Vanguard Natl. Trust Co. - Limitations

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Gill
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Vanguard Natl. Trust Co. - Limitations

Post by Gill »

I have often posted on this forum urging others to consider using VNTC as a trustee or successor trustee in their financial or estate planning. As I believe I've mentioned, for the past five years VNTC has been named as successor trustee in my own estate plan.

Several weeks ago I decided to inquire of VNTC about their position with respect to my significant holding of Series I Bonds. I have a mid-six figure holding of I-Bonds with maturities ranging from 2030 to 2049 and accrued interest exceeding $200,000. My concern was that VNTC, upon my death, disability or resignation might liquidate this entire holding incurring a significant income tax unnecessarily. The entire trust would be nearly mid seven figures composed entirely of Vanguard mutual funds other than the I-Bonds representing over 10% of the trust.

Much to my shock and surprise, VNTC has told me that in view of this information they would likely refuse to accept the appointment as successor trustee. I was not only totally surprised at this information, but angry that I had happily thought they were there to accept this appointment at some future date. Furthermore, I had advised others on this forum to consider a similar appointment.

Here is the language they rely upon in their recently-published literature which had never been brought to my attention until this week:

c) Administration of Insurance Products and Nonfinancial Assets:
VNTC shall act as trustee of assets traded on a financial market (including mutual funds or other collective
investment vehicles affiliated with Vanguard). VNTC shall not accept or be responsible for the administration,
investment, review, maintenance, disposition, or sale of insurance products or any nonfinancial assets not
traded on a financial market unless expressly agreed to by VNTC in a separate writing. Such nonfinancial assets
include—but are not limited to—real estate, business assets, loans and promissory notes, copyrights, patents
and royalties, timber and mineral interests, collectibles, and tangible personal property.


I am still struggling with the steps I should now take, whether it is to find another corporate trustee or to possibly dispose of the I-Bonds in another way upon my death, possibly by removing them from the trust and designating my daughter under a POD appointment. In any event, my warning to anyone who has relied on my suggestion to consider VNTC - please be aware that it is not only real estate VNTC won't accept but such a simple and easily liquidated asset as I-Bonds.

I am still angry that this was never been brought to my attention during the five year period they have had this appointment. I told them that during my days in the trust business we would have jumped at an account such as mine. Further I told them I had suggested to others on the Internet they consider VNTC's services. Fortunately, I haven't yet died or become disabled which would have left my beneficiaries searching for another trustee to manage my trust. Anyone in a similar position, please take heed of the serious limitation on the capabilities of VNTC.

Gill
Last edited by Gill on Sat Mar 07, 2020 6:49 pm, edited 1 time in total.
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HueyLD
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Re: Vanguard Natl. Trust Co. - Important Information

Post by HueyLD »

I think Vanguard is trying to get out of “non-core” businesses because it has figured out that low cost and certain businesses do not work well.

It is time to look for alternatives for those with assets not traded on financial markets.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by FIREchief »

Thanks for sharing this Gill. One more data point reflecting how rigid the world of corporate trustees seems to be right now.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by FelixTheCat »

I-Bonds are a Treasury Direct product. I would think Vanguard (Mutual Fund company) would hold only products they could put into their brokerage account.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by bsteiner »

Gill wrote: Fri Jul 19, 2019 12:09 pm ...
I am still struggling with the steps I should now take, whether it is to find another corporate trustee or to possibly dispose of the I-Bonds in another way upon my death, possibly by removing them from the trust and designating my daughter under a POD appointment. ...
I'm not sure if I bonds work the same way as E bonds, but for E bonds if you name a beneficiary you destroy the ability to accrue the interest in the estate (or for the estate to cash in some of them) and use the administration expenses to offset the income from the bonds.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

bsteiner wrote: Fri Jul 19, 2019 12:44 pm I'm not sure if I bonds work the same way as E bonds, but for E bonds if you name a beneficiary you destroy the ability to accrue the interest in the estate (or for the estate to cash in some of them) and use the administration expenses to offset the income from the bonds.
Bruce, I believe the same rules apply to I-Bonds. However, isn't there still the right to accrue the interest on the decedent's final return?
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Big Dog »

sorry to hear about this hassle, gill. (Just another reason that I have eschewed i-bonds and am slowly cashing in Series E bonds....on top of that, Treasury Direct is not user friendly and never will be; just not worth the hassle to me.)
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Re: Vanguard Natl. Trust Co. - Important Information

Post by bsteiner »

Gill wrote: Fri Jul 19, 2019 2:35 pm
bsteiner wrote: Fri Jul 19, 2019 12:44 pm I'm not sure if I bonds work the same way as E bonds, but for E bonds if you name a beneficiary you destroy the ability to accrue the interest in the estate (or for the estate to cash in some of them) and use the administration expenses to offset the income from the bonds.
Bruce, I believe the same rules apply to I-Bonds. However, isn't there still the right to accrue the interest on the decedent's final return?
Gill
There is for E bonds. We sometimes do that if the decedent died early in the year. We sometimes accrue it in the estate if we can offset the income with administration expenses. Since not many estates have U.S. savings bonds, this doesn't come up very often.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

