What is a Standard Trustee Fee?

 In Revocable Trusts, Trustee

Question:

If no fee is mentioned in the trust documents, what would be a reasonable amount for a routine administration of the trust (percentage and/or amount)?

trust-fee-professional-trustee-estate-planning-attorney-Wellesley-MA

Answer:

Trustees are entitled to “reasonable” compensation whether or not the trust explicitly provides for such. Typically, professional trustees, such as banks, trust companies, and some law firms, charge between 1.0% and 1.5% of trust assets per year, depending in part on the size of the trust. They charge a higher percentage for smaller trusts, typically under $1 million, and less for larger trusts, typically over $2 million, since the amount of work involved is more or less the same no matter the size of the trust.

In the past, professional trustees would often charge both a percentage of the trust principal and a percentage of the trust’s annual income, in part because trusts often provide that the income and principal beneficiaries are different. For instance, a trust might provide that all of the income be paid to a surviving spouse but that the principal be preserved to pass on to the children upon the spouse’s death. If the fee came solely from the trust principal, it would seem that the surviving spouse would be getting a free ride if the income stream would not share the expense. Nevertheless, with the decline in trust income in recent years due to chronically low interest rates, it has become customary to charge the fee only to trust principal.

While  percentage fees are standard, this can be problematic for smaller trusts. A trust holding $200,000 and paying a fee of 1.5% would pay an annual fee of $3,000, which may or may not cover the trustee’s costs. Some professional trustees charge a minimum of $5,000 a year. In my own practice where we end up being trustees of last resort for a number of smaller trusts—cases where there’s no appropriate person in the family to act as trustee and the trust is too small to engage a traditional bank or trust company—we charge our standard hourly rates for our work plus 0.5% per year. For a trust holding $200,000, for instance, this would entail an extra charge of $1,000 a year.

Fees are less standard when a non-professional acts as trustee, either on her own or in conjunction with a professional trustee. When the professional trustee is doing most of the heavy lifting, many non-professional trustees, who are often family members, take no fee. However, just as often, they do take a fee, especially if they are not directly related to the grantor, for instance if they are a niece or nephew. The standard I’ve seen is 0.25%, which on a trust holding $1 million would be $2,500 a year. When there’s no professional trustee acting, the non-professional trustee can certainly charge a higher fee and can use the professional standards as a guide. However, they should look at other trust costs. For instance, professional trustees usually take care of the investments as part of their function. If the trust is hiring an investment advisor, that cost should be considered in determining the trustee’s fee so that together they don’t get too high.

Survey Results:

A recent article published online by Wealth Advisor reports on a survey of the fees charged by national trust companies which are consistent with the information above. Annual fees range from 0.50% to 1.0% of trust assets up to $1 million with minimum fees ranging from $100 to $8,000, with most in the $3,000 range. For the most part, these fees seem not to include investment management, which would then be an additional cost. The trust company with the $8,000 minimum fee is undoubtedly trying to discourage smaller trusts from using its service.

Related Articles:

How Much are Trustee Fees for a Larger Trust?

What is the Tax Treatment of Trustee Fees?

When are Trustee Fees Paid?

Can a Neglectful Trustee be Denied his Fees?

Can a Trustee Use Trust Funds to Defend Herself?

What Should I do About a Trustee Who is Overcharging Me?

Showing 16 comments
  • Oliver Street
    Reply

    You forgot about the use of a “financial advisor” to generate large kickback fees. This is de-rigour now. The typical commercial trustee hires an FA who is not a broker and has no fiduciary duty under the law. The FA charges an asset based asset management commission plus costs, and holds the trust assets in an “account” on the FA’s books. That account is in fact a fractional value of an asset pool the FA holds. The asset pool is made of of fractions of brokerage accounts in the FA’s name. The brokerage holds the actual securities in street name, that is in the broker’s name. The FA passes through broker transaction fees, statement fees, etc. pro-forma using the broker’s published fee schedule as if the transactions had been undertaken separately for each asset pool participating in each asset account, and each trust participating in the asset pool. (Yes, a trust participating in an asset via two pools might be charged for a single transaction as if it were two smaller unrelated transactions) The FA passes through statement, accounting and reporting fees both from the broker(s) and the FA’s own pools. (The FA is not a fiduciary, the practice is not barred,)

    The FA’s combined fees are reported by the commercial trustee as “costs”. The commercial trustee also takes an asset based asset management fee.

