While a Last Will and Testament remains the most common estate planning document, trusts are not far behind given how many estate planning goals can be furthered using a trust. All trusts must have a Trustee who is responsible for administering the trust. If you recently learned that you have been appointed as the Trustee of a trust, you probably have a few questions, starting with whether you will be compensated or your service. The Essex Junction trusts attorneys at Unsworth LaPlante, PLLC explain how a Trustee gets paid.
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, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries, also named by the Settlor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. Because a testamentary trust is activated by a provision in the Settlor’s Will, and a Will can always be revoked up to the time of the Testator’s death, a testamentary trust is also revocable up to that point.
What Does a Trustee Do?
The overall job of a Trustee is to manage trust assets and administer the trust. Specifically, a Trustee’s duties and responsibilities include:
- Manage and protect trust assets.
- Abide by the trust terms unless they are impossible, illegal, or unconscionable.
- Invest trust funds using the “Prudent Investor Standard”.
- Monitor trust investments.
- Communicate with trust beneficiaries.
- Resolve conflicts among beneficiaries.
- Make discretionary decisions.
- Distribute trust funds to beneficiaries.
- Approve or deny distributions if given discretionary authority.
- Keep trust records.
- Prepare and pay trust taxes.
There are expenses involved in administering a trust, including Trustee compensation. Typically, a living trust involves more ongoing expenses than a testamentary trust simply because it remains active longer. Exactly what expenses are involved are and how much the total expense is will depend on a variety of factors. The size and/or value of the trust assets is typically the most important factor in determining the cost of administration because that often dictates the Trustee’s fee. The trust agreement itself can include terms that set a Trustee’s fee. If the Trustee is a professional, such as a CPA or attorney, the trust agreement may authorize payment at the Trustee’s normal professional hourly rate. In the absence of trust terms that provide guidance, a Trustee is entitled to a “reasonable fee.”
If the Trustee is a corporate trustee, compensation will often be pursuant to a published fee schedule which is typically based on a percentage of the trust assets. 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. If the trust owns property, expenses related to the maintenance and upkeep of the property will also be included in the costs of administration as will any legal fees incurred because of litigation. Appointing the right person (or entity) as your Trustee will typically lower the overall cost of administering a trust.
Contact the Essex Junction Trust Attorneys
For more information, please attend one of our upcoming FREE webinars. If you have questions or concerns about Trustee compensation, contact the experienced Essex Junction trust attorneys at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.