Creating a trust for purchasing additional I Bonds

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September
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Creating a trust for purchasing additional I Bonds

Post by September »

https://thefinancebuff.com/simple-livin ... bonds.html

I wonder if anyone has created a simple trust for purchasing I Bonds following the "The Finance Buff"'s advice (the link above).

I am thinking of creating a trust (DIY) solely for purchasing additional I Bonds. Are there any downsides to this? I have the "Make Your Own Living Trust" by Denis Clifford, the book he mentioned in his blog.
Last edited by September on Sat Dec 04, 2021 1:17 pm, edited 1 time in total.
GuyInFL
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Re: Creating a trust for purchasing additional I bond

Post by GuyInFL »

I did it with no problems. I was a little surprised all Treasury direct wanted was the names of the two trusts.

Perhaps they'll want more to withdraw the funds ;)
mary1492
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Re: Creating a trust for purchasing additional I bond

Post by mary1492 »

xyzzy
Last edited by mary1492 on Tue Oct 04, 2022 3:10 am, edited 1 time in total.
Gill
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Re: Creating a trust for purchasing additional I bond

Post by Gill »

mary1492 wrote: Sat Dec 04, 2021 7:48 am You are creating another legal/taxable entity and are assuming responsibility for it/them. If you have a need for the trust(s) and were going to do it anyway, then sure, go for it. However, if you are doing this for the sole purpose of being able to up your cap for purchasing I Bonds then I think you're making a mistake.
A mistake? Why? How about if the trust terminates at the death of the grantor and distributes to the grantor’s estate? I can’t see any harm in that.
Gill
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samsoes
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Re: Creating a trust for purchasing additional I bond

Post by samsoes »

Does the trust have to file a tax return? If so, can it make an estimated payment of $5k to score that amount in paper bonds using form 8888?
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Topic Author
September
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Re: Creating a trust for purchasing additional I bond

Post by September »

GuyInFL wrote: Sat Dec 04, 2021 7:45 am I did it with no problems. I was a little surprised all Treasury direct wanted was the names of the two trusts.

Perhaps they'll want more to withdraw the funds ;)
Did you create the trust by yourself solely for purpose of buying the I-bonds? Or you have a trust already?
Last edited by September on Sat Dec 04, 2021 1:18 pm, edited 1 time in total.
Topic Author
September
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Re: Creating a trust for purchasing additional I bond

Post by September »

Gill wrote: Sat Dec 04, 2021 8:28 am
mary1492 wrote: Sat Dec 04, 2021 7:48 am You are creating another legal/taxable entity and are assuming responsibility for it/them. If you have a need for the trust(s) and were going to do it anyway, then sure, go for it. However, if you are doing this for the sole purpose of being able to up your cap for purchasing I Bonds then I think you're making a mistake.
A mistake? Why? How about if the trust terminates at the death of the grantor and distributes to the grantor’s estate? I can’t see any harm in that.
Gill
It's a revocable living trust and I think one can terminate it at any time if needed.
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Re: Creating a trust for purchasing additional I bond

Post by Gill »

samsoes wrote: Sat Dec 04, 2021 8:35 am Does the trust have to file a tax return? If so, can it make an estimated payment of $5k to score that amount in paper bonds using form 8888?
A grantor trust does not file a tax return, nor does it make estimated payments. Further Form 8888 applies only to individuals.
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
cas
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Re: Creating a trust for purchasing additional I bond

Post by cas »

September wrote: Sat Dec 04, 2021 7:38 am https://thefinancebuff.com/simple-livin ... bonds.html

I wonder if anyone has created a simple trust for purchasing I bond following the "The Finance Buff"'s advice (the link above).

I am thinking of creating a trust (DIY) solely for purchasing additional I bond. Are there any downsides to this? I have the "Make Your Own Living Trust" by Denis Clifford, the book he mentioned in his blog.
Well, one "gotcha" administrative part of trusts tends to involve change of trustee (e.g. due to incapacity of original trustee), like in this recent post: Trust pitfall, I think . (That thread, in one post or another, brings up the issue of the wording of the trust involving successor trustee plus the additional layer that the institution with the trust account may have their own paperwork with their own requirements for resignation/replacement of trustee.)