Big Dog wrote: Fri Jul 19, 2019 2:48 pm sorry to hear about this hassle, gill. (Just another reason that I have eschewed i-bonds and am slowly cashing in Series E bonds....on top of that, Treasury Direct is not user friendly and never will be; just not worth the hassle to me.)
I started buying them in 2000 for several years when they were quite attractive, stopped for about ten years and then resumed about five years ago primarily as a cash reserve. Over that 19 year time period they grew to about a mid-six figure amount and over $200,000 of accrued interest which I mentioned earlier. I never imagined they'd create this problem with my estate. I don't have a problem with their Website. I'm leaning to changing them to a POD for my daughter and leaving VNTC as trustee of my trust but haven't fully decided yet.
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

bsteiner wrote: Fri Jul 19, 2019 2:50 pm
Gill wrote: Fri Jul 19, 2019 2:35 pm
bsteiner wrote: Fri Jul 19, 2019 12:44 pm I'm not sure if I bonds work the same way as E bonds, but for E bonds if you name a beneficiary you destroy the ability to accrue the interest in the estate (or for the estate to cash in some of them) and use the administration expenses to offset the income from the bonds.
Bruce, I believe the same rules apply to I-Bonds. However, isn't there still the right to accrue the interest on the decedent's final return?
Gill
There is for E bonds. We sometimes do that if the decedent died early in the year. We sometimes accrue it in the estate if we can offset the income with administration expenses. Since not many estates have U.S. savings bonds, this doesn't come up very often.
I don't imagine you see E Bonds very often. Back when I handled smaller estates of people who had purchased the old "War Bonds" it was quite common.
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Steelersfan »

I had a mid five figure amount of I-Bonds from the early 2000's which I decided to spare my heirs the trouble of dealing with. I decided to gift them at the annual gift tax threshold to get them out of my estate. They went to my heirs in the same proportion as they would get them from my estate. I had to pay the income tax on the accrued interest, but they got I-Bonds that, if used for college education, means that they will never pay further income taxes on them. That will result in less total tax paid over the life of the bonds.

Conversion took some effort on my part, and Treasury Direct has some strict procedures to follow to transfer the bonds, but it's entirely doable.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by afan »

Because of the various limitations of VNTC my current plan is to find a bank that will serve as directed trustee and have the beneficiaries manage the assets themselves, getting help if they want it. They can change trustee if they like.

This does create a risk that they might make a bad choice in managing assets or or picking a trustee. I am hoping that by the time a trustee would be needed there will be traditional trust companies that will manage a simple 3 fund portfolio.

VNTC not doing real estate would force family members or heirs to have a separate process to deal with this asset. Since my goal is to simply things, this does not work.

This adds to the mystery about what else people commonly own and trust departments commonly handle that Vanguard will refuse to manage. Extremely disappointing that Gill, who is as sophisticated a consumer of trust services as could exist was unaware of the limitation. I am sure he carefully read all the documents they provided and had a thorough understanding of the propoosed services.

Back to the issue at hand:

Given your background Gill, I assume you spoke with someone knowledgeable and got accurate information about how Vanguard works. But what I see in the quoted text is that VNTC will not handle insurance products, which is not I-bonds. They are financial assets, so the " no non-financial assets" rule would not matter. The language says that they will not manage non-financial assets that are not traded on securities markets.

My read would have been that VNTC would hold I-bonds.
Easy to see how this different interpretation would be frustrating.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by FIREchief »

afan wrote: Sat Jul 20, 2019 6:40 am My read would have been that VNTC would hold I-bonds.
Easy to see how this different interpretation would be frustrating.
Definitely. They state that they will act as trustee of assets traded on a financial market and then say that they will not accept nonfinancial assets. They don't seem to address financial assets that are NOT traded on a financial market, such as I-bonds. It looks like they need better lawyers writing this stuff up (unless they are intentionally being vague).
VNTC shall act as trustee of assets traded on a financial market (including mutual funds or other collective
investment vehicles affiliated with Vanguard). VNTC shall not accept or be responsible for the administration,
investment, review, maintenance, disposition, or sale of insurance products or any nonfinancial assets not
traded on a financial market unless expressly agreed to by VNTC in a separate writing.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by tj »

FIREchief wrote: Sat Jul 20, 2019 2:40 pm
afan wrote: Sat Jul 20, 2019 6:40 am My read would have been that VNTC would hold I-bonds.
Easy to see how this different interpretation would be frustrating.
Definitely. They state that they will act as trustee of assets traded on a financial market and then say that they will not accept nonfinancial assets. They don't seem to address financial assets that are NOT traded on a financial market, such as I-bonds. It looks like they need better lawyers writing this stuff up (unless they are intentionally being vague).
VNTC shall act as trustee of assets traded on a financial market (including mutual funds or other collective
investment vehicles affiliated with Vanguard). VNTC shall not accept or be responsible for the administration,
investment, review, maintenance, disposition, or sale of insurance products or any nonfinancial assets not
traded on a financial market unless expressly agreed to by VNTC in a separate writing.
What about savings accounts and CD's? Would they reject trusts that have those, too? Those aren't traded on the financial markets.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by FIREchief »

tj wrote: Sat Jul 20, 2019 5:38 pm
FIREchief wrote: Sat Jul 20, 2019 2:40 pm
afan wrote: Sat Jul 20, 2019 6:40 am My read would have been that VNTC would hold I-bonds.
Easy to see how this different interpretation would be frustrating.
Definitely. They state that they will act as trustee of assets traded on a financial market and then say that they will not accept nonfinancial assets. They don't seem to address financial assets that are NOT traded on a financial market, such as I-bonds. It looks like they need better lawyers writing this stuff up (unless they are intentionally being vague).
VNTC shall act as trustee of assets traded on a financial market (including mutual funds or other collective
investment vehicles affiliated with Vanguard). VNTC shall not accept or be responsible for the administration,
investment, review, maintenance, disposition, or sale of insurance products or any nonfinancial assets not
traded on a financial market unless expressly agreed to by VNTC in a separate writing.
What about savings accounts and CD's? Would they reject trusts that have those, too? Those aren't traded on the financial markets.
Excellent question (aren't some CD's traded?). The answer might be that they would liquidate those accounts and move the assets to a VG brokerage account owned by the trust. In reality, it may not matter what VG tells a Grantor, as they likely won't accept a trust that doesn't provide them with complete discretion to invest as they choose. I may be wrong about this (see my signature).
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Re: Vanguard Natl. Trust Co. - Important Information

Post by HueyLD »

I think it is clear what “traded on financial markets” means.

