Trustee fees are paid to the individual or company managing a trust.
You have created a revocable living trust.
Because of your goals, this is the best way to manage your assets should you become incapacitated and distribute them to your loved ones when you die.
With any trust, a trustee is required.
While you are alive, you may serve as the trustee.
Under certain situations another individual or organization may be named.
These may include a friend, a bank, a wealth management company, or another financial institution.
According to a recent Yahoo Finance article titled “Trustee Fees: What Are They and Who Pays?,” the work done by the trustee is compensated through trustee fees.
The primary role of the trustee is to manage the assets on behalf of the beneficiaries according to the instructions provided by the trustmaker (also known as a grantor, settlor, or trustor).
As such, the trustee owes a “fiduciary duty” to all beneficiaries.
This includes the duty of “loyalty” and “impartiality” at all times.
In essence, the trustee must put the interests of all beneficiaries ahead of the trustee’s own interests.
How is the trustee paid for these services?
The instructions for paying trustee fees are often outlined by the trustmaker in the trust document.
There are different approaches to paying trustee fees.
What are they?
One method for paying trustee fees is to give the trustee a percentage of the assets in the trust each year.
Larger trusts with appreciating income often use this method, especially when the trustee is also managing the trust assets.
Another option is to pay a flat amount to the trustee each year.
Paying trustee fees this way often works better for small trusts.
If the trustee has few duties, an hourly rate may be used.
Did your trustee incur expenses for travel, storage fees, taxes, insurance, or other payments related to managing your trust?
If yes, these expenses are reimbursable.
For tax purposes, trustee fees are tax deductible to the trust.
They are, however, taxed as income to the trustee.
An experienced estate planning attorney should help draft your trust documents.
This professional will be able to include the information to best communicate your goals and may even instructions regarding trustee fees.
What happens if you fail to include how trustee fees are paid?
The applicable state law can provide a safe harbor to determine the fees for the trustee.
While there is no defined rule for calculating how much trustees can charge for their time, some guidelines do exists.
For larger trusts with significant assets, a minimum percentage of one (1) percent is often used.
For smaller trusts, flat fees are often used.
In all instances, the fees must be fair and reasonable.
As the conventional wisdom regarding tax planning holds, “pigs live and hogs get slaughtered.”
In short, do not become a hog.
The trustee fees are typically paid from the assets in the trust on quarterly basis or they can be settled up anytime between trust creation and final distribution.
When in doubt, contact the attorney who drafted the trust on behalf of the trustmaker.
Reference: Yahoo Finance (Aug. 14, 2020) “Trustee Fees: What Are They and Who Pays?”