When are Trustee Fees Paid?
When are trustee fees normally paid? (i.e. end of year, beginning of year, prorated monthly?)
There’s no hard and fast rule, but often trustee fees are paid semiannually. For instance, if the fee is 1 percent of the assets in the trust, it might be paid half on January 1st based on the December 31st value and half on July 1st based on the June 30th value. If the end of year value of all the assets in the trust was $500,000, the trustee would receive $2,500 at that time. If the value increased to $550,000 on June 30th, then the next payment would be $2,750.
How Much are Trustee Fees for a Larger Trust?
What is the Tax Treatment of Trustee Fees?
Can a Neglectful Trustee be Denied his Fees?
What Will an Institutional Trustee Charge for Closing our Trust?
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I have managed a trust for 7 years and I am preparing to liquidate the assets and ensure the benefactor receives his inheritance. The liquid assets are $950,000. In the trust, it states that I should be paid but does not state the amount. Your thoughts?
While I can’t be definite without seeing the trust itself, I’d be inclined to think that all of the named beneficiaries should receive an equal share. Would you be able to share the actual language of the trust regarding distributions?
There is only one beneficiary. He will receive everything minus whatever I am paid. I am not sure what I should charge. I was responsible for ensuring all bills were paid including the live in nurses.
Harry, I began acting as successor trustee for my Grandfather’s living revocable trust as of May. Compensation language is pretty standard (average rate of professional corporate trustees, plus mileage and other travel expenses). I am not an attorney or tax professional and what I can gather is anywhere between 0.25 and 1.5% annually of the total trust assets. Is that reasonable? Also, how would I pay myself from his trust, if I am the POA? Thank you for your help and advice.
You can pay yourself as trustee. It’s hard to say what the appropriate fee should be not knowing the size of the trust or your actual duties. Certainly anywhere from 0.25% for a larger trust to 1.5% annually for a smaller trust would be within the range. However, if you are also paying someone else for investment management, that should be factored in. The best approach would be to discuss it with the parties at interest, the beneficiaries, and agree on a reasonable fee. If they accept the fee schedule in advance, then they can’t very well question it down the road.
In addition to the bank accounts/financial assets (apprx 620k) in my parents trust, which are to be divided equally between the 4 of us- the trust also includes a life estate for my middle sister (who lived with & cared for my parents for many years) allowing her to continue to live in my parents (trust owned) home. The trust does not specify how the trustee (an attorney) is to be paid, other than the general wording you mention. My brothers think my sister should have to pay the ongoing fees associated with the life estate from her portion of the financial assets she receives or she should buy the house with them.
My sister feels that the fees should be estimated and set aside before the financial assets are divided out, or that she should be named trustee of her own life estate so there is no need for additional payments to a trustee.
I just want to do whatever is most fair and/or customary in this situation.
What resolutions are available to my siblings and I?
When only real estate is held in trust, coming up with funds to pay the trustee can be difficult unless the property is producing rental income. I like two of the solutions you suggest and dislike two. I think it makes sense for your sister to pay the trustee a reasonable fee or for her to serve as trustee, as long as the other three are comfortable with her serving in that role. I don’t think it’s fair to ask your sister to buy the house from the trust because that would deny her the benefit your parents intended that she receive. On the other side, it doesn’t seem totally fair that everyone participate in paying the trustee’s fee when your sister gets most of the benefit of the trust during her life. On the other hand, it’s also not totally unfair for everyone to contribute since the rest of the family gets the benefit of the trustee watching out for their future interest.
Here are two other possible solutions: If you’re not all comfortable with your sister serving as trustee, what about her serving as co-trustee with another sibling? To the extent this puts an unfair responsibility on that sibling, you could agree to rotate in and out of this role every five years. Another solution would be for your sister to buy you all out, but the buy out would be based on the value of your remainder interest — your right to receive the property upon your sister’s death. The IRS provides tables for this valuation based on your sister’s age and life expectancy, the older she is, the shorter her life expectancy, and thus the greater the value of your remainder interest.
My sister is the Trustee and no fee has been stated. My sister kept the trust going for two years to benefit herself, didn’t take a fee to avoid raising her income and now that the trust is closing she wants to be paid which is fine with all beneficiaries. However she feels it was a full time job and should be paid like a full time job. She has no experience and hasn’t held a job in almost 10 years. The value of the trust is about 800,00. She did the basic trustee things when a Trustee first becomes Trustee regarding closing accounts, taxes but no investing. She has only given trust accounting when asked and then it was limited in info. She works very slow and makes 10 phone calls to information that most people would make one call to get info. The trouble is she feels she should be paid about 30,000 for the two years according to the hours she has tracked. She legally has a right to be paid but how does someone calculate the term “resonable fees”?
To quote my response to a similar question: This is always difficult because people don’t always agree on what needs to be done, who needs to do it, or how much they should be paid. If a trustee or beneficiary is to be compensated at the same rate as someone you hired, why not just hire someone to take care of the necessary tasks?
