Wealth Building Information

Trustee Fees: How Much is Enough and How Much is Too Much?

I am often amused by the ads and offers I see concerning living trusts.

Almost always, one of the big sales pitches is how a living trust will save th*usands of doll*rs in "nasty" probate fees.

This leads the consumer to believe that you pay for probate, but living trusts are "fr*e." (that is, after you've paid the promoter to set one up for you).

Not so.

Here's an email I received from one of my subscribers (she has given me permission to discuss her question in this article):

Hi Phil,My mom passed away recently and my sister is 1st trustee. She claims she gets 10% of my mom's estate as 1st trustee. Is this true? What is the normal fee for 1st trustee?

Great question. Often one of the biggest, if not the biggest, areas of dispute between children or heirs after a death occurs.

What is a trustee fee? How is it calculated? Are there other fees?

If you have a trust and don't know the answer to these questions, I think the proper thought is "Uh-ohh!"

OK, let's have a quick review of trustee fees.

First let's make a distinction between the times a trustee may be called upon to act.

Remember, one of the best uses of a trust is to manage the assets of someone who is incapacitated. My best friend and his sister have been managing their mother's affairs (as trustees) for the last 10 years. Mom is 95, in decent physical health, but has advanced Alzheimer's).

Let's save the discussion of trustees fees charged for managing an incompetent's estate for a future article. Let's get down to answering the above question.

Here it is again:

Hi Phil,My mom passed away recently and my sister is 1st trustee. She claims she gets 10% of my mom's estate as 1st trustee. Is this true? What is the normal fee for 1st trustee?

Basically, the question is "How much can a trustee charge to handle an estate after a death?"

How do we answer this?

First, we have to look at the trust instrument.

Most competently drawn trust instruments will have a section that deals with trustee fees.

The better ones are fairly specific and make a distinction between acting as trustee while the beneficiary is alive, but incompetent, and acting as trustee after a death has occurred (similar actions to what an executor performs through a probate).

So, first, we look to the trust instrument. Often it will specify a fee. Sometimes it will say .75% to 1.25% of the total value of the assets being managed and transferred (since this is the typical fee charged by the professional trust companies run by many banks).

In fact, let's see what California law tells us about trustee fees (every state will have a statute, go to your county law library and ask the law librarian to help you look it up).

In California, the law of living trusts is contained in the Probate Code. Here is what Probate Code Sections 15680-82 tells us:

15680. (a) Subject to subdivision (b), if the trust instrument provides for the trustee's compensation, the trustee is entitled to be compensated in accordance with the trust instrument.

(b) Upon proper showing, the court may fix or allow greater or lesser compensation than could be allowed under the terms of the trust in any of the following circumstances:

(1) Where the duties of the trustee are substantially different from those contemplated when the trust was created.

(2) Where the compensation in accordance with the terms of the trust would be inequitable or unreasonably low or high.

(3) In extraordinary circumstances calling for equitable relief.

(c) An order fixing or allowing greater or lesser compensation under subdivision (b) applies only prospectively to actions taken in administration of the trust after the order is made.

15681. If the trust instrument does not specify the trustee's compensation, the trustee is entitled to reasonable compensation under the circumstances.

So to answer the question, we have to find out what the trust instrument says. If it is silent, then Section 15681 tells us the compensation is to be "reasonable compensation under the circumstances."

What is reasonable under the circumstances? If it were me, I would gather up the brochures of the various bank trust departments in the area to determine their rates. Where I live, the fee is .75% to 1.20%, depending on the size of the trust and the type of assets. The minimum is $5,000.

So, it looks like the answer to the question is that if the trust instrument says the 1st trustee is entitled to 10% compensation, then she may be. However, if it doesn't then the amount to be charged must be reasonable.

And, even if the trust instrument said 10%, I would seriously consider asking a court to change the compensation per 15680 (b) (2) that allows the court to change compensation "Where the compensation in accordance with the terms of the trust would be inequitable or unreasonably low or high."

This article needs to be continued since we haven't even touched on the big m*ney m*ker for trustees and attorneys, "extraordinary fees."

Good luck and until next time,

Phil Craig

P.S. Feel free to forward this on to any friends.

© Phil Craig, All Rights Reserved

http://www.LivingTrustSecrets.com

Phil Craig is a licensed attorney and entrepreneur.He started practicing law at age 25 in 1979. He does not take on any more clients, but isadvisor to some of the biggest names in the internetworld. He shares his knowledge gained over thelast 25 years at his Living Trust Secrets newsletter site:click here==> http://www.LivingTrustSecrets.com

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