The difficult and frequently thankless task of managing trust assets for the benefit of the trust’s beneficiaries falls to trustees. California Probate Code §15681 permits trustees to be paid a “reasonable compensation” for their services. Trustees, however, are legally entitled to receive compensation in accordance with the terms of the trust under Probate Code §15680 if the trust document itself specifies different pay arrangements.
When creating an estate plan, you may need to name a trustee to manage your assets This individual or organization will be responsible for ensuring that your assets are managed according to your wishes and distributed to your beneficiaries. While you can choose to act as your own trustee, some situations may require a professional trustee, such as a bank or trust company.
Professional trustees typically charge fees for their services. These fees can vary depending on the size and complexity of the trust, as well as the experience and qualifications of the trustee. In this article, we will explore the different factors that can affect trustee fees and provide some tips for minimizing these costs.
Factors Affecting Trustee Fees
Several factors can affect the fees that a professional trustee charges. These include:
- The size of the trust: Larger trusts with more assets will typically have higher trustee fees than smaller trusts. This is because the trustee will need to spend more time and effort managing the assets of a larger trust.
- The complexity of the trust: Trusts that have complex investment strategies or that involve multiple beneficiaries will typically have higher trustee fees than simpler trusts. This is because the trustee will need to have a deeper understanding of the trust’s investment goals and be able to effectively manage the distribution of assets to multiple beneficiaries.
- The experience and qualifications of the trustee: Trustees with more experience and qualifications will typically charge higher fees than those with less experience. This is because experienced trustees are more likely to have a proven track record of success in managing trusts.
- The location of the trustee: Trustee fees can vary depending on the location of the trustee. For example, trustees in major metropolitan areas may charge higher fees than those in rural areas.
Typical Trustee Fees
While there are no set rules for how much trustees can charge, there are some commonly accepted baselines. For example, it’s not unusual for trustees to charge a minimum of 1% when dealing with larger trusts that have substantial assets. So for a trust with $5 million in assets, the fee would work out to $50,000 a year.
With smaller trusts that use a flat fee model, the numbers can look very different. For example, say you have a trust that has $200,000 in assets. Using the 1% rule as a guideline your trustee would be able to collect $2,000 a year for their services. But if the trust doesn’t require much hands-on management, it might make more sense for you to offer them a flat fee of $1000 instead.
If you’re choosing a person instead of an institution, like a trust company in a commercial bank, to serve as a trustee, you may be able to negotiate a fee structure that works for both of you With banks and other financial institutions that act as corporate trustees, you can ask them to explain their fees upfront so you know what you’ll pay before deciding to give them the trustee role.
How to Minimize Trustee Fees
There are a few things you can do to minimize trustee fees:
- Choose a trustee with a lower fee structure. If you’re comparing multiple trustees, be sure to ask about their fee structures. Some trustees may be willing to negotiate their fees, especially if you’re a large client.
- Choose a trustee with a proven track record of success. Experienced trustees are more likely to be able to manage your trust efficiently and effectively, which can save you money in the long run.
- Choose a trustee who is located in a lower-cost area. Trustee fees can vary depending on the location of the trustee. For example, trustees in major metropolitan areas may charge higher fees than those in rural areas.
- Consider acting as your own trustee. If you have the time and expertise, you can save money by acting as your own trustee. However, this option is not for everyone. You’ll need to be comfortable managing your own investments and making sure that the trust is administered according to your wishes.
Trustee fees can be a significant expense, especially for larger trusts. However, there are a few things you can do to minimize these costs. By choosing a trustee with a lower fee structure, a proven track record of success, and a location in a lower-cost area, you can save money on trustee fees without sacrificing the quality of service.
How is a trustee fee calculated?
Due to California law’s exclusive requirement that trustee compensation be “reasonable,” fees can differ significantly based on the specifics of the case. Regretfully, this implies that there isn’t a precise mathematical formula that can be applied to all cases and quickly determine trustee fees. Nonetheless, you can familiarize yourself with California’s standard procedures regarding trustee fees.
Managing a trust can fall under the purview of one of three types of trustees, each of whom is typically paid differently. Trustees typically receive an hourly rate or a specific percentage of the trust’s assets. The following lists the standard fee schedule for each type of trustee.
Typically, banks or investment firms are appointed as corporate trustees in order to manage the trust. The majority of corporate trustees receive payment as a percentage of the trust assets, typically ranging from 1% to 2% annually, for their services. Thus, a corporate trustee would get between $10,000 and $20,000 in annual fees if a trust had $1 million in assets.
Professional trustees are people who manage trusts and carry out other fiduciary duties as their line of work. They are also referred to as private professional fiduciaries. Professional trustees may get a portion of the trust’s assets in addition to their usual hourly compensation of more than $100.
A private trustee is a person appointed to manage a trust; they are usually a close friend or family member of the trust creator. Seldom are these trustees compensated using a percentage fee schedule. As an alternative, they typically get paid between $25 and $35 per hour for their trust-related work. But some private trustees might decide not to get paid for their work, especially if they are managing family trusts.
How does a trustee get paid?
Trustee fees are paid out of the trust’s assets. Although the terms of the trust may stipulate that the trustee be paid annually or twice a year, trustee fees are typically paid on a quarterly basis.
Trustees are entitled to reimbursement for trust-related out-of-pocket expenses in addition to fees, regardless of whether the trust instrument contains instructions on the subject. Typical costs that can be reimbursed are taxes, insurance premiums, storage fees, and travel expenses. However, in order to be reimbursed, the trustee needs to maintain precise documentation of their outlays.
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FAQ
What is trust management fee?
Can banks charge fees on the trust account?
How does a bank manage a trust?
Who best to manage a trust?
How much does it cost to manage a trust?
With a high-value trust or a complex trust with a variety of assets, the grantor may appoint an institution or company to manage it. These corporate trustees can charge an annual fee of 0.5% to 2% of the trust’s assets, in addition to requiring a minimum.
How much does a trust trustee charge a year?
For example, it’s not unusual for trustees to charge a minimum of 1% when dealing with larger trusts that have substantial assets. So for a trust with $5 million in assets, the fee would work out to $50,000 a year. With smaller trusts that use a flat fee model, the numbers can look very different.
How much does a trust cost a year?
So for a trust with $5 million in assets, the fee would work out to $50,000 a year. With smaller trusts that use a flat fee model, the numbers can look very different. For example, say you have a trust that has $200,000 in assets. Using the 1% rule as a guideline, your trustee would be able to collect $2,000 a year for their services.
What is a management fee in a trust fund?
A management fee is one of the most common fees associated with a trust fund. The asset management fee is a straightforward fee charged on a trust fund. It is expressed as a fixed percentage of the total assets being managed. The rate differs from fund to fund and is inclusive of other small costs incurred when managing the trust fund.