Am I being reasonable? Better way to handle this?

[SecondCor521]

Hi all.

I recently initiated nine (9) gifting requests from my Dad to his nine grandchildren. All of the requests were for the same number of shares of a single Vanguard mutual fund from his taxable account, and all were made using specific ID. All of the requests were made online using Vanguard's electronic gifting process, and I saved printouts of each one.

I selected shares from more recently purchased lots with higher cost basis in order to attempt to maximize tax efficiency; older lots with lower cost basis would benefit more from basis step up if/when my Dad passes away.

Six of the requests were completed correctly. Three of the requests were completed incorrectly: Vanguard transferred shares from the oldest lot with the lowest basis rather than the specific ID'ed shares.

I am rather cranky at the moment for reasons unrelated to this situation. My Dad has dementia and it's wearing on me. The political environment bothers me. I'm overweight and that bothers me. It's cold and dark and windy and rainy here and that bothers me.

In addition to all that, Vanguard not following my instructions is bothering me. The lower basis of the transferred shares to those three grandkids means that they will each pay several hundred dollars more in capital gains taxes than they otherwise would have.

What I would like to do is call Vanguard, inform them of their error and ask them to reimburse my Dad for the total amount of the increased taxes. I would then turn around and distribute to the three affected grandkids their portion of the reimbursement.

Depending on my perspective, it seems in turn either perfectly reasonable or pedantic and petty.

So I figured I'd ask here. What would you do? Is there a better way to handle it? I don't know if I'll be able to let it go, but I do know that in situations like this I tend to get pretty upset and annoyed initially and then calm down a bit after a while. So at the very least I'll wait another few days before doing anything.

Thanks for any advice or input.

 

[Jerry1]

I don’t think you’re unreasonable at all. I wonder though, is there a way for them to correct this through a simple accounting process. The shares are essentially fungible. Can they just record them differently so as to reflect the instructions that you gave them?

Outside of that, I think them paying you for their clear mistake is reasonable.

 

[N02L84ER]

I would call and explain that 3 of the transfers were pulled using the wrong basis. I think they would be able to change their records to show the correct basis. More than a decade ago, I mailed in a request to reverse a Roth conversion because the markets had dropped significantly since I made the conversion. Three weeks later, the reversal still had not happened so I called Vanguard. They located the request, basically said "oops, our bad", and told me they would process the request as though it had happened on the day they received it. In my case, I would have been even more happy if it had gone through with the later NAV price since the fund had dropped even further, but I was happy to just have them process the request. HTH

 

[cathy63]

As the other two said, just call them and ask them to fix it. I had a similar experience with Wells Fargo where I wanted to gift shares with the lowest cost basis and they did highest. I just talked to the broker and he was very apologetic and it was fixed within a day.

 

[Major Tom]

I would definitely bring it up with them. It was their mistake.

 

[Kings over Queens]

I don't think its at all unreasonable to request, or put more directly, demand that they fix THEIR error.

Good thoughts and vibes to you on the other stuff. I too am overweight and it bothers me, so I'm keeping a positive thought for you and hope things get better.

 

[SecondCor521]

Thanks everyone.

The nine grandkids have accounts across Vanguard, Fidelity, and Schwab. All nine sets of shares have already left Vanguard.

Vanguard could conceivably correct the cost basis in my Dad's account and in the grandkids who also have accounts at Vanguard. I just checked, and in one case one of the three affected grandkids has his account at Schwab.

I think it would be challenging if not impossible for them to do the paperwork to correct the basis in all the correct locations. I suppose they could try to fix the two grandkids who have Vanguard accounts.

But for the Schwab account, I don't know if they could transmit "corrected" cost basis info over to Schwab, or if they'd have to have that kid send the shares back and then have Vanguard send the shares to Schwab again.

I'm a bit leery of letting them try. This is already quite a complicated effort and if they couldn't get the initial requests done correctly, the corrections are even more complicated IMHO. Plus I just kind of want the whole thing to be done and finished.

Another question: We try to treat the grandkids the same / equal / fair / etc. as I think many families do. We couldn't do it exactly in this case since the various lots to the various kids were from different dates and different cost basis amounts, but I did even it out as best I could. But if I go with my "reimbursement request" plan, then each kid got 106 shares of the same mutual fund but three kids got a few hundred extra in cash. Could be viewed as unequal. Probably need to discuss with my siblings (turns out each one of the three of us has one affected kid and two unaffected kids).

 

[cathy63]

So there are three Vanguard accounts (your Dad's and two G'kids') and one Schwab account that have the wrong basis? I still think you should call and talk to Vanguard and give them a chance to fix this. They can tell you how they'll fix the problem with Schwab. I do not believe the one with the Schwab account has to send shares back to Vanguard for them to resolve things, but it's possible that they may have to submit a form to Schwab to report that the basis is incorrect.

If it turns out to be impossible to fix, then you and the grandkids can track the basis on these shares yourselves and just report it correctly when you file your tax returns. There's a code on form 8949 that means "the basis shown on the 1099-B is incorrect so I'm adjusting it". I've used it many times when selling ESPP shares, which always show the wrong basis, and the IRS has never had a question about it.

 

[Koolau]

Not at all unreasonable to expect Vanguard to execute the transfer as requested. What are they there for if not to perform any (legal) request you make of them?

 

[street]

They need to make the correction, and I would make that very clear to them.

 

[all4j]

1st, I would echo Cathy's poster #8. I've also taken that approach without problem. A few other scattered thoughts...all of which have likely already occurred to you...

Cost basis reporting often lags actual acats transfer of shares. So, while it might be good to sleep on it over the weekend, the sooner the more likely Vanguard can change info to be sent over.

