What Fees Can Trustees Charge for Trust Administration?
Trust administration fees can be viewed from two different perspectives. The first is from the viewpoint of the settlor or grantor of the trust and the beneficiaries of the trust. The second is from the perspective of the trustee or trust company performing the services. This article provides an overview of the laws applicable to trustee compensation and examines the limitations on trustee fees with both perspectives in mind. It also discusses best practices for trustees interested in avoiding fee disputes. This article focuses on what a trustee is entitled to be paid for administering a living trust or other estate planning trusts in the United States. Fees of other types of trustees are outside the scope of this article.
If you have questions about what type of compensation a trustee can legally charge for serving in this role, the following is a list of steps to take:1. Determine which state laws apply to the trust. Do not assume that because the settlor or grantor lived in a particular state the laws of that state automatically apply to the trust. Review the trust instrument and pay particular attention to provisions discussing the situs of the trust, governing law, and choice of law. You may need to have the trust documents reviewed by a lawyer for clarification of which state law applies to the trust. If you are the beneficiary of a trust and do not have a copy, refer to our page on right to information about trust.2. After you determine which state law governs payments to the trustee, the next step is to review applicable state statutes, case law, and related laws. Each state promulgates its own laws regarding the creation, administration, and termination of trusts, as well as the administration of decedent's estates. Because the laws of each state are unique, your understanding of the laws on trustee compensation may not be correct if it is not based on the specific state laws that apply to your trust. This is a common cause of confusion among both trust beneficiaries and trustees. Some states have adopted the Uniform Trust Code which contains provisions on how much a trustee can be paid, whereas other states have not adopted this model law. To find the compensation standard that applies to the trustee of your trust and any statutory limitations on what the trustee can earn, locate the applicable state statute and review it. For information on specific state statutes and codes, go to our Trust Law page. There may also be court cases interpreting those state laws that have an impact on what a trustee should be paid. The only way to be sure you have a correct understanding of the rules applicable to a successor trustee or any other trustee is to consult an attorney. However, state law is not the only deciding factor in whether a trustee is entitled to be paid amounts billed to the trust. There are other factors to consider, as outlined below.3. The next step in finding out what a trustee can lawfully charge for trust administration is to review the provisions of the trust agreement that discuss trustee compensation. The trust documents may specifically set forth the amount trustees are to be paid. However, many trusts do not mention trustee fees or fail to provide specific instructions on this issue. When a trust agreement does not contain provisions specifying the amount a trustee should be paid, trustee fees are determined by applicable state laws or the court with jurisdiction of the matter. If the trust instrument does outline how much remuneration a trustee can receive, that information may be helpful in providing guidance. Unfortunately, under the laws of many states, language in the trust is not dispositive because fees billed by a trustee may still be subject to parameters set by state laws. Source: www.pennyborn.com. Therefore, there are instances in which a trustee may be charging fees allowable under the terms of the trust that nevertheless would be declared impermissible by a court.4. Consider the capacity in which the trustee is providing services. For example, is the trustee providing general administrative services, such as routine paperwork and oversight, or is the trustee providing highly skilled services as a lawyer, CPA, financial adviser, real estate broker or investment manager? Depending on applicable laws and the trust provisions, if the trustee also serves as a lawyer for the trust, the trustee may be entitled to compensation for both the trustee's fees and attorneys' fees.Beneficiaries should be aware that fees for specialized services of a professional will generally be higher than those of a non-professional fiduciary without a license or specialty. When billing the trust or listing trustee fees in a Trust Accounting, trustees should clearly indicate whether amounts billed are for general trustee services or for work performed as an accountant, financial professional, attorney, etc. For example, a trust attorney may bill 400 dollars an hour, whereas a relative of the deceased grantor that does not possess any licenses may not be entitled to such a large hourly rate for serving as trustee.Whether you are a trustee with questions about what you can be paid by the trust or a beneficiary that seeks to challenge a trustee for excessive fees, you will need a probate lawyer or trust attorney to interpret the law as it applies to the trust. Because trustees may be held liable, they should work closely with an attorney to ensure compliance with applicable laws. New trustees and individual trustees should become familiar with the principles of fiduciary compensation before assuming this role.
