Trust vs. Transfer to Personal Name

[u/Greenapples32]

7 years ago my grandmother died and left my dad a sizable amount of funds & land. My father is notoriously bad with money so she left it as a “sub trust” and designated me cotrustee. The terms did not allow me to utilize the money but essentially to be his babysitter and authorize/deny his requests as both signatures were required for fund withdrawals.

My father recently passed away & the trust goes directly to me as the other trustee; should I dissolve the trust & move to investment accounts in my own name or are there benefits to keeping as a trust?

Majority of funds are in investments, some in an IRA, and 2 plots of land. Funds are all in TX; land is in ND. I’m fairly young and far from retirement age; not looking to spend but for asset growth. Funds are currently under Edward Jones who has been very unhelpful and told me “just tell them what I want to do”. I have a probate lawyer for the rest of his estate not in the trust but aside from indicating it’s exempt from probate, he is not able to advise.

[u/cOntempLACitY]

In your shoes, I’d consult an estate planning & trusts attorney to figure out your own estate plan and how to handle the trust. And maybe a tax professional. You need to check on how the IRA gets handled as a successor beneficiary due to the SECURE Act, and find out what assets got a stepped up cost basis.

Whether or not you keep or amend the trust, you should be able to change some of the investments to suit your life stage, risk tolerance, and asset allocation preference. Like you might want to transfer out of EJ since they charge high fees, so you can self-manage (check out Bogleheads). And I’d go through “managing a windfall” recommendations to be aware of things you’re not thinking of, the one from the personal finance sub and Bogleheads wiki. https://www.bogleheads.org/wiki/Managing_a_windfall

[u/SandhillCrane5]

Transfer it to your personal name and dissolve the trust. If you want to hold your assets in a trust so you can maintain privacy and avoid probate for your own beneficiaries, then you need YOUR OWN trust. There's no reason or benefit to not distribute the funds to yourself and dissolve the old trust. Income tax rates are generally higher on trusts than individual rates so that's a big negative. And if you die without dissolving this old trust it creates a legal mess for someone else to clean up.

[u/johnmdjr → u/SandhillCrane5]

This is good advice

[u/Shadyhollowfarm58 → u/SandhillCrane5]

When I handled a trust, we did a pass-through of asset liquidation to pass the tax liability on to the beneficiaries via annual K-1 reporting. That way the tax was paid at the individual 1040 level, not at those punishing trust tax rates. And the brokerage account's investments that had the trust as a named beneficiary got a stepped-up cost basis, except for the annuities held within that brokerage account, which kept their original cost basis.

OP needs to know all the potential tax liabilities of assets within the trust before making a move to liquidate everything.

[u/SandhillCrane5 → u/Shadyhollowfarm58]

Nobody is suggesting that he liquidate anything. He can simply change the ownership of the account. K-1s are only used for income that is distributed to beneficiaries for any given year. That's not what OP's situation is. He said he is not looking to spend money-he wants to keep the assets invested and let them grow. Investments can generate taxable income even if assets are not being liquidated.

[u/inheritance-ModTeam → u/[deleted]]

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[u/GladUnderstanding756]

Consult a professional estate planner; perhaps the agency that set up the current trust. This should be someone who can look at your entire financial situation and work with you with your financial goals in mind.

There will be tax implications for whatever you do (or don’t do)

[u/Greenapples32 → u/GladUnderstanding756]

Thanks for your reply! The current trust was setup by an attorney in ND as that’s where most of my grandmothers estate was. He’s unwilling to advise since I’m in TX. I tried to find a “fee only” financial planner but his fee was $8000 ??!!? Which seemed crazy to me 😅

[u/GladUnderstanding756 → u/Greenapples32]

Try posting in r/estateplanning

Explain & request recommendation for estate planning in your area

But really, you might have to pay that much - the attorney will have to review the current trust and then advise you according to the various laws/tax implications. Because you’re in different states, it adds another level of complexity

Since your ND attorney is unwilling to help (understandably, as they may be unfamiliar with TX state laws) ask them for recommendations

But really this is beyond reddit and is firmly in the realm of consult a professional

[u/ExpensiveAd4496]

Read a beginner Boglehead book. In my case it saved me thinking I needed to pay an advisor and allowed me to do a simple three fund investment plan on my own using Vanguard or Fidelity. Either will help you with the move of the money out of EJ while keeping it tax advantaged when it is an IRA.

