Preparing For Death Requires A Lot of Paperwork!

Last week, I wrote about how my wife and I created an estate plan and living trust and the reasons behind that decision. Once the living trust has been created, you get a big folder with a lot of paperwork in it. The trust itself is still empty.

To receive the benefits and protections of a living trust, you have to actually move accounts into it. This is done by retitling your accounts out of your (and / or your spouse's) name into the name of the trust.

Moving accounts into the trust can be a simple or complex process, depending on the institution. My credit union, Charles Schwab, and USAA and have incredibly simple processes. They basically consisted of filling out a couple forms, providing copies of key pages from our trust documents, and that was it! My account numbers did not change.

Other institutions were not so easy. Scottrade, for example, could not simply convert an existing individual account to a trust account. We had to open a new trust account, then transfer funds and securities from the individual account to the trust account. This also meant we ended up with new account numbers.

Tips

If you decide to go through this process, here are some suggestions, based on my experiences:

• Make sure your institution supports trust accounts. I found some do not.

• If you want to open a brokerage account with margin privileges in the name of your trust, some companies (such as Schwab) require that your trust documents specify that the trustees are allowed to open margin accounts. If this is something you require, be sure you have this documented in your trust paperwork.

• Identify the features you absolutely have to have. Do you have to have electronic statements? How about electronic transfers to / from outside accounts (ACH transfers)?  Some companies do not allow these with trust accounts.

Some Companies Have Trust Issues

Here are some of the major institutions I have contacted and their policies for trust accounts, as of the time of my writing:

Charles Schwab – Individual accounts can be converted to a trust account easily. Paperless statements are available for trust accounts. ACH transfers are available for trust accounts. They offer brokerage, checking, and savings accounts for trusts (the latter two being offered through Schwab Bank). A brokerage account comes with a free checking account. Both the checking and savings accounts have no monthly fees, no minimum balance, and don’t even have to be funded at all. So you can open a checking or savings account and not put any money in it until you need to. I ended up moving accounts from several other institutions to Schwab just because they offered all of the features I wanted.

Scottrade  - You cannot convert an existing individual account into a trust account. You need to open a new account and transfer assets to it, which means you get a new account number. Additionally, you cannot electronically transfer money into the account like a normal brokerage account. The rep I spoke with said the workaround is to use their mobile app, write yourself a check, and take a picture of it with the app to deposit it. Technically, I suppose that is an electronic deposit, but I move money into accounts on a weekly basis for my budget, so this is not a viable solution for me. I did not ask about paperless statements for trust accounts because the previous restriction ruled Scottrade out for me.

Capital One Investing (formerly ShareBuilder) – They are no longer opening new trust accounts. Furthermore, they take a ridiculously long 30 days to transfer your account to a new brokerage:

Did you catch that second sentence? "...our transfer process is a manual one..." Ranked by asset size, Capital One Investing is the ninth largest brokerage house in the U.S. with over $241 million in assets, but they still have to manually process account transfers. Something is wrong there. (For comparison, Scottrade transferred my account to a new brokerage electronically in about 1.5 weeks.) I also wasn't a fan because their electronic statements are not available in PDF format. I'm glad to be leaving them.

Capital One 360 – They do not offer trust accounts. (Not surprising, since they have the same parent company as Capital One Investing.)

Ally Bank – They offer trust accounts, but they cannot enroll in paperless statements. They do allow ACH transfers.

Synchrony Bank – They do offer trust accounts and ACH transfers within trust accounts, however, they do not offer paperless statements for trusts.  Additionally, only the primary Trustee (first person listed in the trust) has the ability to make ACH transfers using their online login. (Out of curiosity, I asked the rep I was speaking with if there was a reason why paperless statements were not permitted, given that other companies allow them. She told me it was just a bank policy. There is no federal regulation prohibiting it. She said other people had mentioned this, so perhaps the policy will change in the future.) Update: After being told trust accounts cannot get paperless statements, once I actually opened my accounts, I discovered this was not true. I have received electronic statements for my trust accounts.

Where I Ended Up

Given all these facts, I ended up moving several of my accounts to Schwab and I moved two of them to Synchrony. I was initially going to skip Synchrony altogether because they don’t provide paperless statements, but I changed my mind because of their high interest rates.

A savings account at Schwab Bank currently pays 0.1% interest. At Synchrony, it pays 1.05%. That’s ten times higher!

The accounts I am dealing with I use for saving for big ticket items, so they have a balance of around $4,000 right now. The difference in interest rates means the difference between getting $4 a year at Schwab Bank versus $40 a year at Synchrony. Even so, my impulse was to still go with Schwab because I had quite a few other accounts with them. However, by rephrasing the problem, I came to a different conclusion:

By going with Schwab, I would be earning $36 less a year. Was I willing to, in effect, pay $3 per month for paperless statements? My answer is no. Winner: Synchrony Bank.

(Update: It turns out, I can get estatements at Synchrony after all, so it all worked out for the best)

Moving assets into a trust is time consuming and paperwork-intensive. However, it is something that only needs to be done once and you end up with some nice legal protections for your heirs. You’ve already gone through the effort of creating the trust. It’s worth the extra effort to actually move assets into it.