    The FA also passes through to the commercial trustee the “order flow” credit for the financial transactions. The underlying truth is that the FA doesn’t pay transaction commissions, the FA is actually paid for the large “order flow”, which is actually a kickback for the broker holding the assets in street name, which permits the broker/dealer to sell short, buy long, write call/put options and construct other more complex derivative transactions using the underlying securities without taking any price risk in the security. (Subject to certain rules, substantially that the broker has balanced the positions and has capital to cover any loss potential from any unbalanced positions or price spreads).

    The Commercial trustee receives the order flow credit in the form of a reciprocal marketing agreement between the firms, not traceable to specific trusts, to obfuscate the inherent conflict with the trustee’s obligation to undivided loyalty.

    So the beneficiaries pay non-existent fees marked up twice, Statement fees at 3-5 levels, two layers of asset value fees, including one that does not manage the assets.

    The essential element of the current practice is the FA who has no fiduciary duty.

    • Harry Margolis
      Reply

      That’s an important issue and perhaps a question to ask any potential professional trustee: What are the total costs, including investment costs? Get the response in writing.

      • Pj Martini, Jr.
        Reply

        Mr. Margolis, I may become a trustee very soon, of a trust worth about $1million. I am not an investment guy, I’m the son and sole trustee of my father’’s trust. I need to have an advisor for managing the ‘investments’ of the trust and manage the trust expenses, dealings back and forth with the beneficiaries, which I am one of two. Do I look for a FA, or a firm like maybe Schwab, to do all of the management, etc? Or is there an entity that does this kind of ‘fiduciary’ work for a trustee, like me? Thank you for your guidance in advance.
        PJ Martini,

          • Harry Margolis
            Reply

            Dear Mr. Martini,
            I believe you have two choices, either to hire a financial advisor as you suggest or to engage a professional co-trustee. Depending on where you live, this may be a bank trust department, a trust company, or a law firm. A professional trustee will likely be more expensive than an investment advisor, but would also provide more service. I’d check around for options near where you live, see what they have to offer at what price, and then choose the solution that feels most comfortable to you.

          • Jill S
            Reply

            Harry,
            On a irrevocable trust does the trustee have an option of deducting her income if in fact she is working from home?
            What percentage would correctly correspond to her work?

              • Harry Margolis
                Reply

                Jill,
                I need to know more. Are you saying that a house is in trust but you’re living and working there and want to treat part of the house expenses as business expenses? Or you’re doing your work as trustee from home, so you should be able to deduct a proportion of your house costs against your income as trustee? It sounds like you’re probably referring to the latter. In that case, yes it’s possible, but the IRS rules are very strict. You must have a home office dedicated primarily to this purpose and then you can measure the square footage of the office as a percentage of the entire square footage of the house. It doesn’t have to be an actual office. If you have a desk that you use primarily in your trustee role, you can measure the square footage the desk and perhaps your associated chair and file cabinet take and do the same calculation.
                Let me know if I misunderstood your question.

              • Gary Allen
                Reply

                Dealing with revocable living trust. Question? My in-law was notified by his grandfather also his legal father that he would be the trustee. Then soon died. Trust did not specify that my son-in-law could be paid a % annually for acting as a trustee. He also found his grandfather left everything approx $500,000 in assets, to his great grand son and daughter. They are both minors with no legal parents. My son -in law very knows the kids. Can he immediately resign as a trustee? Or can he charge a % to serve as a trustee to handle all the money etc for the kids?

