This is part 2 of our experience in setting up our basic estate planning, which included a revocable living trust. Please read part 1 Will and Trust Through Employer Legal Plan for the background.
After we signed the trust documents at the lawyer’s office, we had a small stack of paper. Other than ourselves and the lawyer who drafted the documents, nobody else knew that the trust even existed. Just hanging on to the stack of paper wouldn’t do much for us. We had to let the trust own some assets. The trust only has effect over the assets it owns.
Putting assets under the name of the trust is called funding the trust. The lawyer told us many people didn’t follow through in funding their trust. They ended up wasting the money and the effort in creating the trust in the first place.
In part 1 I covered how we transferred our home from under our own names to under the name of the trust. That was done very easily. We also added the trust to our homeowner’s and umbrella insurance as an additional named insured. Next we needed to change the ownership of our investment accounts from Joint Tenants With Rights of Survivorship to the trust.
We only had to do it to regular taxable accounts. Retirement accounts such as 401k’s and IRAs would stay in our own names. Although you can name the trust as the beneficiary of those retirement accounts, our lawyer said we should just name individual persons as beneficiaries in order to preserve the ability to stretch the distributions. She said there was a way to make the trust the beneficiary and still make it possible to stretch the distributions but it would be an overkill for us.
We have investment accounts with Fidelity, Vanguard, and Merrill Edge. I sent a secure message to customer service at each company asking what their procedures were. Each company responded quickly with clear instructions. They all have well established procedures with different degrees of difficulty.
Fidelity has a Trust Application form and a Certification of Trust form. The Trust Application opens a new account in the name of the trust. To transfer over an existing account already in individual names, you just put the account number(s) in Section 4.
The Certification of Trust form requires signatures to be notarized. Instead of using Fidelity’s form, I just attached a copy of the trust certification document prepared and notarized by our lawyer.
I dropped off the forms at a local Fidelity investor center. The trust account was opened in the afternoon on the same day. Two days later all assets in the existing joint account were transferred over as-is to the new trust account. The joint account was automatically closed. All cost basis and lot information came over intact.
This was the easiest and smoothest. Because the trust account was a new account, I had to set the preferences again for dividend and capital gains distribution (reinvest or put into cash), cost basis accounting (average cost, first in first out, or actual cost), linked bank account, etc.
Vanguard also required a new trust account application. The application was done by filling out a PDF form online through DocuSign. Because all new accounts at Vanguard must be a brokerage account now, we couldn’t stay on the simpler mutual-funds-only platform any more. The new brokerage account for the trust was created the next day after we completed the electronic signatures through DocuSign.
Next we needed to transfer the existing joint account to the new trust account. To be honest I was very afraid that Vanguard would screw up the cost basis accounting during the transition. I read multiple reports on the Bogleheads investing forums that Vanguard had trouble in keeping the cost basis straight. I printed out everything from the existing account. I would have to check line by line to make sure they transferred correctly.
Vanguard’s ownership transfer form asked for a Medallion Signature Guarantee. I asked around. Nobody was interested in giving a Medallion Signature Guarantee to make it easy for a competitor. They would give it for their own forms but not someone else’s. I don’t blame them.
Vanguard was aware of this situation. Its instructions specifically said we should contact customer service for additional options if we were unable to obtain a Medallion Signature Guarantee. I called. The rep said because we were co-trustees of the trust account and joint owners of the existing account, we could just send in the form without the Medallion Signature Guarantee.
I mailed the ownership transfer form. The transfer completed after 10 days.
Instructions from Merrill Edge were also very clear. We had to fill out a trust application, a trust certification, a letter of authorization, and attach the first page and the last page of the trust document. The trust certification had to be notarized. I asked the local Bank of America branch whether they could do it for me. They said they couldn’t but they would reimburse me for the notary fee if I had it done elsewhere. That worked. We had it notarized at a package shipping service store.
Instead of opening a new account under the name of the trust and transferring assets from the existing account to the new account, Merrill Edge would do it by simply changing the title on the existing account. The account number wouldn’t change. The linked bank account and all other settings wouldn’t change either. In a way this method is simpler.
I mailed the documents to the address given in the instructions. A trust concierge called me and asked some clarifying questions. The title change completed correctly about a week after they are satisfied with the answers.