know of a large reputable firm that will be there long term, will not change it's investment approach, will not jack up it's fees and does investments the way you like then directed trustee could be the way to go.

Going out and shopping for a manager and for a separate administrative trustee makes life more complicated without necessarily gaining anything.

For a while I was looking for an administrative trustee who would let the beneficiary manage the investments. I never found one, although they may exist. Schwab would do administrative trustee but you had to hire an advisor from their network to manage the investments.

I found some low cost flat fee advisors on their network. They would do a three fund portfolio for $2,000-$5,000, which is far less than any AUM deal I could find. But they were such small businesses that I worried they would not be around long term.

Whatever you do, include in the trust provisions to change trustees. The business is changing and you want your heirs to be able to change with it.
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
letsgobobby
Posts: 12073
Joined: Fri Sep 18, 2009 1:10 am

Re: Vanguard as trustee

Post by letsgobobby »

Deleted
Last edited by letsgobobby on Sat Apr 27, 2019 11:19 pm, edited 1 time in total.
FBN2014
Posts: 728
Joined: Sat Mar 08, 2014 3:07 pm

Re: Vanguard as trustee

Post by FBN2014 »

letsgobobby wrote: Sat Aug 25, 2018 9:25 am We recently updated our estate plan and changed from Vanguard to a local trust company. As our estate got more complex we discovered some of Vanguard's inflexibility in this department. Our local trust company charges 1% up to $3 million and 0.6% thereafter. This is an all inclusive fee including tax returns. They have a Boglehead philosophy and their sample portfolios were in line with what I would do.

Our local company has experience managing more than just index funds. For instance they have an in house specialist on commercial real estate, and another on small to medium size businesses. All of this plus the fact the beneficiaries could have regular face to face visits with a single point of contact made the higher fee worthwhile.
Does your trust company have clients nationwide? Can you message me the name? Thanks
"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
Amy2017
Posts: 112
Joined: Wed Oct 11, 2017 12:02 pm

Re: Vanguard as trustee

Post by Amy2017 »

FBN2014 wrote: Sat Aug 25, 2018 9:30 am
letsgobobby wrote: Sat Aug 25, 2018 9:25 am We recently updated our estate plan and changed from Vanguard to a local trust company. As our estate got more complex we discovered some of Vanguard's inflexibility in this department. Our local trust company charges 1% up to $3 million and 0.6% thereafter. This is an all inclusive fee including tax returns. They have a Boglehead philosophy and their sample portfolios were in line with what I would do.

Our local company has experience managing more than just index funds. For instance they have an in house specialist on commercial real estate, and another on small to medium size businesses. All of this plus the fact the beneficiaries could have regular face to face visits with a single point of contact made the higher fee worthwhile.
Does your trust company have clients nationwide? Can you message me the name? Thanks
Me too. Thanks.
User avatar
FIREchief
Posts: 5883
Joined: Fri Aug 19, 2016 6:40 pm

Re: Vanguard as trustee

Post by FIREchief »

letsgobobby wrote: Sat Aug 25, 2018 9:25 am They have a Boglehead philosophy and their sample portfolios were in line with what I would do.
Can you tell us more about this? Can you post a sample of their "sample portfolio?"
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Post Reply