One of the most common additions to the average estate plan is a trust agreement because a trust can help achieve a multitude of estate planning goals from staggering an inheritance to planning for Medicaid eligibility. One thing that all trusts have in common is the need to appoint a Trustee to administer the trust. If you are unfamiliar with trusts, you should understand Trustee compensation before creating a trust. Toward that end, the Coral Gables trust administration attorneys at Stivers Law discuss what you need to know about Trustee compensation.
Trustee Compensation: 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 the Administration of a Trust?
The Trustee of a trust serves two primary functions – managing trust assets and 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
Administering a living trust does involve some ongoing expenses. Exactly what those expenses 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.
Contact Coral Gables Trust Administration Attorneys
For more information, please join us for an upcoming FREE webinar. If you have additional questions or concerns about Trustee compensation, or trust administration in general, contact the experienced Coral Gables trust administraiton attorneys at Stivers Law by calling (305) 456-3255 to schedule an appointment.