[J.C.]

Heads up to those contemplating passing away before your spouse…
I just got off the phone with a Vanguard rep.

I called in to see about automating withdrawals from my brokerage account into my wife’s checking account once I pass so that she won’t have to deal with it.

Currently we have our SS checks and my RMD checks automatically deposited in our checking account so I thought it would simplify her life if our brokerage account behaved in a similar fashion. Unfortunately, I recently converted all my funds from index to ETFs.

Due to the fact that ETFs are traded in number of shares rather than fixed dollar amount it is not possible to automate that process.

Someone has to initiate the trade and then, once the trade settles into the associated MM account, initiate the transfer from the MM account to the checking account.

So I asked what would be involved in converting those funds from ETF back to Index Mutual funds.

Nope. You have to liquidate those ETF funds then transfer the proceeds into an Index fund.

This results in a realized gain upon which you would owe long-term capital gains tax. No thanks.

So I’m going to have to teach my wife how to manage this account manually once I pass (assuming I pass first).

Just a heads up to anyone considering converting from Index to ETF. This is a ‘con’ I was not aware of.

[Jack]

Wow, thanks for the heads up. This could be a big deal for a lot of people.

didn’t hear it mentioned but also need to make sure someone is taking care of RMDs.

Happened to a family member and she basically lost half of the account in IRS penalties

[El]

Thank you for sharing I’ve thought about this recently. Do you have an executor for your accounts? You could have them manage the withdrawals if spouse is unable/unwilling. Are your dividends currently set to reinvest?

I would teach them how to turn that off at least.

I’ve also decided to tell my spouse/executor to sell all holdings and just buy 50/50 vanguard Wellington/Wellesley and have dividends/cap gain reinvestment turned off.

That plus SS survivor benefits will equal much more than we currently live off of

[Pam]

Just make sure you have very specific instructions. Have written instructions and record a video of yourself doing the actions and explaining it as you do it.

Also be sure to give her your login and password.

[Heather]

Question. You said you recently converted from mutual funds into ETFs. Did you pay capital gains then? If so, was it recent enough that you won’t have much gain to have taxed switching back to mutual funds?

Maybe there is a conversion process I don’t know about.

[Lisa]

Don’t just tell her about it, make your wife sign on, do transactions…she should totally know how to get into all of your accounts and do whatever is needed.

This makes me cringe!

[Alisa]

You also want to make sure the accounts are structured such that Vanguard will not freeze them at death. Your IRA will generally roll over to her but because it’s no longer your IRA, any previously left instructions will be irrelevant anyway.

People should be aware that death freezes most accounts, even if only for a couple days.

Vanguard is very difficult to deal with after death and even a joint account may be frozen for a short period of time.

[Serena]

My husband is is a world of hurt if I die first. I have outlined everything in a spreadsheet with links and instructions what to do, but I guarantee he would be lost.

It’s kind of a stressful thought.

Plenty of assets, but won’t know how to manage.

[Randy]

Assuming funds are in a taxable ira, why would there be any tax impact from selling shares?

[Jo]

Who cares if it’s a fractional share? ETFs are so much better than funds, less fees better performance.

[Justin]

This is only 1 extra step.
Sell shares, goes to cash, transfer cash

Vs before you exchanged for cash and transferred in one step it sounds like.

[Jule]

Involving and teaching her how to manage your shared investments and overall finances is actually a great outcome of the “problem.”

[Sandra]

I wonder if this is specific to ETFs. My son has a fidelity account and we wanted to set up auto investments from his checking account into QQQ but it was not an option.

It would take $ from checking and the cash would go into his cash account and he would have to purchase QQQ

[Dara]

I think you can do this with fidelity etfs. You can buy them automatically where VG you can not yet. VG is wonderful but not very cutting edge in their technology.

Ask at Fidelity but I think you can. You can transfer it to them or just wait til VG finally catches up in a few years and offers it.

[Amy]

Fidelity and Vanguard started offering automated account features for ETFs only just last year.

I would expect to see more features added over time as ETFs gain popularity over mutual funds.

[Eric]

Wow I didn’t know. I converted my dad’s account to ETFs. Since I manage it and do the rmds for him it doesn’t matter so much but still good to know

[Joel]

Transfer the account to Fidelity. I’m pretty sure they can automate the redemptions even for ETFs. You have to set up a schedule of recurring sales of shares, but it’s possible.

Note that you still have the problem of rebalancing and increasing the distributions over time to account for inflation, so this still doesn’t completely automate the management of your portfolio.

[Popeye]

Similar problem at Chuck’s. Must have cash to be transferred So you either need dividends collecting dust or initiate some sale to get it in settlement cash.

It’s possible to set up the recurring transfer but not the funding itself.

[Heather]

Also? Do the shares have to be sold upon your death before transfer? Could there just be a transfer to your spouses account?

[Rick]

Great info.
I expect this is a short term problem though. Now short term will be in the eye of the beholder.

Etfs are only growing in popularity. How to buy/sell/manage them is a differentiator, for now. Soon much of the innovation will be done and the race to copycat will begin.

It is only a matter of time until this issue is resolved. But in the meantime, it could be a bit of a nasty aha.

[Julie]

She should know how to do it anyway, in case you’re hospitalized for some reason. It’s a good time to make estate plans if you don’t have them already.

[Tom]

I would call Fidelity and see if they support this. Vanguard is in the dark ages in many ways. I don’t know if this is something Fidelity supports, but it’s worth asking about.

[Maya]

This was the reason why I resisted for awhile on doing the conversion to ETFs.

I’m hopeful that Vanguard will soon allow the option to automate the selling & transfers of assets to checking account.

[Angela]

If your wife is not listed on the account, be sure to complete Vanguard’s beneficiary forms.

It has to be their forms or she won’t have immediate access.

[Erin]

To me this seems like a case where having a financial advisor would be the most beneficial.

I didn’t know anything about FI when my husband died, but my financial advisor at Fidelity was incredible.

[Scott]

I’m confused about one thing… this is an IRA account with RMDs… how would selling and re-purchasing be a taxable event? Aren’t you only paying personal income tax when you withdraw?

(Hence the reason for an RMD to begin with – the irs wants their money!)

[Author]

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