Vanduard vs Fidelity: Trust as beneficiary

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chemocean
Posts: 1575
Joined: Mon Dec 19, 2016 8:45 pm

Vanduard vs Fidelity: Trust as beneficiary

Post by chemocean »

Since there is a lot of chatter about Vanguard vs. Fidelity, I would like to report on my experience assigning a trust as beneficiary of a Roth IRA. One my of my heirs is in a high-risk profession (think obstetrician), so a Trust is appropriate.

Each time I have opened a new Vanguard mutual fund in my mutual fund (I have not transitioned yet), I have been asked to name of the beneficiaries of the new mutual fund. So, I assumed that different beneficiaries could be named for each mutual fund. The naming of a testamentary trust at Vanguard is easy and straight forward. Years ago, I asked a Vanguard representative on the phone if one could have more than one Roth IRA and more than one Traditional IRA, and was told “yes”. I also thought I asked about having different beneficiaries and was told “yes”.

This year for family reasons, I decided to set aside a specific amount in an IRA for one of the heirs. Instead of changing the % with each market change for the total, I decided to open a new IRA at Vanguard and name that heir as 100% contingent beneficiary. Establishing the brokerage IRA at Vanguard was easy. I learned that my only option to transfer funds from the mutual fund IRA account to the brokerage IRA account was to sell mutual funds and fund the money market in the brokerage fund. That task was also easy. I understand that I then could purchase mutual funds or ETFs from the MM account. I then went to change the beneficiaries of the brokerage account and the only option on the dropdown menu was to change beneficiaries on my “Roth account” that had an account list for both the mutual fund and the brokerage account funds. Each time I changed the beneficiary to a single contingent beneficiary on the brokerage account, it also changed to the same beneficiary designation for the much larger mutual fund account. I tried calling Monday morning and was told that the hold would be long. I called Monday afternoon and only had a few minutes hold before connecting to a first-line representative. He performed the same changes on his system and get the same results. He transferred me over to the Retirement section. I explained my situation and I was put on hold. He came back and said that beneficiaries can only be designated at the account type level: IRA, Roth IRA, taxable brokerage account. I said “I guess that the funds are moving to Fidelity and he said “OK”.

I had previously opened a Fidelity brokerage account to get the $100 bonus, so opening a brokerage IRA was easy. Instead of funding the account first, I wanted to make sure that I could name the testamentary Trust as beneficiary. The only option to name a trust as beneficiary online was for an existing trust with date created and an EIN. So a call in the afternoon to Fidelity was answered shortly. Again, I was put on a short hold and was told that performing my task was a limitation of Fidelity’s website and was directed online to the URL were I could download a paper form. I filled out the form with only my signature, and uploaded the scanned form and waited. On the form I name the contingent beneficiary as “The trustees of the XXX Trust name in section X of my Will”, similar to Vanguard. This morning, the beneficiary designation is shown as the XXX Trust. The Fidelity form suggests that beneficiaries can be named at the account level, not at the investment level.

I have not yet tried to open a second brokerage IRA account at Fidelity and name different beneficiaries to each account. This condition would have to be available for me to move my entire account to Fidelity. In the meantime, I will just move funds between Vanguard and Fidelity as needed from family reasons.
mhalley
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Joined: Tue Nov 20, 2007 5:02 am

Re: Vanduard vs Fidelity: Trust as beneficiary

Post by mhalley »

IANAL, but putting a trust as the beneficiary due to perceived liability risks does not seem worth while to me. If it is indeed a medical liability risk you are trying to protect the assets, the risk of someone having to pay personal assets is minuscule. The heir should already have apprpropriate asset risk mitigation in place, ie medical malpractice insurance, auto and homeowners umbrella, etc.
Alan S.
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Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Vanduard vs Fidelity: Trust as beneficiary

Post by Alan S. »

VG has issues with different beneficiaries on accounts, but I have heard that you can change their mind if you present a logical reason for it. I think VG uses this approach to guard against investor beneficiary errors.

Also, you opened a separate IRA account for a particular beneficiary, but only referred to a contingent beneficiary. Who is the primary beneficiary, the trust?
Topic Author
chemocean
Posts: 1575
Joined: Mon Dec 19, 2016 8:45 pm

Re: Vanduard vs Fidelity: Trust as beneficiary

Post by chemocean »

Alan S. wrote: Tue Dec 07, 2021 9:43 pm VG has issues with different beneficiaries on accounts, but I have heard that you can change their mind if you present a logical reason for it. I think VG uses this approach to guard against investor beneficiary errors.

Also, you opened a separate IRA account for a particular beneficiary, but only referred to a contingent beneficiary. Who is the primary beneficiary, the trust?
Thank Alan S. for all your input on this forum. I was transferred by phone to the the retirement, and explained my reason for wanting separating beneficiary designation on the accounts. Even though I told them, I was moving the funds to Fidelity if I couldn't have separate beneficiaries, they did not give me an opportunity to change their minds.

My wife is the primary beneficiary. The plan is for her to disclaim this IRA if I die first and she does not need the funds as part of her reserve, the Trust is the contingent beneficiary.
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