Help With MIL’s Irrevocable Trust and Investing Issues

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ClaycordJCA
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Help With MIL’s Irrevocable Trust and Investing Issues

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MIL is 81 and a California resident. Her husband passed earlier this year. Second marriage for each. Their house and three investment accounts with a full service broker (over 100 total individual positions (not mutual funds or ETFs) between the 3 accounts) were held in a revocable trust. Upon her husband’s passing, trust assets were allocated: (1) 50% to an irrevocable trust for the benefit of husband’s son and his children; and (2) 50% to a revocable trust for the benefit of MIL and her children. MIL is entitled during her lifetime to the income generated by the irrevocable trust, but cannot use its principal for her support. MIL may use the principal in the revocable trust for her support.

MIL has made the decision to move the three investment accounts to either Fidelity or Schwab. (I have accounts with both). She also intends to consult a fee only planner for help in financial planning and investment advice. The investments total roughly $610k, so she won’t be able to touch the principal on roughly $305k in the trust. She, as the trustee, also is presumably under a duty to try to preserve the principal for benefit of husband’s son and his children. Added complication is that the son has a history of being verbally abusive and making threats when drinking or doing drugs; I suppose there is a risk, probably small, that he could challenge the handling of the trust.

MIL also has approximately $250k in 3 DRIP stock accounts, plus a bank savings account. Minimal ($8500) tax deferred retirement savings. The house is owned free and clear and her share is probably worth $175k to $200k.

Issues/Questions:

1) The 100+ positions in the investment accounts will need to be liquidated. I believe the cost basis reset to the share price as of the husband’s date of death. The full service brokerage has already been instructed to not reinvest any dividends or capital gains. Any thoughts on whether Fidelity or Schwab is the better brokerage for us to accomplish this with?
2) While total return investing is superior in most instances, it would seem this is the rare occasion that MIL would be better served by a dividend/income focused investing approach with the funds in the irrevocable trust since she is only entitled to the income. Any disagreement and, if so, why?
3). Is it worth including preferred stock, such as the iShares Preferred and Income Securities ETF (ticker “PFF”), or junk bond funds in the irrevocable trust given this scenario?
4) Is it advisable for MIL to defer to the investment advisor’s recommendations for investments to hold in the irrevocable trust? It would seem that doing so could offer MIL some protection in the event the husband’s son challenges her handling of that trust’s investments.
5) Should we Plan for an additional 15 or 20 years of MIL’s retirement? Seems unlikely, but feasible that she could live to 101. I do not believe she has any LTC insurance, which causes me to believe we should plan on 20 years and a 5% withdrawal rate.
6) Anything you think I have missed?

Thank you in advance.
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