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Recently Became Guardian - Warning Long Post!

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23 minutes ago, sschullo said:

Why in the world do you want to use Etrade? $19.99 a trade is horrific! Vanguard has a brokerage department too. When I do my rebalancing, Vanguard does not charge. Using Etrade to manage Vanguard funds adds unnecessary costs and increases complexity. Keep this simple. 

Vanguard ETFs brokerage information: https://investor.vanguard.com/investing/transaction-fees-commissions/etfs 

Vanguard Mutual fund brokerage info:  https://investor.vanguard.com/investing/transaction-fees-commissions/mutual-funds 

So, over the past year I have left his account where it was - At Etrade. This recent event has forced my hand, as I did not want to cause a taxable event with his dividend producing utility stocks. Now that this event has forced my hand, I want to begin to diversify his holdings. I’m gaining knowledge to make wise, informed decisions.

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2 hours ago, bk10s said:

So, over the past year I have left his account where it was - At Etrade. This recent event has forced my hand, as I did not want to cause a taxable event with his dividend producing utility stocks. Now that this event has forced my hand, I want to begin to diversify his holdings. I’m gaining knowledge to make wise, informed decisions.

I get your point. So as long as you have to make changes, change to Vanguard brokerage. Keeping the dividend producing utility stocks in one place so as not to trigger a taxable event is a wise decision, but paying $19.99 per trade is not. I think you know that. Did you run the numbers? What exactly would be the tax for doing the unthinkable, transferring everything to Vanguard? It might be lower than you think, and over time the money you save in Vanguard's extremely low costs might pay for the taxes, IMHO (I don't know your numbers). Did you talk to Vanguard? 

People have this dilemma frequently. You are attempting to clean up your relative's investments! All I can say is that he is very lucky to have you.

Good luck,

Steve 

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While Bill would certainly want to confirm this with someone who knows the details of his situation before making any move (Vanguard can probably walk you through it), I'm pretty sure there would be no tax consequence to moving the stocks"in-Kind" to Vanguard.  Just E-trade's transfer fee.  As I understand it, capital gains tax is only triggered when something is sold, not when it is moved between brokerages.

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11 minutes ago, whyme said:

While Bill would certainly want to confirm this with someone who knows the details of his situation before making any move (Vanguard can probably walk you through it), I'm pretty sure there would be no tax consequence to moving the stocks"in-Kind" to Vanguard.  Just E-trade's transfer fee.  As I understand it, capital gains tax is only triggered when something is sold, not when it is moved between brokerages.

For IRAs you are correct, and you may be right about in-kind transfers. That's why Bill needs to talk to Vanguard to get the facts. 

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So, if I am correct , Bill can move the stocks and other assets to Vanguard and, later, develop a strategy for moving money into Vanguard funds.  This might unfold over many years to avoid any big tax hit.  Again, a Vanguard consultant would help with this, and if he's bringing multiple millions to Vanguard I suspect he could get a good bit of advice for free.

More please-apply-salt-I'm-no-tax-specialist musing from me: If I found myself holding a utility stock with a million dollars in unrealized capital gain, I would not sell a large fraction of it at once.  My first thought is to consider redirecting the dividends into diversified Vanguard funds.  Then, if the dividends were being used for living expenses, I would consider whether I could sell enough of the utility stocks each year to replace that income, in other words, draw the desired amount of income from the sales of a small fraction of the utility stocks each year instead of from the dividends. (If you are stuck with a huge tax due to that buyout, then my thought would be to avoid any further selling at all during the same tax year, unless there is something that can be sold at a tax loss.) 

One more thought: everybody here is convinced of the wisdom of investing in diversified funds.  I think that can sometimes lead to a sort of panic in the face of concentrated individual stock ownership.  The truth is that lots of folks have done ok over decades with just a handful of dividend paying stocks--in other words, a small number of utility stocks is definitely not an optimal portfolio, but it's been working and there's no reason you can't make the changes slowly. 

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41 minutes ago, whyme said:

While Bill would certainly want to confirm this with someone who knows the details of his situation before making any move (Vanguard can probably walk you through it), I'm pretty sure there would be no tax consequence to moving the stocks"in-Kind" to Vanguard.  Just E-trade's transfer fee.  As I understand it, capital gains tax is only triggered when something is sold, not when it is moved between brokerages.

Vanguard told me that I can hold the utility stocks at Vanguard.  No tax consequences until the stocks are sold.

