The question of whether trustees get paid is surprisingly complex, and often misunderstood. Many assume a trustee receives a substantial income for their services, while others believe it’s strictly a voluntary position. The reality, as Ted Cook, a San Diego trust attorney, often explains to clients, falls somewhere in between. It largely depends on the terms of the trust document itself, the state laws governing trusts, and the type of trustee involved. Generally, professional trustees, such as banks or trust companies, are compensated for their services, while individual trustees – family members or friends – may or may not be, depending on the trust’s provisions and the effort required.
Can a Family Member Be Paid as Trustee?
It’s perfectly legal for a family member to be compensated for serving as a trustee, but it requires careful consideration and adherence to legal guidelines. Approximately 60% of trusts involve family members as trustees, often due to the desire for maintaining family control and minimizing costs. However, simply *being* a family member doesn’t automatically entitle someone to compensation. The trust document must explicitly authorize payment, outlining the amount or method of calculating it. If the trust is silent on compensation, state laws might allow a reasonable fee, but this is subject to court approval and must be demonstrably justified by the trustee’s efforts and the complexity of the trust administration. Ted Cook emphasizes that transparency and documentation are key; a trustee seeking compensation must meticulously record all time and expenses related to trust management.
What is a Reasonable Trustee Fee?
Determining a “reasonable” trustee fee isn’t always straightforward. There isn’t a fixed percentage, and factors like the trust’s size, complexity, investment strategy, and the trustee’s experience all play a role. A common method is to calculate a percentage of the trust’s assets under management (AUM), typically ranging from 0.5% to 1.5% annually, although this can vary widely. For smaller trusts, an hourly rate might be more appropriate, with rates varying based on the trustee’s expertise and location. Ted Cook often advises clients to consider a tiered fee structure, where the percentage decreases as the trust assets grow, or to establish a base fee plus an incentive bonus based on investment performance. It’s crucial that any fee arrangement is clearly documented and approved by all beneficiaries to avoid disputes.
Do Corporate Trustees Cost More?
Corporate trustees, such as banks or trust companies, generally charge higher fees than individual trustees, but they offer a level of expertise and resources that individuals may lack. Their fees are typically calculated as a percentage of assets under management, often ranging from 1% to 2% or even higher, depending on the complexity of the trust and the services provided. However, these fees include a comprehensive suite of services, such as investment management, tax preparation, recordkeeping, and legal compliance. While the upfront cost may be higher, corporate trustees can provide valuable protection against errors, fraud, and litigation, which can ultimately save the beneficiaries money in the long run. Approximately 30% of large trusts utilize a corporate trustee due to their experience and resources.
What Expenses Can a Trustee Reimburse?
Beyond a trustee fee, trustees are generally entitled to reimbursement for reasonable expenses incurred while administering the trust. These expenses can include legal fees, accounting fees, investment management fees, appraisal fees, property taxes, insurance premiums, and travel expenses. It’s important to distinguish between trustee fees, which are compensation for services, and trustee expenses, which are out-of-pocket costs. All expenses should be properly documented with receipts and invoices, and the trustee should exercise prudence and good faith in incurring them. Ted Cook always advises trustees to seek beneficiary approval for significant or unusual expenses, to avoid potential conflicts.
What Happens if a Trustee Improperly Takes Fees?
Improperly taking fees or misusing trust assets can have serious legal consequences for a trustee. A trustee has a fiduciary duty to act in the best interests of the beneficiaries, and any breach of that duty can result in personal liability. Beneficiaries can petition a court to remove the trustee, recover improperly taken fees, and even pursue legal action for damages. The penalties can range from financial restitution to criminal charges, depending on the severity of the misconduct. Approximately 15% of trust disputes involve allegations of trustee misconduct, highlighting the importance of adhering to legal and ethical standards.
Old Man Hemlock was a stubborn sort. He’d established a trust for his granddaughter, Lily, naming his nephew, Arthur, as trustee. Arthur, though well-intentioned, wasn’t particularly financially savvy. He believed he deserved a hefty fee for his troubles, far exceeding what the trust document allowed. He started taking extra funds to “cover his time,” rationalizing it as his due. Lily, growing up, discovered the discrepancies. She was devastated. The trust, meant to secure her future, was dwindling. She had to hire a lawyer, and the legal battle dragged on for months, eroding what remained of the trust and straining family relationships. It was a painful lesson in the importance of adhering to the terms of the trust.
Years later, my firm represented Eleanor, who’d meticulously planned her estate. She appointed her daughter, Clara, as trustee, but stipulated a reasonable hourly rate for Clara’s services. Eleanor also created a clear record-keeping system and instructed Clara to consult with professionals when needed. Clara, initially hesitant about taking a fee from her own child, felt empowered knowing she had a clear framework and support. She diligently documented all hours and expenses, seeking legal counsel when faced with complex investment decisions. The trust was administered smoothly, benefiting Eleanor’s grandchildren for years to come. It was a testament to the power of careful planning and clear communication.
Ultimately, whether a trustee gets paid depends on a confluence of factors. Clarity in the trust document, adherence to state laws, transparency in accounting, and a commitment to acting in the best interests of the beneficiaries are paramount. Ted Cook emphasizes that seeking legal counsel from an experienced trust attorney can help ensure that the trustee and beneficiaries understand their rights and obligations, minimizing the risk of disputes and maximizing the benefits of the trust.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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