How Much Are Trustees Paid to Administer a Trust?
Across the entire United States, there are wide variances in how much a successor trustee can expect to be paid. For example, the trust instrument may state that an individual trustee is entitled to reasonable compensation in accordance with compensation payable to individual trustees in the city or county in which the trustee resides. Therefore, trustee fees will tend to be higher in areas where the cost of living is expensive.It becomes even more difficult to provide an estimate of how much trust administration should cost when one considers the unique nature of estate planning trusts and the parties involved. The fees you can expect to pay an individual trustee to administer a
with a house worth a few hundred thousand dollars in a rural area would be much less than the fees you can expect to pay an institutional trustee to administer the multi-million dollar trust of a deceased celebrity in a major metropolitan area. A trustee will also typically be paid less for services that do not require specialized expertise than a trustee that is required to provide complex services in the areas of investment management, property transactions, accounting, tax, etc.When trying to assess whether trust administration fees of a professional trustee are reasonable, a good starting point is to examine the published fee schedules of trust companies and institutional trustees such as banks. Trust documents often include provisions stating that an institutional trustee is entitled to reasonable compensation in an amount specified in its schedule of fees and charges for the administration of similar accounts. This type of form language gives institutional trustees wide latitude in how much they can charge for their services.Finally, contact estate and trust attorneys in the area and ask about their hourly rates or fees for trust administration. For more details on how much professional fiduciaries charge, go to
trust administration fees.
The Uniform Trust Code and Trustee Fees
The Uniform Trust Code or UTC is a model trust law many states use as a template for their own legislation on trusts. As of the date of this article, 31 states plus D.C. have enacted the Uniform Trust Code. When evaluating whether a trustee has a right to bill the trust in a certain manner, the provisions of the UTC are a good reference point. Trustee compensation is discussed in Section 708, which essentially provides that in the absence of language in the trust regarding compensation, the trustee is entitled to compensation that is reasonable under the circumstances. Because the term reasonable is open to interpretation, you may need other sources of law to evaluate fees charged by trustees. Many state statutes set forth a list of factors to be considered when evaluating whether trustee fees are reasonable. Whether trustee fees are reasonable may also be evaluated by examining the published fee schedules of professional trustees that perform the same services. Another commonly used reference point is the probate fee amount authorized by state law for an executor settling an estate.For guidance on what constitutes reasonable compensation when there is no other binding legal authority, courts often look to the Restatements. The Restatement, Third, of Trusts outlines factors that may be relevant when evaluating the reasonableness of trustee fees. When applying factors listed in the Restatement to amounts billed by a trustee, you may want to consider the following questions:A. Are the fees billed by the trustee reasonable in light of customs in the region, community, city, county or state where the services are performed?B. What is reasonable for the trustee to be paid based on the trustee's skills, experience, and facilities? For example, does the trustee possess special expertise or licensure that benefits the trust?C. How much should the trustee be paid based on the amount of time he or she devoted to performing the services?D. What is a reasonable amount for the trustee to be paid based on the character and value of trust property? Trust assets worth millions that require professional investment management may warrant higher trustee fees than trust property comprised of a small principal residence and bank account.E. Are the fee amounts reasonable in relation to the difficulty, responsibility, and risk involved to
administer a trust?F. Is the amount paid to the trustee reasonable when you consider the trust services performed by third parties and the cost of such other services? For example, did the trustee delegate work to investment managers, financial advisors, attorneys or others that was performed at a significant cost to the trust?G. Are the trust administration fees reasonable based on how well the trustee performed?Section 708 of the Uniform Trust Code provides that if the trust specifies the trustee's compensation, then the trustee is entitled to be paid accordingly. But there are limitations. The UTC authorizes the court to modify amounts payable to a trustee, despite language in the trust instrument, in certain circumstances. For example, if the actual duties of the trustee vary substantially from what the grantor or settlor anticipated they would be when the trust was made, the court can modify the trustee's fees. Also, if the amount of fees specified in the trust document would be unreasonably low or high, the court can change the amount the trustee will be paid. See
Can Trustee Be Removed. Whether a court would adjust amounts payable to a trustee in your specific circumstances depends on applicable state law and the terms of the trust.Some state statutes include additional factors a court may consider when deciding whether a trustee's fees or commissions are reasonable. These factors may include whether the trust was the subject of litigation or the trustee was required to be involved in litigation to protect trust property.For an overview of the Uniform Trust Code and the Restatements, refer to our Trust Law Sources page. Although you can gain a better understanding of trust law by reading the UTC and the Restatements, you will need to consult a licensed attorney for information about whether a trustee is entitled to fees and expenses for administration of a specific trust in a particular state.