Or, in another example ... Gill can confirm/deny/amend ... but I have in the back of my mind that Gill discovered at some point that his desired successor trustee (an institutional trustee) refused to be trustee for a Treasury Direct account.

My main point (as someone who *is* a successor trustee for an original grantor/trustee who became incapacitated, although not involving a Treasury Direct account): setting up the account and trust can be the easy part. But mistakes/omissions that never come home to roost for you can come home to roost for someone you love many, many years later. Make sure you think through and research the "what if I can't serve as trustee anymore" part through *very* carefully, including looking up any requirements/paperwork Treasury Direct may have.

e.g. This Treasury Direct page is a minimum starting point that mentions limitations and requirements ... and doesn't even get into the issue of successor trustee procedures.
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Re: Creating a trust for purchasing additional I bond

Post by Grt2bOutdoors »

September wrote: Sat Dec 04, 2021 8:55 am
Gill wrote: Sat Dec 04, 2021 8:28 am
mary1492 wrote: Sat Dec 04, 2021 7:48 am You are creating another legal/taxable entity and are assuming responsibility for it/them. If you have a need for the trust(s) and were going to do it anyway, then sure, go for it. However, if you are doing this for the sole purpose of being able to up your cap for purchasing I Bonds then I think you're making a mistake.
A mistake? Why? How about if the trust terminates at the death of the grantor and distributes to the grantor’s estate? I can’t see any harm in that.
Gill
It's a revocable living trust and I think one can terminate it at any time if needed.
That’s correct so long as the grantor is alive. Once the grantor dies the trust becomes irrevocable and the terms of the trust determines what happens next. The Denis Clifford book works, download the forms, take your time filling it out, follow his suggestions and it should be a smooth process for you.
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Gill
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Re: Creating a trust for purchasing additional I bond

Post by Gill »

cas wrote: Sat Dec 04, 2021 9:14 am

Or, in another example ... Gill can confirm/deny/amend ... but I have in the back of my mind that Gill discovered at some point that his desired successor trustee (an institutional trustee) refused to be trustee for a Treasury Direct account.
Your memory is excellent. It was over three years ago that I learned Vanguard Trust Company as successor trustee would not accept my I Bonds which have grown to quite a substantial holding. Rather than change the successor trustee, I removed the bonds from the trust and am now using a POD designation to dispose of them at my death.
Gill
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fujiters
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Re: Creating a trust for purchasing additional I bond

Post by fujiters »

I recently created two revokable living trusts using the Clifford book (and opened and funded Treasury Direct accounts for them). It was straightforward.

I recommend reading the book. You'll almost certainly know if you feel confident enough to actually create the trusts at that point.
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ivgrivchuck
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Re: Creating a trust for purchasing additional I bond

Post by ivgrivchuck »

September wrote: Sat Dec 04, 2021 7:38 am https://thefinancebuff.com/simple-livin ... bonds.html

I wonder if anyone has created a simple trust for purchasing I bond following the "The Finance Buff"'s advice (the link above).

I am thinking of creating a trust (DIY) solely for purchasing additional I bond. Are there any downsides to this? I have the "Make Your Own Living Trust" by Denis Clifford, the book he mentioned in his blog.
I did exactly this for myself and my spouse.

The only downside I am aware of is that if the grantor dies before the trust is liquidated, there is extra work/hassle for the successor trustee and estate executor (often one and same person).

That's why my plan is to spend down the assets from the trust first when I retire, or liquidate them if I get very seriously ill.

The probability that I face a sudden and unexpected death before retiring is relatively low.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
ivgrivchuck
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Re: Creating a trust for purchasing additional I bond

Post by ivgrivchuck »

Gill wrote: Sat Dec 04, 2021 9:18 am
cas wrote: Sat Dec 04, 2021 9:14 am

Or, in another example ... Gill can confirm/deny/amend ... but I have in the back of my mind that Gill discovered at some point that his desired successor trustee (an institutional trustee) refused to be trustee for a Treasury Direct account.
Your memory is excellent. It was over three years ago that I learned Vanguard Trust Company as successor trustee would not accept my I Bonds which have grown to quite a substantial holding. Rather than change the successor trustee, I removed the bonds from the trust and am now using a POD designation to dispose of them at my death.
Gill
I presume that you mean that you moved i-bonds from the trust into your personal account. Was the process straightforward? Treasury didn't complain about the move violating the purchase limits?
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Gill
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Re: Creating a trust for purchasing additional I bond