So, if savings accounts and CDs are held directly at a bank, they are not traded on financial markets. However, if they are held in a brokerage account, they would be fine.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

Here is a subsequent email I received elaborating on their problem with I-Bonds:

“As we discussed, VNTC’s current service is designed to manage and invest assets that can be traded on financial markets. With
respect to I-Bonds, they would be considered a unique asset as they fall outside of that criteria and can pose additional
burdens in both maintaining the asset and trust administration. We have recently updated the Trust Administrative Provisions
in our Corporate Trustee Literature to better clarify the types of assets our service is best designed to support. In this
case, the provision that would apply would be: (c) Administration of Insurance Products and Nonfinancial Assets.

From an administrative standpoint, individual bonds would require additional systems and management through TreasuryDirect.
Since these systems would not communicate with our Unique Trust Accounting System, the Trust Advisor would need to have
additional systems in place to support those assets which would increase the cost of our service.

In addition to the administrative burden, the individual bond holdings do not necessarily fit within our investment
methodology. As investment manager of the trust, our Trust Financial Advisor would seek to build a diversified portfolio with
exposure to Total Stock and Bond Markets, both Domestic and International. Although we recognize holding individual bonds may
be successful for some clients, our methodology would seek to invest in a Vanguard Mutual Fund that would provide similar
exposure without needing to manage individual bonds on a regular basis(the mutual fund manager would handle this aspect), or
diversify the individual bond holdings into mutual funds with broader exposure in order to reduce risk. We strive to provide
a low cost and high quality service to clients, and can best do so by working with assets that fit within our systems,
capabilities, and expertise.”


I’m still annoyed they never mentioned this five years ago when my trust was completed and VNTC appointed successor trustee.
I also find it hard to understand how their investment policies can be this restrictive and their administrative capabilities so limited.
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by FIREchief »

Gill wrote: Sat Jul 20, 2019 6:29 pm Here is a subsequent email I received elaborating on their problem with I-Bonds:

“As we discussed, VNTC’s current service is designed to manage and invest assets that can be traded on financial markets.

Although we recognize holding individual bonds may
be successful for some clients, our methodology would seek to invest in a Vanguard Mutual Fund that would provide similar
exposure without needing to manage individual bonds on a regular basis(the mutual fund manager would handle this aspect), or
diversify the individual bond holdings into mutual funds with broader exposure in order to reduce risk.
So, they're going to diversify in order to reduce that nasty risk in US I-bonds?? LOL! :D
Last edited by FIREchief on Sat Jul 20, 2019 7:53 pm, edited 1 time in total.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

FIREchief wrote: Sat Jul 20, 2019 6:35 pm
Gill wrote: Sat Jul 20, 2019 6:29 pm Here is a subsequent email I received elaborating on their problem with I-Bonds:

“As we discussed, VNTC’s current service is designed to manage and invest assets that can be traded on financial markets.

Although we recognize holding individual bonds may
be successful for some clients, our methodology would seek to invest in a Vanguard Mutual Fund that would provide similar
exposure without needing to manage individual bonds on a regular basis(the mutual fund manager would handle this aspect), or
diversify the individual bond holdings into mutual funds with broader exposure in order to reduce risk.
So, they're boing to diversify in order to reduce that nasty risk in US I-bonds?? LOL! :D
Don’t you love it?😡
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Steelersfan »

If a trust showed up at the door with some of those assets in it, would they turn it away, or agree to sell them and invest the proceeds in marketable securities?

The I-Bonds are going to mature (and accrued interest paid at that point), so selling them a few years early wouldn't be the worst thing that could happen.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by FIREchief »

Steelersfan wrote: Sat Jul 20, 2019 7:33 pm If a trust showed up at the door with some of those assets in it, would they turn it away, or agree to sell them and invest the proceeds in marketable securities?

The I-Bonds are going to mature (and accrued interest paid at that point), so selling them a few years early wouldn't be the worst thing that could happen.
Looks like 11 - 30 years early, so certainly a big deal. Also, I'm guessing some of those I-bonds have great real interest rate guarantees, that can't be duplicated.
Gill wrote: Fri Jul 19, 2019 12:09 pm I have a mid-six figure holding of I-Bonds with maturities ranging from 2030 to 2049 and accrued interest exceeding $200,000. My concern was that VNTC, upon my death, disability or resignation might liquidate this entire holding incurring a significant income tax unnecessarily. The entire trust would be nearly mid seven figures composed entirely of Vanguard mutual funds other than the I-Bonds representing over 10% of the trust.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by FIREchief »

Gill wrote: Sat Jul 20, 2019 6:45 pm
FIREchief wrote: Sat Jul 20, 2019 6:35 pm
Gill wrote: Sat Jul 20, 2019 6:29 pm Here is a subsequent email I received elaborating on their problem with I-Bonds:

“As we discussed, VNTC’s current service is designed to manage and invest assets that can be traded on financial markets.

