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TOD for non retirement brokerage account
Old 09-22-2019, 06:39 PM   #1
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TOD for non retirement brokerage account

Wife and I thought we might ask this group how to handle this issue. The VG rep we talked to said that they used to but have stopped allowing beneficiaries or TOD transfer on death clauses on non retirement brokerage account. We'd rather not have to set up a trust to ensure that our children won't have to go to probate to access our brokerage account upon our demise. All our tax deferred accounts have beneficiaries and we've not had to worry about our taxable accounts since most of our money are in IRAs and ROTHs. But recently our VG taxable account has been growing. Now, we have not asked Fidelity about their policy. We may have to move the bulk of our taxable account there if they have a TOD policy. We have tax deferred accts with Fidelity but we'd rather stick with VG for our taxable accts.
VG rep said that another option would be to name our children as co-owners. That would give them as much authority as us and would be non reversible.
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Old 09-22-2019, 06:56 PM   #2
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I wonder if you misunderstood them. They don't allow beneficiaries on joint taxable accounts, but to my knowledge allow beneficiaries on individual taxable accounts.

Naming them as co-owners is not a great idea.
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Old 09-22-2019, 07:01 PM   #3
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We didn't ask about individual taxable accounts. If that's the case for individual taxable accounts, then we'll have to convert to individual with spouse and children as beneficiaries. I'll give them a call tomorrow. Thank you
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I wonder if you misunderstood them. They don't allow beneficiaries on joint taxable accounts, but to my knowledge allow beneficiaries on individual taxable accounts.

Naming them as co-owners is not a great idea.
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Old 09-22-2019, 07:04 PM   #4
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We're not making them co-owners. Maybe later in our 90s
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Old 09-22-2019, 09:14 PM   #5
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My taxable brokerage account at Fidelity includes TOD prominently in the account title. Here is what Fido says:

On a nonretirement account, designating a beneficiary or beneficiaries establishes a transfer on death (TOD) registration for the account. For an individual account, a TOD registration generally allows ownership of the account to be transferred to the designated beneficiary upon your death.
_______________
Vanguard has something called a TOD Plan:
Transfer on death plan
ADVANTAGES
Name individuals, trusts, or organizations as your beneficiaries.
Avoid probate.
______________
Google Vanguard TOD.
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Old 09-23-2019, 04:38 AM   #6
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We're not making them co-owners. Maybe later in our 90s
Even in your 90's being a co owner would deprive them of the step up in cost basis upon your death.
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Old 09-23-2019, 05:21 AM   #7
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Even in your 90's being a co owner would deprive them of the step up in cost basis upon your death.
Good point about step up in basis. We need to be careful when making decisions as we have a no FAs, CPAs or lawyers policy in line with LBYM. We really have to figure out a way to add the kids as beneficiaries.
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Old 09-23-2019, 07:21 AM   #8
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Update: Pb4uski is right. Thanks a lot. I've learned so much from you over the years. Per VG rep, all I have to do is change ownership from joint to individual taxable account. Then I can add spouse and children as beneficiaries. All can be done online.
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Old 09-23-2019, 09:15 AM   #9
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Are there any drawbacks to changing your ownership to individual? Spouse no longer has legal access?
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Old 09-23-2019, 09:38 AM   #10
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Wife and I thought we might ask this group how to handle this issue. The VG rep we talked to said that they used to but have stopped allowing beneficiaries or TOD transfer on death clauses on non retirement brokerage account. We'd rather not have to set up a trust to ensure that our children won't have to go to probate to access our brokerage account upon our demise. All our tax deferred accounts have beneficiaries and we've not had to worry about our taxable accounts since most of our money are in IRAs and ROTHs. But recently our VG taxable account has been growing. Now, we have not asked Fidelity about their policy. We may have to move the bulk of our taxable account there if they have a TOD policy. We have tax deferred accts with Fidelity but we'd rather stick with VG for our taxable accts.
VG rep said that another option would be to name our children as co-owners. That would give them as much authority as us and would be non reversible.
This is a known anomaly with Vanguard regarding their joint taxable accounts. My husband and I have always been able to name our kids as beneficiaries on our joint accounts with every financial firm we've done business with. This includes Fidelity and Charles Schwab, who we've been with now for 11 and 10 years, respectively. We were formerly with TD Ameritrade and had no trouble with them over naming beneficiaries of a joint account.

I would not keep a joint account at any firm that wouldn't allow naming of beneficiaries, when other firms readily allow it. Often, you can even set them up online.
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Old 09-23-2019, 09:43 AM   #11
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Update: Pb4uski is right. Thanks a lot. I've learned so much from you over the years. Per VG rep, all I have to do is change ownership from joint to individual taxable account. Then I can add spouse and children as beneficiaries. All can be done online.
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Are there any drawbacks to changing your ownership to individual? Spouse no longer has legal access?
Bolding mine and +1. The account was set up as joint for a reason, so why change it because of Vanguard's ridiculous policy? I can also attest that setting up and trying to use POA at Vanguard is more problematic than at other firms. Spouse would need POA to be able to even get info much less transact in the account.