If your sister were charging a more standard fee of 1% per year, she would be due $16,000. So the debate is over the remaining $14,000 which she might share in paying if she’s also a beneficiary of the trust. She should also be made aware that this is taxable income to her, though it sounds like she pays little or no taxes. Perhaps you can all come to a compromise and pay her somewhere between $20,000 and $25,000, maybe more than she should be paid but not that much more. Fortunately, she’s not asking for an outrageous fee of $50,000 or more.
I manage an irrevocable trust for my friend who is the beneficiary. She had accepted for me to pay in advance up to around 30K for years because she signed every year the excel sheet where I would show the advance fee. Which would be around 1 years of fees but then the trust got reduced to half and I still advance at around 30K which would be two years. Now she claims she never authorized it even though she signed every year, she got upset and said she never and so on, actually she wrote an email saying that maybe she did authorize it but then argued not for two years in advance, and then after the argument asked me to resign. I am writting a promissory note for the fee but should I be concerned she might do something down the line?
The fact that you have your friend’s written authorization of your fees should be sufficient to protect you from any claim by her. It sounds like your fees are not out of line. But you do need to make sure that you and she are on the same page going forward and have that written down as an agreement. In addition, I always take the position that I don’t want to serve as trustee for anyone who doesn’t want me in that role and am always ready to resign if there’s a qualified trustee to take my place. It’s important that there be confidence and a rapport between the trustee and the beneficiaries. In addition, life is too short to continue to spend time and energy in a difficult situation of it’s unnecessary.
I’ve been the successor trustee for 6 years, as my mom was in memory care. She has 4 rentals in the trust that has paid her bills, along with her social security. I have managed the trust, been her general and medical POA, managed her rentals, and performed major maintenance repairs on them, with my husband’s help. I never charged the trust anything during this time, as I wanted to make there would be sufficient funds for her care. She died of COVID-19 in April. There are 4 beneficiaries of the trust, including myself. I always gave quarterly financial reports to the family. The total value of the trust after the sale of the rentals will be approximately 800k. Since I haven’t reimbursed myself for anything yet, including what I’ve had to do to sell the rentals and settling the estate, can I take out of this amount and reimburse myself for the last 6 years? It’s been really rocky with one sibling in particular (my sister), and I have been told by the lawyer that to keep peace in the family, to just ask all the beneficiaries if they would like to give me a gift for all my work from their portion so it wouldn’t be tax deductible. My sister has already said no way, because she visited mom once a week and never got reimbursed (I also visited and took supplies for her, as would any child). She and her husband have been trying to get me out of this position as trustee since mom died, even threatening my life 3 times with a bullet between my eyes, which we had to go to court over for a restraining order. She bilked my mom out of so much money over the years before mom died. She has another beneficiary under her influence too ( my dead brother’s son). The other beneficiary (my other brother) is feeling like I should get compensated entirely as stated in the trust. Is it too late to reimburse? The lawyer makes it sound like it’s too late, since I didn’t take reimbursement every year, and he is primarily focusing on compensating after death, and only at $25/ hr. Thanks for your time and answer. I know this is a difficult situation.
This is a difficult situation and I would defer to the lawyer on the scene, except for one thing. I’m a bit uncomfortable with a “gift” as compensation for your work. It’s either one or the other, and in the latter case should be taxable. But I do have one other idea in terms of your fee. You may be able to go to court to ask for instructions with regard to an appropriate fee for your services, giving notice to your three siblings. Then they could either object or support your petition and your sister would be unable to challenge the court decision without going to a higher court. Your lawyer can advise you whether this approach is available in your jurisdiction.
As trustee, I have (with stock broker) managed my mother’s trusts since my dad died in 1997. Investments did well (supposedly even beat the S&P500 index). Original irrevocable trust is the (somewhat useless now) A/B type trust from early 90’s. I also paid all bills for the past 5-7 years. I even created a new “medicaid trust” in case she lived 5 years, and a SNT trust for my disabled brother ($22k to create them and many hours of my work in 2017-2018).
My sisters hired a lawyer, demanding a final accounting, my fee, how I calculated it, and other things. I thought they agreed “final accounting” wasn’t needed but seems not. I warned them many times over the years that I would charge if they insisted. I gave them investment statements before I split up and distributed the assets, but that’s not good enough apparently. One trust needs to file 2020 tax return, so I may use that to buy me some time (lawyer demands it be done by December 20th). I have nothing t hide, so I offered to instead give them all brokerage statements – can’t be more transparent than that! Waiting for their response.
I surmise they are upset that I decided to charge roughly $18k trustee fee and $2k in expenses. The investments were $1.5m, plus a $280k life insurance, held in another trust (can I charge the 1% distribution fee on it? What about the annual fee? I am in NYS which has calculations for both fees).
$1.5m in the trusts would allow for a $15k distribution fee, plus the annual fee would be roughly $8k (unless I can treat their 3 trusts separately, in which case it would be higher in NYS. Trust says to treat as one trust, but does that supersede NYS law?). Anyhow, I therefore think I am OK unless they can argue the legally allowed fee is “excessive”?
Can I also charge 1% on nursing home payments or only on distributions to siblings? I can’t find the answer.