Although we recognize holding individual bonds may
be successful for some clients, our methodology would seek to invest in a Vanguard Mutual Fund that would provide similar
exposure without needing to manage individual bonds on a regular basis(the mutual fund manager would handle this aspect), or
diversify the individual bond holdings into mutual funds with broader exposure in order to reduce risk.
So, they're going to diversify in order to reduce that nasty risk in US I-bonds?? LOL! :D
Don’t you love it?😡
Gill
Yeah, really. I can't imagine a more desirable fixed income investment than an I-bond paying a higher-than-market real interest rate with many years until maturity. Inflation can't hurt you. Default is a non-issue. Liquidity isn't an issue. The only thing that might come along is an unexpected jump in real rates, which still wouldn't be an issue because the I-bonds could then be sold and replaced with TIPS. There simply isn't any logic here.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

Steelersfan wrote: Sat Jul 20, 2019 7:33 pm If a trust showed up at the door with some of those assets in it, would they turn it away, or agree to sell them and invest the proceeds in marketable securities?

The I-Bonds are going to mature (and accrued interest paid at that point), so selling them a few years early wouldn't be the worst thing that could happen.
From what they’ve told me they would decline the appointment. Selling them would have serious tax consequences with current accrued interest of over $200,000 and increasing at about $20,000 a year. In addition, a rather attractive investment would be lost, particularly the earlier purchases with the higher guaranteed rate.
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Steelersfan »

FIREchief wrote: Sat Jul 20, 2019 7:58 pm
Looks like 11 - 30 years early, so certainly a big deal. Also, I'm guessing some of those I-bonds have great real interest rate guarantees, that can't be duplicated.
The ones from the early 2000's do. The later ones, not so much. What they do have, and I I bought a bunch, is great inflation protection.

So what matters is when they were purchased, and the maturity distribution for them. When Gill's estate is going to potentially arrive at his successor trustee is also relevant, but unknowable.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

Steelersfan wrote: Sat Jul 20, 2019 8:30 pm
FIREchief wrote: Sat Jul 20, 2019 7:58 pm
Looks like 11 - 30 years early, so certainly a big deal. Also, I'm guessing some of those I-bonds have great real interest rate guarantees, that can't be duplicated.
The ones from the early 2000's do. The later ones, not so much. What they do have, and I I bought a bunch, is great inflation protection.

So what matters is when they were purchased, and the maturity distribution for them. When Gill's estate is going to potentially arrive at his successor trustee is also relevant, but unknowable.
The bulk of them were purchased from 2000 to 2005, back when the guaranteed rates and the purchase limits were much higher than now. I still purchase $20,000 per year but may discontinue in light of this development.
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by bsteiner »

You could specifically bequeath them to someone (or to more than one recipient).
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Re: Vanguard Natl. Trust Co. - Important Information

Post by cas »

Gill,

My commiserations.

I'm 99.9% sure that this has nothing to do with VTC's reaction to your i-Bonds, but I have occasionally seen little glimmers of hints on Bogleheads that successor trustees can run into difficulties dealing with Treasury Direct - that Treasury Direct technically allows trust accounts, but that their concept of "trustee" might not exactly be ready for prime time, causing headaches for the trustee. (If it were the case - which it probably isn't - that VTC had actually attempted to manage Treasury Drect accounts as successor trustee at one point in time, then run into substantial roadblocks from Treasury Direct when they tried to actually do anything with the account as trustee, one might be slightly more inclined to give them the benefit of the doubt. But, given that VTC didn't present "Treasury Direct is an unmanageable PITA for a trustee" as their reason, I doubt that is the reason.)

I'm actually more interested in whether anyone else has any solid experience being a (non-grantor) trustee for a Treasury Direct trust account. It is hard to tell whether one-off, somewhat special circumstance stories like the one below point to a bigger problem with Treasury Direct's concept of "trustee" or not. (Not trying to hijack your thread - just trying to determine if ANY institutional trustee might run into problems with Treasury Direct. As I said, the things that have shown up on Boglehead's before have been mostly glimmers of hints.)

For example ...

viewtopic.php?t=217497#p3344432
I had a somewhat similar situation, Dad died, Mom continues. I am the trustee of the trust. [Note that context implies that this is a revocable trust - cas]. I went through the conversion to electronic bonds and simultaneously put them into the trust. [ . . . ]

I cannot recall the exact details, but at some point, despite the best of intentions, I determined that the e-account was set up as Mom, with her SSN, which is correct, but that they thought I was Mom, despite all the trustee verbiage. I think I messaged them or chatted with them about bond gift purchases and they could only talk to me if I was Mom not me, the trustee. Again, I think that was because they were so antiquated in their poor set up. At that point I had the choice of continuing to pretend to be Mom or setting up my own login. I really don't think they would ever have known, but I did open my own account.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

bsteiner wrote: Sat Jul 20, 2019 8:51 pm You could specifically bequeath them to someone (or to more than one recipient).
Bruce, this is what I leaning toward doing. I'd like to keep VNTC as my successor trustee so I really have no other alternative. I'd rather not redeem them during my lifetime, although I realize I will be forced to recognize the interest income beginning in 2030 when the first bonds mature.
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by afan »

This would be a solution provided keeping the bonds outside of the trust does not interfere with your estate plan. It also assumes that there will be no need for your successor trustee to step in while you are alive. If you go through a period when you can no longer manage your affairs you may not be able to make alternate arrangements for the bonds.

I appreciate the price but the VNTC service appears to be so narrow that there may be many cracks in planning that they will not fill. I understand having a large share of one's assets in Vanguard mutual funds. But few people have absolutely everything they own in such investments.

I would be tempted to pay more and get a conventional trust department, perhaps not one whose primary business is catering to those with an order of magnitude or much more assets than I have. Or hire a bank to do the administrative functions for prices well below Vangaurd and let my successor trustee manage the investments without paying anyone for that service.