Set up a joint account at Fidelity, Schwab, or TD Ameritrade. Fill out their forms to transfer the assets. Problem solved forever.
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Old 09-23-2019, 01:16 PM   #12
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Are there any drawbacks to changing your ownership to individual? Spouse no longer has legal access?
None that I can think of. If something happens to me, wife as primary beneficiary should be able to have full authority. And if both of us go at the same time, children as secondary takes over. All beneficiaries will have a step up in basis.
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Old 09-23-2019, 01:53 PM   #13
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Are there any drawbacks to changing your ownership to individual?
With individual ownership, if one applies for asset-based credit and/or loan, one would enlist only the assets held in one's personal account, which are arguably of a lesser value than the total held in the joint account before the split.
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Old 09-23-2019, 03:06 PM   #14
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I think you will have to report any capital gains on your taxes the year you do the change.
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Old 09-23-2019, 03:22 PM   #15
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None that I can think of. If something happens to me, wife as primary beneficiary should be able to have full authority. And if both of us go at the same time, children as secondary takes over. All beneficiaries will have a step up in basis.
Then you're not thinking of all the possibilities. What about becoming incapacitated? A relative of mine had a stroke at age 65/66 that left her partially physically paralyzed and mentally incapacitated. 10/11 years ago now, and she's still alive, amazingly.

A beneficiary has no authority before the death of the account owner. Your spouse would be prevented from accessing the funds, even if needed for your care or household bills, without a POA.

If you insist on staying with Vanguard, it would be fairer to your spouse to split the assets between 2 individual accounts, one in each of your names. It's joint now, right, so you shouldn't have a problem with that idea.
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Old 09-23-2019, 04:29 PM   #16
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I think you will have to report any capital gains on your taxes the year you do the change.
VG rep said that this transfer from joint to individual is a none sale event. Why would there be capital gains.
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Old 09-23-2019, 04:34 PM   #17
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Then you're not thinking of all the possibilities. What about becoming incapacitated? A relative of mine had a stroke at age 65/66 that left her partially physically paralyzed and mentally incapacitated. 10/11 years ago now, and she's still alive, amazingly.

A beneficiary has no authority before the death of the account owner. Your spouse would be prevented from accessing the funds, even if needed for your care or household bills, without a POA.

If you insist on staying with Vanguard, it would be fairer to your spouse to split the assets between 2 individual accounts, one in each of your names. It's joint now, right, so you shouldn't have a problem with that idea.
No problem. She has online access and if something happens to me, she goes online, hits a key on keyboard and all funds are transferred to our joint checking account. Hopefully that day doesn't happen.
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Old 09-23-2019, 05:35 PM   #18
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No problem. She has online access and if something happens to me, she goes online, hits a key on keyboard and all funds are transferred to our joint checking account. Hopefully that day doesn't happen.
Sure, it's doable, but having a POA makes it legal, as long as you're still alive, that is. It's not that instant though, if you have securities that need to be sold first. There's a brief settlement period before the funds would be available for transfer.

So, if I understand you, you're going to put funds that now legally belong to both of you, in your name alone, making the funds legally only yours, just to stay with Vanguard. joylesshusband brought up one potential pitfall with doing this, at least for your spouse. And your spouse is OK with this?

Instead of making 2 individual accounts at Vanguard, and splitting the assets as close to 50/50 as possible? Or transferring out to Fidelity, where you can maintain a joint account and name your beneficiaries as you wish?
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Old 09-23-2019, 05:59 PM   #19
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Spouse is okay with the move but since legal is the best way to go, I'll do the 50/50 split. We already have two Roths, two IRAs, two SEPs in two brokerage firms. What's another two taxable accts. It might even make it easier to tax loss or tax gain harvest, maintain our AA and do Roth conversions since I am 3 years older than her. Hey all, thanks for everyone's input.

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Instead of making 2 individual accounts at Vanguard, and splitting the assets as close to 50/50 as possible? Or transferring out to Fidelity, where you can maintain a joint account and name your beneficiaries as you wish?
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Old 09-23-2019, 06:44 PM   #20
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Bolding mine and +1. The account was set up as joint for a reason, so why change it because of Vanguard's ridiculous policy? I can also attest that setting up and trying to use POA at Vanguard is more problematic than at other firms. Spouse would need POA to be able to even get info much less transact in the account.

Set up a joint account at Fidelity, Schwab, or TD Ameritrade. Fill out their forms to transfer the assets. Problem solved forever.
To be clear, qwraigty has a well-known grudge against Vanguard with respect to this issue that was discussed at length in a different thread within the last few months.

Realistically, it is only an issue if the joint account owners die simultaneously (from a legal perspective) which is possible but unlikely.

State laws vary and I suspect Vanguard has its reasons for not allowing beneficiaries on joint accounts when other financial institutions do... likely not wanting to get dragged into a legal dispute about whether or not a death was simultaneous or not.
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