As your estate plan grow, there is a high probability that you will eventually incorporate a trust into that plan. If so, you will need to appoint a Trustee to administer the trust. One question you may have at that point is “How is a Trustee compensated?” The Carmel area trust attorneys at Frank & Kraft explain the basics of trust administration, including 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 (the trust administrator), appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries, also named by the Settlor.
Trust Administration
The Settlor (creator) of a trust appoints the Trustee. In overall terms, the Trustee is responsible for managing the trust assets as well administering the trust using the trust terms created by the Settlor. Among the specific duties and responsibilities of a Trustee are the following:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Trustee Compensation
Among the many factors to consider when you are creating your trust are the costs associated with administering your trust because those costs are paid out of the trust assets. As you can see, the Trustee of a trust often has a time-consuming and complex job to do – and how well the Trustee performs that job will have a direct bearing on the success of the trust.
The trust agreement dictates how the Trustee’s fee will be paid. If the Trustee is a professional, such as a lawyer or a C.P.A., the trust agreement may direct the Trustee to be paid his/her normal hourly fee for administering the trust, a set salary, or may earn a percentage of the value of the trust assets. For a professional Trustee, 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. Generally, if the Trustee is also investing the trust assets, the percentage will be higher than if the Trustee is simply managing and distributing the assets.
Frequently, however, a trust agreement is silent on the issue of Trustee fees, or the trust agreement calls for the Trustee to be paid a “reasonable fee” for his/her services. When that is the case, the best way to approach the Trustee fees is through an agreement with the trust beneficiaries when possible. If the beneficiaries are minors, or are otherwise unable to consent to a fee, the Trustee must determine his/her own salary which could be subject to judicial review if challenged.
Contact Carmel Area Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about Trustee compensation, contact the experienced Carmel area trust attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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