The fact that Gill, of all people, was surprised by what Vanguard would not do leaves the rest of us in the dark.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by bsteiner »

cas wrote: Sun Jul 21, 2019 10:01 am ...
I'm actually more interested in whether anyone else has any solid experience being a (non-grantor) trustee for a Treasury Direct trust account. It is hard to tell whether one-off, somewhat special circumstance stories like the one below point to a bigger problem with Treasury Direct's concept of "trustee" or not. (Not trying to hijack your thread - just trying to determine if ANY institutional trustee might run into problems with Treasury Direct. As I said, the things that have shown up on Boglehead's before have been mostly glimmers of hints.)
...
I doubt that very many trustees invest through Treasury Direct. It's an extra complication for a trustee. There are other ways to invest in Treasury obligations.
afan wrote: Sun Jul 21, 2019 2:00 pm ...
I would be tempted to pay more and get a conventional trust department, perhaps not one whose primary business is catering to those with an order of magnitude or much more assets than I have. Or hire a bank to do the administrative functions for prices well below Vanguard and let my successor trustee manage the investments without paying anyone for that service.
...
While some banks and trust companies require a minimum size of $10 million or perhaps more, there are many that will accept trusts in the low 7 figures, and some that will accept trusts as low as $500,000. They'll generally charge about 1% a year, less on larger trusts and sometimes more on smaller trusts.

If you want a trust company to act as an administrative trustee (for around $3,000 to $10,000 a year), you'll need someone else to be responsible for the investments. You may also need to set up an LLC to hold the underlying assets so the trust company doesn't have to get involved with the trades.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by cas »

bsteiner wrote: Sun Jul 21, 2019 2:18 pm I doubt that very many trustees invest through Treasury Direct. It's an extra complication for a trustee. There are other ways to invest in Treasury obligations.
If you mean not many institutional trustees invest through Treasury Direct, then I doubt you are surprised that Gill got the answer he did from VNT. My personal experience with institutional trustees is exactly what you say - that they wouldn't touch a Treasury Direct account with a 1000 foot pole - but my personal experience is vastly smaller than Gill's, so if he was surprised that VNT wouldn't deal with Treasury Direct, I made a note in the back of my head. You are another expert, so I'm making a similar note about your response.

But ... I was more meaning individuals who read Bogleheads, whose parents (middle-aged at the time) invested in EE bonds in the good days of late '80s/early 90s (maturing now through mid-2020s) or in i-Bonds in the good days of early 2000s (maturing 2030ish), who are now needing to take over managing their parents' long-standing Treasury Direct portfolios due to cognitive decline in their parents.

I don't think I've seen you mention using revocable trusts for this purpose, but in many states POAs are next to useless at financial institutions, but the same institutions that are recalcitrant about POAs are meek as lambs about acknowledging trustees of revocable trusts. So, the trustee/revocable trust set-up is often a more reliable/less frustrating way to carry out our parents' wishes that we take over managing their financial affairs. There still probably aren't a lot of us, but the concentration would be higher among Bogleheads than otherwise, I would think. (Bogleheads threads about those late '80s/late '90s EE bonds generate quite a few comments on Bogleheads. Lots of people now in their 70s through 90s seem to have them. The same seems to be true of the early-2000s iBonds.)

This sort of family-member trustee is probably much less likely than an institutional trustee (for the tax and other reasons that Gill mentions) to find it defensible to summarily dump our (still living, with various levels of cognitive ability) parents' existing Treasury Direct products. But it is worthwhile inquiring on Bogleheads what type of access (e.g. durable POA, trustee of revocable trust, agent using the institution's own paperwork) is apt to cause the least misery and unanticipated roadblocks at various common financial institutions.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by bsteiner »

cas wrote: Sun Jul 21, 2019 4:07 pm ...
I don't think I've seen you mention using revocable trusts for this purpose, but in many states POAs are next to useless at financial institutions, but the same institutions that are recalcitrant about POAs are meek as lambs about acknowledging trustees of revocable trusts. So, the trustee/revocable trust set-up is often a more reliable/less frustrating way to carry out our parents' wishes that we take over managing their financial affairs. There still probably aren't a lot of us, but the concentration would be higher among Bogleheads than otherwise, I would think. (Bogleheads threads about those late '80s/late '90s EE bonds generate quite a few comments on Bogleheads. Lots of people now in their 70s through 90s seem to have them. The same seems to be true of the early-2000s iBonds.)
...
I think the set of people who have both savings bonds and revocable trusts is fairly small.

Revocable trusts make sense in some cases, and in some states, but they're overhyped and oversold and aren't necessary for most people in most states.

We haven't had as much difficulty with powers of attorney as you describe.

If you want to use a revocable trust for this purpose, the child has to be a trustee, and not merely a successor trustee who becomes a trustee upon the happening of a specified contingency. Otherwise it's like a springing power of attorney -- you have to prove to the satisfaction of the third party that the contingency has occurred.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

afan wrote: Sun Jul 21, 2019 2:00 pm This would be a solution provided keeping the bonds outside of the trust does not interfere with your estate plan. It also assumes that there will be no need for your successor trustee to step in while you are alive. If you go through a period when you can no longer manage your affairs you may not be able to make alternate arrangements for the bonds.
Unfortunately, it does interfere in my estate plan to the extent I preferred this portion of my portfolio to be in trust rather than pass outright. However, at this juncture I’m leaning toward having them pass outright free of the trust rather than removing VNTC as successor trustee.

If I’m unable to manage my affairs there should be no need to utilize the bonds for my care.

Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by bsteiner »

Gill wrote: Sun Jul 21, 2019 4:21 pm
afan wrote: Sun Jul 21, 2019 2:00 pm This would be a solution provided keeping the bonds outside of the trust does not interfere with your estate plan. It also assumes that there will be no need for your successor trustee to step in while you are alive. If you go through a period when you can no longer manage your affairs you may not be able to make alternate arrangements for the bonds.
Unfortunately, it does interfere in my estate plan to the extent I preferred this portion of my portfolio to be in trust rather than pass outright. However, at this juncture I’m leaning toward having them pass outright free of the trust rather than removing VNTC as successor trustee.