Post by Gill »

ivgrivchuck wrote: Sat Dec 04, 2021 10:31 am
Gill wrote: Sat Dec 04, 2021 9:18 am
cas wrote: Sat Dec 04, 2021 9:14 am

Or, in another example ... Gill can confirm/deny/amend ... but I have in the back of my mind that Gill discovered at some point that his desired successor trustee (an institutional trustee) refused to be trustee for a Treasury Direct account.
Your memory is excellent. It was over three years ago that I learned Vanguard Trust Company as successor trustee would not accept my I Bonds which have grown to quite a substantial holding. Rather than change the successor trustee, I removed the bonds from the trust and am now using a POD designation to dispose of them at my death.
Gill
I presume that you mean that you moved i-bonds from the trust into your personal account. Was the process straightforward? Treasury didn't complain about the move violating the purchase limits?
Yes, exactly. It was no problem moving the bonds to my individual account other than the requirement for a medallion signature guarantee. After I made the transfer Treasury Direct emailed me saying I had exceeded the limits for the current year because I had purchased in both my individual name and the trust but I was allowed to keep the bonds.
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
mary1492
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Re: Creating a trust for purchasing additional I bond

Post by mary1492 »

xyzzy
Last edited by mary1492 on Mon Oct 03, 2022 12:26 pm, edited 1 time in total.
Topic Author
September
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Re: Creating a trust for purchasing additional I bond

Post by September »

Thanks everyone for your input! The discussion really helps clarifying the pros and cons of using the trust to hold I Bonds. I am a long time I Bond holder and there are times that I Bonds' yield was zero. Back then many people on this forum were talking about selling I Bonds.

How do you redeem I Bonds held in Trust? Is it subject to the same term as the I Bonds in a regular Treasury account?
GuyInFL
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Re: Creating a trust for purchasing additional I bond

Post by GuyInFL »

September wrote: Sat Dec 04, 2021 8:52 am
GuyInFL wrote: Sat Dec 04, 2021 7:45 am I did it with no problems. I was a little surprised all Treasury direct wanted was the names of the two trusts.

Perhaps they'll want more to withdraw the funds ;)
Did you create the trust by yourself solely for purpose of buying the I-bonds? Or you have a trust already?
I created the trust just for the purchase of I bonds to build a ladder between retirement start and social security start.
GuyInFL
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Re: Creating a trust for purchasing additional I bond

Post by GuyInFL »

ivgrivchuck wrote: Sat Dec 04, 2021 10:25 am
September wrote: Sat Dec 04, 2021 7:38 am https://thefinancebuff.com/simple-livin ... bonds.html

I wonder if anyone has created a simple trust for purchasing I bond following the "The Finance Buff"'s advice (the link above).

I am thinking of creating a trust (DIY) solely for purchasing additional I bond. Are there any downsides to this? I have the "Make Your Own Living Trust" by Denis Clifford, the book he mentioned in his blog.
I did exactly this for myself and my spouse.

The only downside I am aware of is that if the grantor dies before the trust is liquidated, there is extra work/hassle for the successor trustee and estate executor (often one and same person).

That's why my plan is to spend down the assets from the trust first when I retire, or liquidate them if I get very seriously ill.

The probability that I face a sudden and unexpected death before retiring is relatively low.
+1
Gill
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Re: Creating a trust for purchasing additional I bond

Post by Gill »

