A frequently incorporated tool in a typical estate plan is a trust agreement. A meticulously planned and appropriately drafted trust can effectively accomplish various estate planning objectives, ranging from safeguarding the inheritance of a minor child to ensuring financial support for a child with special needs. Regardless of the specific goals, all trusts share the common requirement of appointing a Trustee for administration. If you are not well-acquainted with trusts, it is crucial to grasp the concept of Trustee compensation before embarking on the creation of a trust. With that in mind, the attorneys at Wilcox Attorneys, PA discuss whether a Trustee is entitled to a fee for administering a trust.
Trust Basics
A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries, also named by the Settlor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts.
What Does a Trustee Do during Trust Administration?
The Trustee of a trust serves two primary functions. The first is managing trust assets while the second is administering the trust terms. The duties and responsibilities of a Trustee, however, are numerous and varied and include things such as:
- Communicating with beneficiaries about trust business.
- Settling disputes among beneficiaries.
- Keeping detailed trust records.
- Preparing trust taxes every year.
- Investing trust assets using the “prudent investor standard.”
- Distributing trust assets according to the terms of the trust.
- Understanding and abiding by trust terms.
- Making discretionary decisions when given the authority to do so.
Does a Trustee Receive a Fee?
Trust administration does incur some expenses. Typically, a living trust involves more ongoing expenses than a testamentary trust simply because it remains active longer. Exactly what expenses are involved are and how much the total expense is will depend on a variety of factors. The size and/or value of the trust assets is typically the most important factor in determining the cost of administration because that often dictates the Trustee’s fee. The trust agreement itself can include terms that set a Trustee’s fee. If the Trustee is a professional, such as a CPA or attorney, the trust agreement may authorize payment at the Trustee’s normal professional hourly rate. In the absence of trust terms that provide guidance, a Trustee is entitled to a “reasonable fee.”
If the Trustee is a corporate trustee, compensation will often be pursuant to a published fee schedule which is typically based on a percentage of the trust assets. A typical fee is between 1.0 and 1.5 percent of the value of the trust assets per year. They may also receive a small percentage of the trust income each year. If the Trustee is a non-professional, the fee tends to be lower (0.5-1.0 percent) because the trust will usually incur additional professional fees. If the trust owns property, expenses related to the maintenance and upkeep of the property will also be included in the costs of administration as will any legal fees incurred because of litigation. Appointing the right person (or entity) as your Trustee will typically lower the overall cost of administering a trust.
Do You Have Additional Questions about a Trustee Fee?
For additional information, please download our FREE estate planning worksheet. If you have additional questions about how to calculate a Trustee’s fee, contact the experienced Washington County, Fayetteville, Springdale, Rogers, Bentonville, and Northwest Arkansas estate planning attorneys at Wilcox Attorneys, PA by calling 479-443-0062 to schedule your appointment today.
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