If I’m unable to manage my affairs there should be no need to utilize the bonds for my care.
We've had a few clients name Vanguard as a trustee in their Wills, but since none of them have died we don't have any experience working with them.

Would they be able to deal with a situation that requires substantial hands-on work such as using trust assets to provide for a beneficiary's care, as opposed to the typical situation where (in addition to handling the investments) they work out a budget with a beneficiary and make periodic distributions (and occasional one-off distributions if needed)?
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

bsteiner wrote: Sun Jul 21, 2019 4:32 pm
Gill wrote: Sun Jul 21, 2019 4:21 pm
afan wrote: Sun Jul 21, 2019 2:00 pm This would be a solution provided keeping the bonds outside of the trust does not interfere with your estate plan. It also assumes that there will be no need for your successor trustee to step in while you are alive. If you go through a period when you can no longer manage your affairs you may not be able to make alternate arrangements for the bonds.
Unfortunately, it does interfere in my estate plan to the extent I preferred this portion of my portfolio to be in trust rather than pass outright. However, at this juncture I’m leaning toward having them pass outright free of the trust rather than removing VNTC as successor trustee.

If I’m unable to manage my affairs there should be no need to utilize the bonds for my care.
We've had a few clients name Vanguard as a trustee in their Wills, but since none of them have died we don't have any experience working with them.

Would they be able to deal with a situation that requires substantial hands-on work such as using trust assets to provide for a beneficiary's care, as opposed to the typical situation where (in addition to handling the investments) they work out a budget with a beneficiary and make periodic distributions (and occasional one-off distributions if needed)?
Bruce, I’m hopeful they would, but not sure as I’ve had no experience with them either. They do separate the administrative and investment functions and staff as do most trust operations. Their limitations seem to be more in the investment end.
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by bsteiner »

Gill wrote: Sun Jul 21, 2019 4:48 pm
bsteiner wrote: Sun Jul 21, 2019 4:32 pm ...
We've had a few clients name Vanguard as a trustee in their Wills, but since none of them have died we don't have any experience working with them.

Would they be able to deal with a situation that requires substantial hands-on work such as using trust assets to provide for a beneficiary's care, as opposed to the typical situation where (in addition to handling the investments) they work out a budget with a beneficiary and make periodic distributions (and occasional one-off distributions if needed)?
Bruce, I’m hopeful they would, but not sure as I’ve had no experience with them either. They do separate the administrative and investment functions and staff as do most trust operations. Their limitations seem to be more in the investment end.
For most families who need a corporate trustee, they'll do fine with the investments. They'll protect the family from the higher costs of most other banks, brokers, investment advisors, etc, and from a disastrous result if they invest it horribly or spend too much and run out of money.

What I don't know is whether they have the same level of trust officers as the typical trust department or trust company and can deal with beneficiaries who need distributions as well as the typical trust department or trust company. Obviously I wouldn't expect the same level of service as at U.S. Trust (before Bank of America took it over), Fiduciary Trust, the group at JPMorgan that handles accounts over $25 million, Bessemer Trust, Northern Trust, etc. But I'm curious as to whether their level of service is comparable to the trust departments and trust companies that can handle trusts from $500,000 (Vanguard's minimum) to the mid-7 figures. I haven't had any experience with them, nor have any of the other lawyers I've discussed this with. Have they hired trust officers from traditional banks and trust companies?

Of course, since only a small percentage of clients pick a corporate trustee, it would be hard to get much feedback as to one that's new and that doesn't have a local presence.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

bsteiner wrote: Sun Jul 21, 2019 5:21 pm
Gill wrote: Sun Jul 21, 2019 4:48 pm
bsteiner wrote: Sun Jul 21, 2019 4:32 pm ...
We've had a few clients name Vanguard as a trustee in their Wills, but since none of them have died we don't have any experience working with them.

Would they be able to deal with a situation that requires substantial hands-on work such as using trust assets to provide for a beneficiary's care, as opposed to the typical situation where (in addition to handling the investments) they work out a budget with a beneficiary and make periodic distributions (and occasional one-off distributions if needed)?
Bruce, I’m hopeful they would, but not sure as I’ve had no experience with them either. They do separate the administrative and investment functions and staff as do most trust operations. Their limitations seem to be more in the investment end.
For most families who need a corporate trustee, they'll do fine with the investments. They'll protect the family from the higher costs of most other banks, brokers, investment advisors, etc, and from a disastrous result if they invest it horribly or spend too much and run out of money.

What I don't know is whether they have the same level of trust officers as the typical trust department or trust company and can deal with beneficiaries who need distributions as well as the typical trust department or trust company. Obviously I wouldn't expect the same level of service as at U.S. Trust (before Bank of America took it over), Fiduciary Trust, the group at JPMorgan that handles accounts over $25 million, Bessemer Trust, Northern Trust, etc. But I'm curious as to whether their level of service is comparable to the trust departments and trust companies that can handle trusts from $500,000 (Vanguard's minimum) to the mid-7 figures. I haven't had any experience with them, nor have any of the other lawyers I've discussed this with. Have they hired trust officers from traditional banks and trust companies?

Of course, since only a small percentage of clients pick a corporate trustee, it would be hard to get much feedback as to one that's new and that doesn't have a local presence.
Bruce, you’ve raised some good questions that I’ve wondered about also. I now have contact with a representative of VNTC and will raise these questions with him. I haven’t anticipated any administrative complexities with my own situation and therefore probably haven’t addressed this question sufficiently. I’ll report back.
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by afan »

Gill wrote: Sun Jul 21, 2019 4:21 pm

Unfortunately, it does interfere in my estate plan to the extent I preferred this portion of my portfolio to be in trust rather than pass outright. However, at this juncture I’m leaning toward having them pass outright free of the trust rather than removing VNTC as successor trustee.

