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  • Trust and step up in basis

    I am soon to become the trustee of a trust set up by my father that has sizable taxable accounts within. Trust is structured such that I (son of decedent) am the trustee of these assets and that I make sure that my mother can live off some of the income of the assets while she is alive. The trust assets are to be "distributed" to me upon her death. My father was a great saver but always invested with a company that charged enormous fees, large AUM fees, and tried to time the market on his behalf. They also had him but loaded mutual funds, etc. (typical doctor gouging). The portfolio is a mess...unnecessarily complex with over 75-80 individual stocks, some "unit trusts" within, etc. I am much more of an index fund person and can not stomach paying this company these AUM amounts after my father's death.

    2 questions:

    1)Anyone have any experience or advice when transferring trust assets held at one brokerage to a different brokerage? In this case it would go from Edward Jones to either Vanguard or Fidelity. I've read that one should try and transfer assets "in kind" to avoid fees at the existing broker and then craft the new portfolio at the new broker. I'm assuming that there might be a few assets that can not be distributed "in kind" (special investments only offered through Edward Jones) and will deal with that as the situation arises.

    2)When do assets actually get a "step up" in basis? Is it at the time of death of my father or in the case of this structure that I outlined above at the time the assets are "distributed" to me after my mother's passing (hopefully a few years down the line)? Either way I'd like to escape the current broker ASAP after my father's death (to save on the AUM fees) but the timing of the "step up" would determine when I sold all these old individual stocks and invested instead in a simpler index fund balanced portfolio that I could manage myself.

    Thanks for any advice you can offer.

  • #2
    https://www.irs.gov/pub/irs-utl/21_-...d-up_basis.pdf

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    • #3
      1. As the trustee, you are required to abide by the trust document. If the trust corpus can be moved to another custodian and you have free reign to invest, the transfer should be fairly easy. You will have to provide a copy of the trust document to the new custodian, but should be able to transfer the trust electronically.
      2. Was it an irrevocable trust or a revocable trust that became permanent at death?
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Thanks for your response.

        Trust is revocable and will become irrevocable at time of death. Language within states clearly "trustee may, but need not favor retention of assets originally owned by me." So I am thinking the trust can be transferred "in kind" to new custodian electronically which will get rid of the AUM fees.

        Any idea as to when the "step up" occurs? At time of grantors death or later (when the actual "distribution" happens..which in my case is at the time of my mother's passing)? That would determine when I would sell the complicated individual stock assets toward a more simplified approach.

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        • #5
          Originally posted by JMCNCSU View Post
          I am soon to become the trustee of a trust set up by my father that has sizable taxable accounts within. Trust is structured such that I (son of decedent) am the trustee of these assets and that I make sure that my mother can live off some of the income of the assets while she is alive. The trust assets are to be "distributed" to me upon her death.... I am much more of an index fund person and can not stomach paying this company these AUM amounts after my father's death.

          2 questions:

          1)Anyone have any experience or advice when transferring trust assets held at one brokerage to a different brokerage?

          2)When do assets actually get a "step up" in basis? Is it at the time of death of my father or in the case of this structure that I outlined above at the time the assets are "distributed" to me after my mother's passing (hopefully a few years down the line)?

          Thanks for any advice you can offer.
          My condolences on your loss. I went through the same earlier this year and can share some tips. My parents had what sounds like a similar set-up, assets placed in a trust, where upon death of first spouse a bypass trust is created like what you described. Regarding the step-up basis, it occurs on death but if your parents resided in a community property state as my parents did, you get a 100% step-up. If not and the trust is a bypass trust as described, you get a 50% step-up but no further step-up in the future when the second spouse dies.

          My father had the original trust accounts with two custodians, Vanguard for their mutual funds and Fidelity for their brokerage. For the convenience of both my mother and me (I'm helping manage her finances since my father's passing) I wanted the accounts consolidated at Fidelity. Conveniently, both VG and Fidelity have estate account services which essentially did the same thing re-titled the account as described by the original trust. They both had a process which required a death certificate and a conference call but was fairly simple. Neither would do any account transfers until this was completed but once done it was easy to transfer-in-kind the VG funds into the Fidelity brokerage.

          This is the brief version. If you need any more details feel free to PM me.

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          • #6
            Originally posted by JMCNCSU View Post
            Thanks for your response.

            Trust is revocable and will become irrevocable at time of death. Language within states clearly "trustee may, but need not favor retention of assets originally owned by me." So I am thinking the trust can be transferred "in kind" to new custodian electronically which will get rid of the AUM fees.

            Any idea as to when the "step up" occurs? At time of grantors death or later (when the actual "distribution" happens..which in my case is at the time of my mother's passing)? That would determine when I would sell the complicated individual stock assets toward a more simplified approach.
            Step-up occurred at death, which may simply reiterate what GasFIRE already said (haven’t read through); if so, I concur. And I should have said in my initial response, my condolences on the loss of your father. I hope you have many good memories to help you and your family during your adjustment to life without him.

            I am not sure what “favor retention” means, new one to me, but it appears that you have flexibility in your decisions. Obviously, a very good thing and what attorneys typically favor in the writing.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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