mary1492 wrote: Sat Dec 04, 2021 12:04 pm
Gill wrote: Sat Dec 04, 2021 8:28 am
mary1492 wrote: Sat Dec 04, 2021 7:48 am You are creating another legal/taxable entity and are assuming responsibility for it/them. If you have a need for the trust(s) and were going to do it anyway, then sure, go for it. However, if you are doing this for the sole purpose of being able to up your cap for purchasing I Bonds then I think you're making a mistake.
A mistake? Why? How about if the trust terminates at the death of the grantor and distributes to the grantor’s estate? I can’t see any harm in that.
Gill
I am a firm believer that you do things for the purpose they were intended...I don't let the tail wag the dog, and that is what is being done in this situation. If you already have the trust set up and it is serving a purpose, then great, go purchase some I Bonds within it. If on the other hand, you have no reason for creating the trust except for the fact that you want a mechanism to be able to make more I Bond purchases, I disagree with it. That's me. If you think it's worth doing, go for it. Again, I see no purpose in having another legal/tax entity to be responsible for when the overall payoff is not going to be significant. I truly believe that many folks who really are not very knowledgeable about I Bonds are going overboard with them at this time because of the current spike in interest rate. I think that most who do understand, believe that over the longer term, the yield will be more towards the mean and not the current 7+%. I don't have a crystal ball and am not making predictions, it's my belief. If you believe otherwise, and think it is worth doing only for the purpose of purchasing more I Bonds, as OP has indicated is the intent, again, go for it.
Thanks for the reprimand. My response didn't call for a lecture on the merits of I-Bonds, nor was I advocating the use of a trust to purchase additional bonds. I was only confirming how a trust might be used to purchase them.
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
ivgrivchuck
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Re: Creating a trust for purchasing additional I bond

Post by ivgrivchuck »

mary1492 wrote: Sat Dec 04, 2021 12:04 pm I am a firm believer that you do things for the purpose they were intended...I don't let the tail wag the dog, and that is what is being done in this situation. If you already have the trust set up and it is serving a purpose, then great, go purchase some I Bonds within it. If on the other hand, you have no reason for creating the trust except for the fact that you want a mechanism to be able to make more I Bond purchases, I disagree with it. That's me. If you think it's worth doing, go for it. Again, I see no purpose in having another legal/tax entity to be responsible for when the overall payoff is not going to be significant. I truly believe that many folks who really are not very knowledgeable about I Bonds are going overboard with them at this time because of the current spike in interest rate. I think that most who do understand, believe that over the longer term, the yield will be more towards the mean and not the current 7+%. I don't have a crystal ball and am not making predictions, it's my belief. If you believe otherwise, and think it is worth doing only for the purpose of purchasing more I Bonds, as OP has indicated is the intent, again, go for it.
Personally I see many possible scenarios where real rates continue to stay negative (they are currently at around -4%) and I-bonds continue to be a strong investment for several years. And if I'm wrong, liquidating them is easy.

I can understand your dislike for opening a trust just holding i-bonds/ee-bonds, but in practical terms there is very little work (write the trust document, notarize it, open a TD account), no tax return or anything else required (until the grantor dies). There is nothing illegal or immoral about it.

If you feel like that it's not for you, that's fine. Some people don't want to do backdoor roth, because they consider it a tax loophole. Some want to only hold ESG investments. Some dislike TD so much, that they want to avoid savings bonds entirely. People have different convictions and approaches, and that's fine...
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ivgrivchuck
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Re: Creating a trust for purchasing additional I bond

Post by ivgrivchuck »

September wrote: Sat Dec 04, 2021 1:12 pm How do you redeem I Bonds held in Trust? Is it subject to the same term as the I Bonds in a regular Treasury account?
You can link your personal bank account with the TD trust account and purchasing/redeeming should work exactly the same as with your personal account.

There are some limitations, like trust account cannot accept/send gits, no secondary owners/beneficiaries for bonds. But for the most part things work exactly the same.
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jeff1949
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Re: Creating a trust for purchasing additional I bond

Post by jeff1949 »

ivgrivchuck wrote: Sat Dec 04, 2021 5:57 pm
September wrote: Sat Dec 04, 2021 1:12 pm How do you redeem I Bonds held in Trust? Is it subject to the same term as the I Bonds in a regular Treasury account?
You can link your personal bank account with the TD trust account and purchasing/redeeming should work exactly the same as with your personal account.

There are some limitations, like trust account cannot accept/send gits, no secondary owners/beneficiaries for bonds. But for the most part things work exactly the same.
+1
Topic Author
September
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Re: Creating a trust for purchasing additional I bond

Post by September »

ivgrivchuck wrote: Sat Dec 04, 2021 5:57 pm
September wrote: Sat Dec 04, 2021 1:12 pm How do you redeem I Bonds held in Trust? Is it subject to the same term as the I Bonds in a regular Treasury account?
You can link your personal bank account with the TD trust account and purchasing/redeeming should work exactly the same as with your personal account.

There are some limitations, like trust account cannot accept/send gits, no secondary owners/beneficiaries for bonds. But for the most part things work exactly the same.
Thank you!
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