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5 minutes ago, whyme said:

So, if I am correct , Bill can move the stocks and other assets to Vanguard and, later, develop a strategy for moving money into Vanguard funds.  This might unfold over many years to avoid any big tax hit.  Again, a Vanguard consultant would help with this, and if he's bringing multiple millions to Vanguard I suspect he could get a good bit of advice for free.

More please-apply-salt-I'm-no-tax-specialist musing from me: If I found myself holding a utility stock with a million dollars in unrealized capital gain, I would not sell a large fraction of it at once.  My first thought is to consider redirecting the dividends into diversified Vanguard funds.  Then, if the dividends were being used for living expenses, I would consider whether I could sell enough of the utility stocks each year to replace that income, in other words, draw the desired amount of income from the sales of a small fraction of the utility stocks each year instead of from the dividends. (If you are stuck with a huge tax due to that buyout, then my thought would be to avoid any further selling at all during the same tax year, unless there is something that can be sold at a tax loss.) 

One more thought: everybody here is convinced of the wisdom of investing in diversified funds.  I think that can sometimes lead to a sort of panic in the face of concentrated individual stock ownership.  The truth is that lots of folks have done ok over decades with just a handful of dividend paying stocks--in other words, a small number of utility stocks is definitely not an optimal portfolio, but it's been working and there's no reason you can't make the changes slowly. 

And this is one of the major reasons why I have not done ANYTHING over this past year as Guardian.  Besides the large tax consequence of selling any of the 3 utility stocks, the dividends were easily covering his expenses.  Additionally, he was a retired CPA (for his state during his working years) and obviously was comfortable with what he was doing.  I agree completely about diversifying this portfolio gradually over time.  Again, thank you to all for the continued hand-holding!

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Bill, you have obviously paid attention to the holdings and taken the actions of posting here, contacting Vanguard, etc.  That ain't nothing.  Seems to me like you are doing a great job so far--it's a strange position to find oneself in, you are correct to make moves deliberately, if at all. (That is pretty good advice for investing in general, come to think of it.) 

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I have downloaded the necessary forms for the transfer to Vanguard and have begun filling them out.  Also getting the legal paperwork in order.  Just need a little help from Vanguard in filling out some of the forms, as the guardianship makes things a little tricky.  This will happen Monday.  I can move everything over, and the remaining stocks can be held at Vanguard.  Hooray! 

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Kudos.  If my experience rolling assets into Vanguard is any guide, the Vanguard folks will make it as easy as it can be--I seem to remember a phone call that was followed up by forms emailed to me with almost all of the information filled out, I basically just had to sign and submit.  I wasn't dealing with a guardianship, though, no doubt that adds a significant layer of complication.  Anyway, good work!

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Update:  I've completed the transfer of the account from Etrade to Vanguard.  The people at Vanguard were so helpful, and the process was similar to the one whyme described.  My strategy right now, after reading-reading-reading,  is to keep the 2 utility stocks in place, as to not incur another taxable event.  They are paying good dividends, and cover my Uncle's expenses.  Now, with the rest.  To dial down the risk in this portfolio, I'm thinking of a combination of VBTLX, VAIPX, and money market.  Presently, the 2 remaining utility stocks make up approximately 58% of his total portfolio.  I hesitate to get into any kind of balanced fund, as the result will be an increased exposure to stocks.  Any opinion on this strategy?  By the way, my Uncle is 85, in good health, and stable in assistive care.

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Good work so far!  As to the asset allocation going forward, there's no objectively correct solution.  You'll get endless opinions on how to handle that if you ask online.  What you are suggesting sounds reasonable to me.  A couple of things I would consider, though: what is the long-term plan for this money?  Is it just about assuring the costs related to your uncle's long term care are covered or is part of the plan to build equity for heirs and/or charitable donations (in other words, how much is money that will be needed within the next few years versus long-term investment)?  Also, bear in mind that having two utility stocks isn't a good proxy for stock market risk.  If the answer to the question above is that a big chunk of the money won't be needed for a decade or more and you want to build additional equity for the future, then some broad-market (including international market) equity funds could actually add the benefit of diversification, though they would likely be more volatile in the short run than bonds, especially short term bonds.  (I'm not sure what VAIPX is--did you mean VTAPX, the short term TIPS fund?  Or VPAIX, Pennsylvania tax-exempt bonds?)

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