Common Problems With Trustee Fees
When drafting trust agreements, estate planning lawyers may want to anticipate potential problems with trustee compensation and include provisions to reduce the likelihood of disputes. The following is a list of some common problems arising from fees and commissions billed by trustees:1. When trustees bill for performing
trustee investment duties, disputes may arise for many reasons. Properly managing trust investments, possessing the necessary financial expertise, deciding whether to delegate financial management duties, avoiding conflicts of interest, and achieving satisfactory performance on investments are some of the fee-related issues with which trustees must contend. In some instances, these types of fees for trustees may seem excessive. In other cases, the fee schedule or method of calculating such fees is difficult for beneficiaries to understand.2. When there are co-trustees, issues may arise regarding how to properly allocate fees among them. Having more than one trustee may lead to higher trust administration costs, which can be a problem for beneficiaries. However, the trust may benefit from having co-trustees. When reviewing whether fees are reasonable when there is more than one trustee, the court may look at several factors, such as the reasons for appointing co-trustees and the work performed by each trustee.3. When trustees adjust their fee schedules, fees that have been agreed upon, or fees that were in effect prior to the change, it can lead to complaints by beneficiaries. Prior to making any modifications, trustees should comply with applicable notice or disclosure requirements. Section 813(b)(4) of the Uniform Trust Code requires the trustee to give qualified beneficiaries notice of fee changes prior to such changes going into effect. Beneficiaries may have a limited time to dispute fee changes and should consult a lawyer promptly upon receipt of any such notices or disclosures.4. When a non-professional trustee assumes the role of successor trustee without compensation, but decides at some later date to begin billing the trust for services, whether on an ongoing basis or in a lump sum in the final trust accounting, it may lead to a dispute about the trustee's right to such fees. This can happen in a number of ways. For example, a relative or friend of the grantor or settlor may accept the position of trustee without a full understanding of the scope or risk of the fiduciary duties. The individual may want to be paid, but the beneficiaries may have relied on past work without compensation or statements by the trustee indicating a willingness to do the work for free. One issue in these types of fee disputes is whether the trustee waived the right to compensation.5. If the trustee is being paid more than once for the same work, the charges are more likely to result in a fee dispute. For example, if the trustee is serving in dual roles or in a dual capacity, particular attention should be paid to whether the charges are permissible. It is important to note that the same fiduciary may serve as trustee of a deceased settlor's trust and executor of the decedent's estate. The individual or entity serving in these dual capacities may be compensated for services in both roles. Also, in some trusts, the trust instrument may specifically state that an attorney or other professional who also provides such professional services is entitled to compensation for both services as trustee and the professional services performed for the trust, except as prohibited by law.6. If a corporate trustee charges a large fee for transferring administration to a different trustee or for completing the paperwork to terminate a trust, the fees may be questioned.This is not an exhaustive list of the types of problems associated with trustee fees and expenses. Whether you are a lawyer drafting trust forms or a new trustee concerned about what you can bill for your services, there are several ways to identify potential sources of fee disputes. Reviewing case law is the most obvious. Consider the
heirs and beneficiaries of the trust as well as their relationship with the settlors or grantors. Review the assets that make up the trust property and try to anticipate issues that may arise. Review fee agreements or contracts of professional fiduciaries as these agreements may mention sources of potential disagreement over fees. Speak with an attorney that has represented multiple trustees in will and trust disputes or related cases.Copyright 2020 Pennyborn.com. ALL RIGHTS RESERVED.Published July 22, 2017. Updated August 3, 2017.
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