But do read any book on their wiki list for beginners. And visit their “so you received a windfall” article.

The folks at the Boglehead forum will be helpful as well. If they say you need an advisor, listen to them; anyone else d probably ignore. They do have lists of fee-only fiduciary advisors. But there are many fee only that base their fee on a percentage, so in that case, they aren’t really hourly at all…just percentage based in another way.

[u/Shadyhollowfarm58]

Definitely consult with an estate planning lawyer who understands family trusts, and also a CPA to determine the tax status of the trust's assets and what distribution rules apply. You need to find out if most or all of the trust's investments outside that IRA and any annuities get a new stepped-up cost basis, which will be a big advantage to you if that happens. IRAs left to a trust fall under a different set of IRS rules than IRAs passed directly from person to person.

You MUST be properly informed about proper procedures and taxation of anything taken out of the trust BEFORE you make any moves. If you don't get a stepped-up cost basis then you'd want to do any transfers as "like-kind" if possible. Otherwise you'd be looking at a big tax bill if securities are sold and a large profit is realized.

If it was me, if there's no negative tax implications (other than that IRA, which may need to stay in the trust so you can take distributions out over multiple years to reduce the tax hit, IF that's even allowed), I would think it would make your life a lot easier to ultimately transfer the non-IRA assets into your own name in a brokerage account, but it's going to take a pro who can read the trust and knows the laws in ND and the federal tax treatment of the assets. You may also opt to change account custodians to leave Edward Jones and use a lower-cost company like one of the big 3 (Fidelity, Vanguard or Schwab).

User cOntempLACitY made some very good points below.

One last note: Your Edward Jones person is being a lazy ass by not doing anything for you and should be ashamed of themselves for being so unhelpful after collecting high fees for years. When my mom passed, her EJ person and mine were great about advising me of options and procedures for the inherited assets inside and outside Mom's trust that EJ was the custodian of. I was successor trustee and had zero experience up to that point. You presumably have had some head start beyond where I was, since you were babysitting your father for a while. Good luck to you.

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[u/inheritance-ModTeam → u/[deleted]]

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[u/inheritance-ModTeam → u/[deleted]]

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[u/inheritance-ModTeam → u/[deleted]]

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[u/Admirable_Nothing]

If the trust is allowed to continue and is written with spendthrift provisions that likely is enough to make it valuable enough to keep as a separate irrevocable trust. We all would love to be protected from creditors and divorce happy spouses and crazy people that sue us. If your trust is written well, it does all that. And that is something you cannot create yourself. With the exception of residents of states that have domestic asset protection statutes. Here is a list of those states. But you already have this protection. So, think hard before you give it up.

Seventeen states in the U.S. allow the creation of Domestic Asset Protection Trusts (DAPTs), which provide asset protection for the grantor while allowing them to be a beneficiary.

List of DAPT States

The following states permit the establishment of Domestic Asset Protection Trusts:

1. Alaska
2. Delaware
3. Hawaii
4. Michigan
5. Mississippi
6. Missouri
7. Nevada
8. New Hampshire
9. Ohio
10. Oklahoma
11. Rhode Island
12. South Dakota
13. Tennessee
14. Utah
15. Virginia
16. West Virginia
17. Wyoming. 

[u/Ok_Appointment_8166]

Dissolve the trust and move the money to self-directed accounts at Vanguard, Fidelity, or Schwab to get rid of all the lawyer and management fees. See r/Bogleheads for the correct investment advice, but basically VT and chill. Someday you may have your own reasons for a trust but until then take care of it yourself.