If any of the shares were noncovered, basis won't be reported to irs anyway.

For shares remaining in your Dad's account, these aren't affected unless they are sold or subsequently gifted (edited to clarify: "to an individual"; versus if gifted to a charity...) before his death. That is, incorrect basis would get wiped out at time for step up (or step down).

I would probably have done as you did up to this point. However, if fair/equal considerations extend to after tax status, did you consider using average instead of specific id? Since there's a good chance the tax rate may differ, that would at least make the embedded gain the same at time of gift. Of course, you have the details to know how much the 'global' tax liability would shift & I don't

 

[frank05]

I fix the cost basis every year on ESPP shares I sell. Never been a problem with the IRS. I have paperwork showing the actual cost if I ever get audited.

 

[OldShooter]

Call, yes, but also log the date, time, and name or ID of the rep. Get an email address for the rep or his department and follow up the call with your recap of the call, list of action items and deadlines. Phone calls are great for communication but leave no audit trail that can be examined if the train goes off the tracks.

Do this type of follow-up documentation for all but the most trivial phone calls. You will never regret having it but someday you might well regret not having it.

 

[Koolau]

Call, yes, but also log the date, time, and name or ID of the rep. Get an email address for the rep or his department and follow up the call with your recap of the call, list of action items and deadlines. Phone calls are great for communication but leave no audit trail that can be examined if the train goes off the tracks.

Do this type of follow-up documentation for all but the most trivial phone calls. You will never regret having it but someday you might well regret not having it.

Hear, hear!

Trust but verify!

I even ask the person on the other end to spell their name.

 

[ivinsfan]

My opinion is since the gifts were made from the Vanguard electronic gift program that you call and/or message them and ask "how exactly did this happen"? There are 3 possibilities , the computer program made a mistake, VG made a mistake or no offense you might have made a keystroke mistake. I do see you say you have the printouts of transactions. Just politely but firmly ask, How did this error occur? After you find out the source of the mistake ask if they can correct it for you.
I don't believe they will be receptive to repaying the amount of tax owed, but they might be receptive to a do over as in adjust the numbers from your dad's end.. We ran into an issue with my DH last IRA withdrawal. He likes to do his with a rep over the phone. They made a mistake on the tax withholding and neglected to take out our state tax payment which we had set at 10% , they withheld zero. So DH called to see where the error has occurred. They played a recording of the withdrawal request and freely admitted yes the mistake was on their end. The only solution they offered was to void the entire transaction and do a second one with the proper tax payments. In our minds that might just set up more possible issues with 1099s and such so we just let it be.

But I would certainly at least call them with a few questions. If your Dad has plans to do this annually I'd want this figured out on Vanguards end.

 

[SecondCor521]

Follow up replies:

@cathy63:

Yes, a total of four accounts affected - my Dad's, where the "should have been transferred" lots still remain, and the three kids, where they got shares from the wrong lot - two at Vanguard and one at Schwab.

Yes, I probably should let them try to fix it. What I really want is for them to have done it right in the first place, but I know it's probably reasonable to let them try to fix it. That's mostly why I started the thread - to have others talk me down a bit.

Even if they only fix it for the Vanguard accounts, that would fix 2/3 of the problem.

Yes, I'm familiar with the cost basis incorrect adjustment code. I just don't want the hassle of four different people tracking ten different lots which are incorrect, possibly over the next ten years. The grandkids barely understand what a taxable brokerage account is, so the "basis incorrect" code is a bridge too far.

@all4j:

Yes, cost basis info has lagged. I don't know if that means it's easier to fix or harder to fix.

All of the shares in question are covered shares.

My Dad's account was already set for specific ID, and I wanted to retain that to manage and optimize his taxes in the future. While I chose specific ID and the lots varied and therefore each grandkid got different cost basis, the amount of difference among the gifted lots is relatively small, and I took steps to even it out by doing a sort of round-robin approach.

@OldShooter and Koolau:

Yup, I'll be sure to send a secure message follow up on anything like this.

@ivinsfan:

Although the customer front end which I used is electronic, I have reasons to believe that there are manual steps behind the scenes that some Vanguard employee actually needs to do. There is obviously some sort of gap where this manual process is susceptible to error.

I appreciate the comment that I might have entered things incorrectly. Based on my being careful, and the multiple times I checked and doublechecked and rechecked, I don't think so.

My Dad does annual gifting to his three kids, but the nine grandkids thing at this point is a one time thing. It may be repeated in the future depending on how things turn out with his finances, tax law, inflation, etc.

 

[SecondCor521]

Follow up.

I called Vanguard just now and pointed out the issue. They're going to get their "corrections team" to fix it. Only caveat is that the affected grandkids are not supposed to sell the shares until it's fixed. I emailed the kids about it; thankfully the affected grandkids are all savers and so they probably won't care.

Oh, and I memorialized the conversation in a secure message to Vanguard as well.

 

[teej1985]

Hopefully they'll fix it. I highly doubt Vanguard is going to send a check to cover the taxes.

 

[HarveyS]

You tried to do the right thing, and I applaud you for that. I think you fell into a trap I often find myself in......overthinking. I am a big supporter of equal, however, in some cases the "juice ain't worth the squeeze". This may be one of them. Equal amounts to each of 9 GC has only one answer. As you found out, this is very complicated to achieve when you try to account for the after-tax amount. In fact, since you probably do not know each GC's tax rate, you'll never achieve equal. Likely your effort will never be appreciated. In your shoes, going forward, I would default to "everyone got 106 shares - send grandpa a TY note".

 

[HarveyS]

Oh, to answer your question, I'd call VG and ask them to fix it, which you already did.