If I’m unable to manage my affairs there should be no need to utilize the bonds for my care.

Gill

I was less concerned about needing to redeem the bonds to pay bills than that, redeemed or not, someone would need to manage the bonds. If your successor trustee will not do that then someone else would have to. If VNTC would not accept the trust if it contains the bonds, then you would need to get them out of the trust and find someone who will deal with them if you cannot.

Bsteiner,
I understand that many companies will accept smaller trusts. I was worried about having a trust at a place that usually deals with much larger accounts. I fear they would have no interest in beneficiary service, since they would be collecting what would be for them a small amount of money. Even if they wiuld take my business, I doubt the Bessemer's and Northern's of the trust world would care what happened with my microtrust.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Gill »

afan wrote: Sun Jul 21, 2019 5:53 pm
Gill wrote: Sun Jul 21, 2019 4:21 pm

Unfortunately, it does interfere in my estate plan to the extent I preferred this portion of my portfolio to be in trust rather than pass outright. However, at this juncture I’m leaning toward having them pass outright free of the trust rather than removing VNTC as successor trustee.

If I’m unable to manage my affairs there should be no need to utilize the bonds for my care.

Gill

I was less concerned about needing to redeem the bonds to pay bills than that, redeemed or not, someone would need to manage the bonds. If your successor trustee will not do that then someone else would have to. If VNTC would not accept the trust if it contains the bonds, then you would need to get them out of the trust and find someone who will deal with them if you cannot.

Bsteiner,
I understand that many companies will accept smaller trusts. I was worried about having a trust at a place that usually deals with much larger accounts. I fear they would have no interest in beneficiary service, since they would be collecting what would be for them a small amount of money. Even if they wiuld take my business, I doubt the Bessemer's and Northern's of the trust world would care what happened with my microtrust.
Yes, that’s exactly my thinking, to remove the bonds from the trust where they are now held.

With respect to your question to bsteiner, you’re absolutely right. I saw this in practice and I still think of another trust officer with a competing trust company telling me they had “1-800” accounts which meant their smaller accounts assigned to staff in a remote location where you never saw a trust officer but only had use of a toll free number. Even the largest trust companies have such accounts which they are stuck with for various reasons. Obviously they don’t get the attention of the larger accounts.
Gill
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Re: Vanguard Natl. Trust Co. - Important Information

Post by rossington »

Gill wrote: Sun Jul 21, 2019 6:05 pm Yes, that’s exactly my thinking, to remove the bonds from the trust where they are now held.
This does seem to be your best option unless you pull the plug on VNTC and can find a more appropriate corporate trustee.
I am assuming there is no one else in your family (including your daughter) that you feel comfortable with as being a successor trustee to distribute the assets to your beneficiaries.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by afan »

The level of interest of the trust company is why I would rather be in the asset range of their typical trust. That rules out the biggest companies, I suspect, since many have high minimums. Beesemer has a $10 M minimum, for example. That implies that their typical account is much larger than that.

I found one report online that listed median "relationship" sizes for a large number of trustees. It was a few years old and several of the largest famous companies did not provide this information. But among the trustees who did report their relationship sizes some medians were similar to the Bessemer minimum. Those might be a starting point for bogleheads.

That was somewhat encouraging. One just might find a company that would provide good service. Controlling fees and getting a simple index fund portfolio wiuld be the other goals.

I am surprised that Gill is willing to go through this hassle instead of shopping for a new trustee. VNTC has made itself of limited value and would force some undesirable changes in plans. Is there no one else?

1-800 accounts: Isn't that exactly what one would get with Vanguard? They do business all over the country but at how many sites, if any, does one meet a trust officer in person? I am quite happy doing almost everything online and resorting to the telephone when needed. I have never met face to face with anyone who works for Vanguard, which is fine with me.

If face to face is important then how could Vanguard possibly meet that need?

Gill,
I gather you did extensive shopping when you first picked Vanguard. If it has been several years sinve then it may be worth doing some more looking about.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Angst »

I'm just speculating here, but perhaps there's something you could do involving setting up a (or more than one?) 529 account on behalf of an heir (or heirs?). I gather that you can redeem I bonds and EE bonds tax free if the proceeds are put into a 529. I am assuming here that a 529 with defined beneficiaries is something more easily managed within one's estate.

On second thought, you're talking about so much money that I'm unsure how much $ could be rolled into a 529. Perhaps with multiple accounts...
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Steelersfan »

Angst wrote: Mon Jul 22, 2019 7:43 am I'm just speculating here, but perhaps there's something you could do involving setting up a (or more than one?) 529 account on behalf of an heir (or heirs?). I gather that you can redeem I bonds and EE bonds tax free if the proceeds are put into a 529. .
If you transfer I-Bonds into a 529 account you have to pay income tax on the accrued interest, something the OP wants to avoid if possible
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Re: Vanguard Natl. Trust Co. - Important Information

Post by bsteiner »

rossington wrote: Mon Jul 22, 2019 3:26 am ...
I am assuming there is no one else in your family (including your daughter) that you feel comfortable with as being a successor trustee to distribute the assets to your beneficiaries.
If there were, he wouldn't need a revocable trust. He could give that person a power of attorney and name her as executor. Probating a Will in Florida is generally not particularly difficult, expensive or burdensome.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by HueyLD »

