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Any problems transferring Living Trust to New Broker Without Tax Liability?

edited April 2011 in Fund Discussions
I'm not sure if this is "off topic" or not, but I'm hoping some of you great responders can help me with this. I am handling my 90-year-old Mom's Trust Accounts. She has quite a few with USB, but all except one are tied to the bank and cannot be transferred.

There is one I DO have authority to transfer (Living Trust which Mom herself set up) and would like to transfer to Scottrade. This Trust contains mutual funds and stocks (some of which were invested in decades ago). It is my understanding that this Trust has a "step-up" value, which I think means that, at the time of my Mom's death, all investments would assume the CURRENT value as far as tax purposes go. However, any investment is sold now, Mom would be taxed at normal rate.

After 1+ years gaining investments knowledge from this terrific group, I now feel comfortable in also handling this Trust. So little investment changes have been made that it seems ridiculous to give USB almost $5,000 every year to essentially do nothing.

Could there be any problems in making this transfer - especially tax wise? I think Scottrade can just move over existing trust without any tax liability (since not selling anything now), but I wanted to check with this group first (who I trust more than I do Scottrade) to see if there is anything I should be aware of - or any foreseeable problems with doing this.

I have verified that Scottrade DOES have the mutual funds available - and the transferred amounts meet the minimums. I assume all the stocks can be transferred also, but don't know if there will be charges by either USB or Scottrade to do this.

I would really appreciate your advice on this. Cathy


  • It sounds like this is a revocable (can be undone) inter vivos (living, i.e. not at death) trust, where UBS is the named trustee ("person" responsible for following the written directions of the trust), and you (given power of attorney) can "stand in the shoes" of your mother.

    If that's a correct description, then what you may be paying UBS to do is to act as a fiduciary for the property, to manage (e.g. invest) the property in accordance with the terms of the trust, to distribute money from the trust in accordance with its terms (e.g. the trust might say that all income but no capital is to be distributed to your mother). That's not nothing; that puts UBS at legal risk, and also says that they have to follow the "rules" of the trust.

    If you want someone else to be the trustee, then you may have to amend the trust document.

    See, e.g.

    Assuming all of this description is correct, you might consider naming yourself (or your mother) as trustee, instead of paying a third party. Be aware that a trust may be void if the grantor (person funding the trust), trustee (fiduciary responsible for overseeing the trust), and beneficiary are all the identical individual. See merger rule, e.g.

    Also, since this appears to be a revocable trust, all property in the trust at time of death is considered part of the estate for estate tax purposes. (That's different from the issue of who gets the property, which is outside of the estate as far as the will is concerned.) So as far as the IRS is concerned, your mother still "owns" the property - that's why you get a step up in basis at death, but as part of the bargain for that tax benefit, the property is also subject to estate taxes.

    Of course, none of this is legal advice, and your situation may be different.
  • Thank you so much, msf, for taking the time to be so responsive to my question! I am so grateful for your very detailed comments and extremely impressed with your knowledge on this topic. It was so nice of you to also take the time to give me the links - I will check them all out after I send this.

    I found the latest agreement (called "Trustee Management Agency Agreement"), which covers this Trust. It shows my sister and I as Trustees, and USB as Principal's Agent. The Termination clause does allow termination by either party, stating "Agent will deliver all assets then held as directed." The latest Trust Agreement this refers to does show Mom as Grantor, so it sounds like your caveat re grantor, trustee and beneficiary would not apply.

    The one clause that concerns me is "Nominee Registration", which states "Certificates for shares of stock and other registered securities will be registered in Agent's name...." If you would be so gracious as to answer one more question, does this mean that USB would have to sell the stock portion of the Trust's investments since they should now be registered in Mom's name? If so, that wouldn't that incur all the capital gains from the very long held stock portions?

    Other than the above, from what I can tell it looks good to go with the transfer after I contact Scottrade to verify. This transfer sounded simple enough for me not to have to hire an estate attorney if I was able to get a couple questions answered - which you did beautifully! THANK YOU SO MUCH! Cathy

    P.S. I don't want you (or anyone who responds) to ever worry about my taking any advice I receive from this Forum as formal "legal advice." I always consider any responses to be educated comments from knowledgeable people like yourself who I have submitted questions with a limited amount of information - and I would never take any extreme actions based solely upon any one response.

  • Cathy, I think that the Nominee Registration term is just saying that the securities are registered in "street name". This is something that almost everyone does when they use a broker - the securities are retitled to be "owned" by the brokerage. Doesn't affect too much. Ignoring the trust issue, just as when you (as an ordinary investor) move stock from one brokerage to another, the securities get retitled from "owned" by one brokerage to another. No sale, just transfer of title.

    See, e.g. (different ways to title securities, including street name).

    Regarding my disclaimer - I don't think you're taking anything I'm writing as legal advice, but the closer one gets to sounding "legal" (or "professional" as in tax "advice", etc.) the more important it is to be absolutely clear to you (and anyone else reading the post) that I'm not a professional, and that these are just some facts (and sometimes, opinions) that may be helpful, but also might be wrong (though I try my best to avoid that:-).
  • Thanks so much for your follow-up, msf! Sounds like the transfer is a go. I actually knew your disclaimer was follow-up really just to let everyone else know that I'm aware any comments from MFO members are not to be taken as legal advice.
  • CathyG,

    I've done two trust transfers involving my parents' living trusts. One was straightforward; the other was complex, owing to some of the language in the former broker's custodian agreement which made the transfer a taxable event (this arose from a stipulation in the former broker's custodian agreement, not the trust documents): something that the new broker's agent didn't pick up on, and which could have cost my parents a SIGNIFICANT amount of money. Fortunately, my lawyer DID catch it, and worked with the new broker to draw out the transfer over the course of a year so that, on paper, it produced a net capital loss for tax purposes.

