No. of Recommendations: 1
On Thu, 03 Apr 97 13:11:41 -0600, trmccoy wrote:
<<Here's my situation:

A recently widowed mother, who has asked me to manage her finances. A previously established living trust that now requires spltting the living trust into successor trusts: one will have about $600K in assets and the other, somewhat more. I'm the trustee of both. Of course I need to look after the needs of my mother, but I the better I do at managing the trusts over the next few years, the more my sister and I will eventually inherit.

Here's the problem: There is a lot of advice on how to plan for retirement; there is plenty of info on getting started growing your own portfolio from scratch. But I haven't found very much help at all on how to deal with big sums especially with this mix of objectives. At least one 'full service' broker is advising me to let him 'handle it'. But I wouldn't be posting messages here if I accepted his advice. So where should I look for guidance on 'instant trust management'?

I think this will be a fairly common situation over the next decade when boomers begin to inherit the trillions accumulated by their WWII parents.
You're right - this will certainly be an increasingly common situation. I have been in exactly your situation for about five years and have a great deal of practical advise - too much for one message on a message board. However, let me pick out a few bits of immediate advise.
1. The basis of every investment in your father's "bypass trust" went up to the value at his death. This means that you can sell any investment in the bypass trust with little if any capital gains, if you want, or if you sell that investment at a future date, at least the capital gains will be lower. When dividing your parent's assets into the "bypass" and "survivor's" separate trusts, place assets with the highest appreciation into the bypass trust. If you are lucky enough to have chosen parents who lived in a community property state, the basis of both halves of the trust rose, and you are starting out managing the trusts at a great advantage.
2. Under no circumstances give any control of the assets to a full service broker, or anyone else! A broker "handled" the investments in the trust I manage, and he made more money than the trust did for two years until I developed enough confidence to take control of the investments. I lost a lot of money in "back end loads" when I sold all the investments and moved to a discount broker.
3. If I were in your present situation, I would sell every asset whose basis rose, (no capital gains) and park all the money in a money market account until I could educate myself and be sure I knew what I was doing! This may take months, but you'll never regret it. Start reading. As a matter of fact, one of my most valuable places of learning is right here in the Fool's School.
4. Invest enough of a portion of your mother's trust in safe income strategies, like US Treasuries or conservative muni's, to insure that she has enough income to live comfortably for her remaining years. The rest of her trust can be invested in stocks if that's what you eventually decide. Remember that your mother will be paying income taxes for both trusts; your father's taxes will be reported on an IRS form 1041, which means that the income is reported on your mother's 1040 at her tax rate. I know this is complicated, but after a time, it will become clearer. The result is that for as long as your mother lives, her portion of the trust will perhaps dwindle because of the drain of her living expenses and her big income tax burden. This is exactly what you want, for two reasons. One is that your father's trust can now grow ESTATE TAX FREE as long as his trust exixts, and when the money is eventually distributed to you and your sister, ALL of his trust will be distributed. The other reason is that it would be good for your mother's trust to be reduced, by the time of her death, to less than $600,000, so that no Federal Estate tax would be due on her trust (Federal Estate Taxes are real killers). If it appears that her estate will NOT dwindle to under the $600,000, encourage her to gift ou $10,000 each year to was many people as she wants in order to accomplish this goal.
5. Retain a really competent accountant to do the taxes each year. The expense is negligible. Also find yourself a good attorney who specializes in taxes and estates - you don't need him now, but if you ever do, you want to know where to find him (he's expensive!). You can get along fine without him now, and if you read enough, you may never need him. Your parents were clever enough to set up a living trust, which makes life much easier for the inheritors.
6. Ask me some more questions - if I can be of help, pick my brain (remember, I'm not a lawyer, but just a fortunate beneficiary like you).
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