Steelersfan wrote: Mon Jul 22, 2019 8:38 am
Angst wrote: Mon Jul 22, 2019 7:43 am I'm just speculating here, but perhaps there's something you could do involving setting up a (or more than one?) 529 account on behalf of an heir (or heirs?). I gather that you can redeem I bonds and EE bonds tax free if the proceeds are put into a 529. .
If you transfer I-Bonds into a 529 account you have to pay income tax on the accrued interest, something the OP wants to avoid if possible
No, you don't need to pay tax on accrued interest if you are eligible for qualified education expense exclusion. Well, it may not be an option for Gill.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by 2pedals »

Steelersfan wrote: Mon Jul 22, 2019 8:38 am
Angst wrote: Mon Jul 22, 2019 7:43 am I'm just speculating here, but perhaps there's something you could do involving setting up a (or more than one?) 529 account on behalf of an heir (or heirs?). I gather that you can redeem I bonds and EE bonds tax free if the proceeds are put into a 529. .
If you transfer I-Bonds into a 529 account you have to pay income tax on the accrued interest, something the OP wants to avoid if possible
Not always true.
Since a 529 plan is considered a qualified higher education expense, form 8815 can be used. I bonds and EE US savings bonds issued 1990 and after may be tax free when the bonds are sold and proceeds within 60 days rolled over into section 529 college savings plans. Income phase out rules may apply.

https://www.savingforcollege.com/articl ... a-529-plan
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Steelersfan »

2pedals wrote: Mon Jul 22, 2019 9:34 am
Steelersfan wrote: Mon Jul 22, 2019 8:38 am
Angst wrote: Mon Jul 22, 2019 7:43 am I'm just speculating here, but perhaps there's something you could do involving setting up a (or more than one?) 529 account on behalf of an heir (or heirs?). I gather that you can redeem I bonds and EE bonds tax free if the proceeds are put into a 529. .
If you transfer I-Bonds into a 529 account you have to pay income tax on the accrued interest, something the OP wants to avoid if possible
Not always true.
Since a 529 plan is considered a qualified higher education expense, form 8815 can be used. I bonds and EE US savings bonds issued 1990 and after may be tax free when the bonds are sold and proceeds within 60 days rolled over into section 529 college savings plans. Income phase out rules may apply.

https://www.savingforcollege.com/articl ... a-529-plan
And just where were you when I was researching this?????

Oh yeah, I forgot to ask on this board to give you a chance to clear that up. :oops:

Since I'm the grandparent of the person with the education expense, I might have decided it was too much trouble to go through all the steps anyway.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by 2pedals »

Steelersfan wrote: Mon Jul 22, 2019 11:12 am
2pedals wrote: Mon Jul 22, 2019 9:34 am <--- snip --->

https://www.savingforcollege.com/articl ... a-529-plan
And just where were you when I was researching this?????

Oh yeah, I forgot to ask on this board to give you a chance to clear that up. :oops:

Since I'm the grandparent of the person with the education expense, I might have decided it was too much trouble to go through all the steps anyway.
Actually I just learned about this yesterday from a post by donaldfair71.
viewtopic.php?f=1&t=286007

Not knowing your situation but you most likely simplified things for your survivors. I still plan on selling my I bonds and EE bonds over time to simplify my estate planning. They are less than 4% of my portfolio and having to make DW or DD deal with treasury direct doesn't sit well with me.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Steelersfan »

2pedals wrote: Mon Jul 22, 2019 6:54 pm
Actually I just learned about this yesterday from a post by donaldfair71.
viewtopic.php?f=1&t=286007

Not knowing your situation but you most likely simplified things for your survivors. I still plan on selling my I bonds and EE bonds over time to simplify my estate planning. They are less than 4% of my portfolio and having to make DW or DD deal with treasury direct doesn't sit well with me.
That's exactly the reason I transferred them. They were less than 3% of my portfolio, so my heirs got a small portion of their inheritance early.

About half of mine were the paper kind, and just converting them to electronic form would have made it easier. I just decided to go all the way and be rid of them. Although as I said in an earlier post, I'm a fan of I-Bonds. I find their web site a bit peculiar but totally manageable.
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Re: Vanguard Natl. Trust Co. - Important Information

Post by Luckywon »

Gill wrote: Sun Jul 21, 2019 10:23 am
bsteiner wrote: Sat Jul 20, 2019 8:51 pm You could specifically bequeath them to someone (or to more than one recipient).
Bruce, this is what I leaning toward doing. I'd like to keep VNTC as my successor trustee so I really have no other alternative. I'd rather not redeem them during my lifetime, although I realize I will be forced to recognize the interest income beginning in 2030 when the first bonds mature.
Gill
Gill,

Based on a discussion I had with a Schwab trust officer last year, I suspect that Schwab may be less rigid in their portfolio restrictions. For example, they will administer a trust that has real estate (fee of $3000/property). Perhaps Schwab would allow the Series I Bonds to remain in your Trust. Schwab also stated they could act as trust administrators alone, with another company serving as portfolio manager. Perhaps by bifurcating the trust administration and portfolio management your Trust could keep the Series I Bonds after your death.

FWIW, the trust officer professed a strong preference to invest in low cost passive index funds/ETF's and also stated Schwab is amenable to following investment guidance within the Trust documents, though that guidance would need to be vetted by their legal department.

So I'm wondering whether Schwab may be a viable alternative to VNTC for your needs.

I also had a discussion with VNTC and they mentioned another scenario where they would likely decline to become successor trustee, i.e. the circumstance where you became incapacitated, but potentially not permanently incapacitated. The trust officer told me VNTC would be unlikely to assume the role of successor trustee if it did not think it would remain trustee until termination of the trust.

Sorry to hear of this hiccup in your plans.
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