I can’t tell you about New York in particular. For that, I would advise consulting with an New York trust and estates attorney. However, in general your $20,000 of fees and expenses to date for more than two decades of acting as trustee sounds quite reasonable. You could well be justified in charging more based on the number of years you have worked and the value of the trust. Frankly, I am unfamiliar with the concept of a distribution fee which sounds like it must be a New York feature and, again, I refer you to New York counsel. I am aware that some banks and trust companies charge a fee for wrapping up a trust when it is closed or there’s a change of trustee. I’ve always found this to be distasteful since it’s there in part to discourage a change of trustee and I’ve felt that beneficiaries should have trustees with whom they are comfortable.
All of this said, your fee will undoubtedly be the result of some negotiation with your sister. It probably makes sense to come up with a proposal based on the your level of effort as well as New York law and then come to an agreement that will probably be less than you seek, but some recompense for your effort. Remember, whatever you receive must be reported as earned income.
I have made a will and a disabled person trust. My property and money will all go to my son who is a vulnerable adult and cannot handle his own money. I have no family so it will all be left in the hands of my solicitor. My will states ” I declare the trustee (solicitor) shall be entitled to charge and be paid all usual professional or other charges in connection with the administration of my estate and the trust of this will in all respects as if they were acting professionally therein for lay executor or trustee”. I have no idea what will be charged and the solicitor tells me that she doesn’t know because it is hard to estimate how much work it will involve. Is this normal practice. Thank you for any advice you can give me.
It sounds like you’re writing from England and I have no expertise on British law. That said, it sounds like your solicitor plans to charge by the hour and is saying she doesn’t know ahead of time how many hours the work will entail. This can be especially difficult with special needs trusts since they often do require more work than a standard trust that primarily involves investing the assets in trust. She should, at least, be able to tell you her hourly rate and the average charges for similar trusts she manages. You could also test her out ahead of time by partially funding the trust now to see how she manages and what she charges. This could be a good way for her to get to know your son as well as your wishes for how the funds are spent for his welfare.
When my grandmother died in 2016, her trust stated that her sister should have the right to live in the house as long as she wanted, provided she paid property taxes, insurance, utilities, etc. She named my cousin and me as co-trustees, as our parents’ generation have all died. It has now been 5 years, and our great aunt is moving to assisted living, and we need to sell the house. The house is the only value in the trust, save a small bank account that we have used for repairs as they have come up. The trust says that the trustee can charge 1% per year for trustee duties, but of course we have not taken any payment, as the value was not liquid. We are in California. My question is, how to we determine trustee fees when the house is sold and it is time to distribute funds to the beneficiaries? The house is worth approximately $400,000. I see several options, and I am not sure what is correct.
1. We each receive 1% per year – so $20k each, total is $40k (this seems like a lot)
2. We split the 1% per year – so $20k/2 = $10k each
3. We each receive 1% total – so $4k each
4. We split 1% total – So $2k each
That’s a huge difference. We have not had a lot of expenses in managing the house, and the majority of those have been paid out of the very small checking account my Grandmother left behind. We have put a lot of time and effort into this, so do want to be compensated, but are not sure what our legal options are within what was stated in the trust.
There’s no definite answer. You and your cousin are entitled to be paid. Usually, under state law you would be entitled to a “reasonable” fee which, unfortunately, can often be up to the eye of the beholder. Fortunately, your trust helps in some ways by specifying the fee as 1% per year, but is unhelpful in that it doesn’t seem to say whether that is per trustee or to be split by the trustees.
Based on everything you say, I think I’d to with the second alternative, that you and your cousin split the fee, but you get compensated for all the years you have been working. I don’t think the other beneficiaries would see that us “unreasonable.” Remember, this will be taxable income to you and your cousin.
I have managed a trust since Jan 1ST 2022 and will continue to do so till the the end 2025, I have yet to take a fee for the my services and plan so doing it soon. At the start the value of the trust was $544,507.00. At the end of 2022 the trust was at $399,223.40
I plan on taking 1% for my fee on a yearly basis. So can I take my first year at the 500K value and then my second year at the 399K value?
I live in Florida if that will help. Nothing was ever put into writing by the court or by the will the trust was created out of.
Allow me to start by saying that I don’t practice in Florida, so you will need to check with a Florida probate attorney to confirm my advice. Second, given that it sounds like the trust was created within the decedent’s will, it may be subject to Florida probate court approval, whether by seeking advance approval of your fee or by filing an account that includes your fee and seeking court approval ex post facto. Again, a Florida probate attorney can advise you on the proper course in Florida.
Now, all that said, I’d advise taking $4,000 for 2022. Typically, when trustees or money managers take fees based on a percentage, they do so on the value of the trust on the date they take the trust. If you are taking your fee at the end of the year, then your fee should be based on the trust’s value on December 31st. Often trustees and money managers take fees on a quarterly or semi-annual basis instead of annual, take a quarter or a half at the end of each quarter or half year, accordingly. That way, the fees are not as affected by market volatility or disbursements on a particular date. I don’t think you can take advantage of this approach going backwards, but you might adopt it going forwards.