                  • Harry Margolis
                    Reply

                    Your son-in-law can either resign or serve as trustee and receive a reasonable fee. It’s not clear if the trust says who should take over as trustee if your son-in-law resigns or has a mechanism for appointing a new trustee. If not, your son needs to ask the appropriate local court to appoint a successor trustee. If, on the other hand, your son-in-law chooses to serve as trustee, he can charge a fee. While what’s reasonable can be in the eye of the beholder and depend on the circumstances, I think most people would find a 1% fee of $5,000 reasonable. This would be earned income,so your son-in-law would have to report it on his tax return and pay the appropriate taxes. It would also make sense for him to consult with an attorney, at least at first, to make sure that he understands all the duties and responsibilities of serving as trustee. Here’s a podcast that could get him started: The Duties of Trustees with Attorney Joseph Imbriani
                    https://podcasts.adorilabs.com/show/e?eid=IvRxdwOaGHC6UC50

                  • Mary E Petrucha
                    Reply

                    Does a trustee have to take the fee, even on a 150,000.00 trust…left for a SNT person to live on for the rest of life, plus pay all the bills

                      • Harry Margolis
                        Reply

                        No, family member trustees usually don’t take fees. Professional trustees, on the other hand, rarely serve pro bono. However, they might agree to a reduced rate.

                      • Meka Cromer
                        Reply

                        If the trustee is not following the trust,and is profiting from the trust by living on land that’s part of the trust and not paying into the trust while living on the land. The trustee is not fixing the home that is in the trust for the children to live in. It’s been 3 years and not one thing had been fixed for the children and I can get hack in our home. We are homeless, because the trustee doesn’t want to fix up the home. What can i do about this? Can I press criminal charges?

                          • Harry Margolis
                            Reply

                            Dear Ms. Cromer,
                            You probably can’t press criminal charges, but based on what you say you should be able to have the trustee removed and replaced by someone who follows out the obligations of trustee. I would take the trust to a local trusts and estates attorney and explain the circumstances.

                          • Stacey B.
                            Reply

                            My brother is its administering my mothers estate which includes 500k in real estate and 400 in stocks left in trust. He’s claiming he can take a 3% fee on all, as an estate/trust executor. the house isn’t being sold because he is living in it. He has taken his time to complete the other paperwork/work. We are all still waiting for our distribution and its been 3 years.

                              • Harry Margolis
                                Reply

                                Dear Stacey,
                                There is no hard and fast rule on an appropriate executor’s fee. A lot should go into the mix, including the amount of work involved, how complicated the estate is, and other estate expenses. Three years is a long time to administer an estate and costs always increase when estate take longer to administer. The fact that nothing has been distributed in three years, including the stock which shouldn’t be complicated, seems like evidence that your brother is not working efficiently and should receive a lesser rather than a greater fee. There’s also the issue of whether he should be paying rent for living in the house. While I’m sure you don’t want to spend good money after bad, you may need to hire counsel to make sure your rights are represented.

                              • K Brophy
                                Reply

                                I am working with an estate planning attorney. I am 70, in good health, divorced, no kids/siblings, about 1.5M in current assets. I’m hesitant to ask a friend to administer my trust. After outstanding expenses, bequests of specific items and specific dollars to a few individuals, beneficiaries are residual percentages to various charities. I plan to manage my affairs as long as I am able. I believe I need to designate someone to manage the disbursement of assets upon death but also need to have someone in place to manage financial affairs if I am incapacitated. I’m not clear as to whether all of that can (or should) be handled by the same individual/firm and if that would best be an attorney, CPA, corporate trust firm, or other. And, given that I will manage disbursements from the trust while I’m able, would I need to pay an annual fee (which could be 12.5K at current fees) during that time?

                                  • Harry Margolis
                                    Reply

                                    I do think a professional trustee makes the most sense, whether an attorney, accountant, bank or trust company. They could manage both your financial affairs during your life and distribute your remaining assets upon your death. As you suggest, it’s best that you choose the trustee now and appoint them as co-trustee with you. This comes with a cost, but it has a number of benefits. It would give you the opportunity to get to know the trustee and make sure they’re right for you. Assuming it is a good fit, they would know you better when the time comes to take over. In the meantime, they would provide professional investment assistance and could pay your bills whether all the time or if you were traveling for fell ill. While you may not need these services now, you can take advantage of them.

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