    The best advice I can give you is to say, before you do anything, please have YOUR lawyer and/or financial advisor review ALL relevant documents (assuming you haven't already) to clarify any and all legal and financial (tax) issues that may arise from the transfer.

    A friend of mine who's a lawyer signs all her message board posts, "Don't take advice from a lawyer over the Internet. I'm a lawyer, but I'm not YOUR lawyer." Her point being that the devil is in the details, so without knowing the specific details of a poster's situation, the best she (or any lawyer) can do is offer general comments of what is likely to be the case assuming that the inquirer has not overlooked or omitted any relevant information that may invalidate her analysis.

    While there are many knowledgeable posters, including financial and legal professionals, here on MFO, unless they have the chance to review all the relevant documents, they're pretty much shooting from the hip.

  • Hi Cathy-

    You know, mclaugh makes a good point, and my comments are most certainly not in any way taking issue with MSF. You might rationalize the cost of professional advice this way:

    1) it will absolutely not lose you any sleep.
    2) It will most likely make things easier with respect to the other family members (if I remember correctly, that was something of an issue.)
    3) I'm pretty sure that you can get professional review on this for no more than (and probably much less than) the 5k the bank has been grabbing. And I think that you would be getting a lot more for your money.

  • edited April 2011
    Thanks so much for your follow-up, mclaugh. It sounds like it's definitely worth a triple-check re the tax situation in the transfer. I have contacted my CPA and will wait to hear from him. I would think that, if Scottrade can just take over this Trust without USB selling the stocks or mutual funds investments, there would be no tax liability.

    The only estate lawyer I've dealt with I'm just not comfortable with continuing that relationship. I have considered finding a financial advisor, but I really feel comfortable with continuing (at least for now) in managing my Mom's investments myself. I've been very pleased with the results I've had so far managing one of Mom's trusts I've been handling since last August. I've learned so much from people in this Forum (and from lots and lots of book, link, etc. reading) that I now can determine fairly accurately how each portfolio will fare after any investment day - which, so far, has helped assure me that my diversification of investments as a whole are performing exactly what I expected of them (with a couple exceptions).

    I appreciate your advice of caution, especially hearing your tale of one of the trusts tax problem. Though I don't find any clauses in the Agreement that would indicate a tax problem, it's always better to be safe than sorry. Thanks!
  • Thanks for your comments, Old Joe. If I could wave a magic wand and immediately find an estate lawyer and financial advisor that I liked and trusted completely, I would be delighted. I just think it would be far more likely that I would go through a bunch of initial meetings without finding the right match for me. Perhaps I'm too picky.

    Since this particular transaction is only a transfer of an existing trust, once I can verify no tax liabilities, I feel comfortable waiting for at least a couple of months when the rest of my life calms down (hopefully) to start this process.

    Your memory is correct about the previous sister blocking changes problem. Fortunately, however, she seems to be ok with this. Facts never mattered to her before, but perhaps she is more agreeable since the Trust I have been managing for Mom since Aug has gained more than double what the Trust she is managing for Mom starting at the same time (the same amount which she has USB manage). Even better for my confidence is that both trusts are invested conservatively, so both have decent protection against future crashes (as much as anything can these days).
  • Hey OJ,

    No offense taken. You and mcclaugh are absolutely right. Disclaimers are (or should be) more than boilerplate legalise to protect the poster. That's why I try to write something in plain English - that I don't know all the facts (some real one-on-one advice would go over the details), that "facts" may be wrong, etc. Those are real concerns that someone should keep in mind.

    Thanks for reinforcing that.
  • Hi Cathy

    There should be absolute no tax issue with the transfer, assuming all assets can be transferred "in kind". You will be doing a trustee-to-trustee transfer. If there are any proprietary UBS holdings, it is likely they will have to be liquidated to cash prior to transfer, since Scottrade will probably not be able to accept them into the new brokerage account. But the sales would be taxed based on the current cost basis since they are still part of the living trust.
  • Thanks so much for your input, Bob. You are also one of my regular "must read" inputters here.

    There are no proprietary USB holdings, so the transfer should not have any tax consequences.

    BUT all after this, to my absolute distress, my sister (co-Trustee of this account) has changed her mind and now says I can only transfer HALF of the investments in this Trust. No amount of facts I have given her as to USB's abysmal and almost entirely non-active management, or the results of my management of one of the other of Mom's trusts, have made any difference. Though she knows absolutely nothing about investments, she continues to have blind faith in USB.

    So, if you (or anyone reading this) is willing to help me decide which investments to move, I would really appreciate it. I have no problem deciding on the mutual funds, but I have a choice of several stocks to transfer, so I will put my choices in the "Off Topic" section and hope someone here will be kind enough to help me with my last question (hopefully) regarding this transfer.
  • Bob, I consider your input and advice to be one of the treasures of this board. Thank you for the time and knowledge which you so generously share with others.
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