A trust is a legal arrangement in which someone with assets (called a trustor) asks another person (called a trustee) to hold and manage those assets — which often include bank accounts, investments, real estate and corporate holdings — for the benefit of one or more third parties (called beneficiaries). In this kind of arrangement, the trustee is in a fiduciary relationship. This means they’re required to follow the trustor’s wishes and instructions for managing the assets of the trust, and they need to make decisions for the benefit and in the best interests of the beneficiaries, not themselves.
Creating a trust is one thing. Administering a trust — actually carrying out the trustor’s instructions in a manner that fulfills your fiduciary duty as trustee and complies with all applicable laws — can be challenging. It can also take time and require you to spend a fair amount of money. For that reason, administrators of trusts — this may be you as the trustee or a third-party professional administrator you hire to help you out in complex cases — are entitled to charge trust administration fees.
Your responsibilities as a trustee depend on what’s outlined in the actual trust document — that’s what defines your role and what it entails. Every trust is different, so it’s not possible to list all of the things that someone who’s administering a trust — whether that’s you as the trustee or a trust administrator you hire — will have to do. That said, there are some common tasks trust administrators often have to do. These include:
- Sending various notices to all the beneficiaries named in the trust
- Transferring ownership of real property (real estate), if the trust includes any, to the name of the trustee
- Searching for all other assets the trustor owned, such as bank accounts and investment accounts
- Paying the trustor’s debts
- Filing federal estate tax returns
- Keeping a detailed set of records of all of the assets of the trust and any and all money spent (distributions) or brought into (deposits) the trust
- Distributing the assets of the trust to the beneficiaries as directed by the trust
These steps can seem simple enough at first glance, but there are many detailed steps to complete at every stage — and they can involve considerable paperwork and expense. You may also have to complete a variety of other administrative tasks based on what’s written in the specific trust you’re dealing with. These might include things like:
- Filing various tax returns
- Publishing notices in newspapers
- Filing the trustor’s will with a court
- Opening bank accounts
- Paying the trustor’s outstanding expenses and liabilities from trust assets
- Collecting life insurance proceeds
- Communicating with banks and financial institutions
- Consulting insurance advisors
- Getting appraisals and valuations of property
- Retaining lawyers and accountants and paying their bills
- Selling and investing assets
What Are Trust Administrator Fees, and How Are They Paid?
Trustee administration fees are compensation for the time you spend (or a professional administrator spends) on administering a trust. You could incur numerous costs while you’re making sure that the trustor’s wishes are carried out for the benefit and in the best interest of the beneficiaries while complying with all legal obligations. As mentioned, trust administrators can be you as the trustee, and they can also be third parties — banks, trust companies, wealth management companies, lawyers, accountants — with experience in administering complex or large estates and trusts. Trustee fees are set in several different ways.
Individual people appointed as trustees who decide to manage the process on their own are entitled to “reasonable compensation.” In some cases (but not often), the trustor may explain in the trust document how much the trustee should receive for compensation. In other cases, the trustee — who’s often a family member — may forgo taking any fees, especially if they’re hiring a professional trust company to do most of the work.
In situations where a family member trustee is working alongside a professional trustee, the family trustee might receive something like 0.25% of the trust’s assets each year as payment. If they’re doing all the work without a professional trust administrator on board, they can justify a higher percentage. In some states, legislation places limits on fees trustees can collect. If you’re appointed as a trustee, it’s advisable to retain a lawyer to best understand your fiduciary obligations, as outlined in the trust. Ask the lawyer what’s reasonable based on your specific circumstances and whether there are any legal limits to fees you should charge for the work you do.
Expenses related to certain trust-administration tasks don’t have to come out of your own pocket — the trustor’s assets should pay for them. But you can’t just dip your fingers into the trust’s cash, either; it would be inconsistent with fiduciary duty. The requirement to keep records means you need to track all your time and expenses to justify fees and reimbursements. Do everything — including taking your fees — in a way that leaves a paper trail. Your lawyer or accountant can help you understand the proper steps to make this happen.
Should You Go With a Professional Trust Company?
If the trustor appoints a trust company to administer the trust or if you as the individual trustee decide to hire a trust company or other professional advisor, the fees that the company will charge include several categories:
- An initial fee for accepting the retainer in the first place
- A percentage of the assets in the trust (perhaps 1.0% to 1.5% of the trust’s assets annually, and the percentage can be higher for smaller trusts than larger ones), which is often subject to a minimum fee
- Hourly fees for particular services (in addition to — or, in some cases, instead of — a percentage fee)
- Flat fees for expenses related to particular steps (preparing tax returns or processing real estate transactions, for example)
Using a bank or trust company to administer a trust can be very expensive. If you have no legal or financial experience, however, you may find the investment valuable. The decision often comes down to the complexity and size of the trust, meaning the value of its assets.
If the assets of the trust have a value of less than around $300,000 and don’t involve complex structural, legal, investment or financial issues, retaining a professional trust company may not be worth your while. In that case, retaining a lawyer and accountant may be enough to complete your duties as trustee. In complex cases involving large investments, a wide variety of types of assets, or assets of over $500,000, retaining a professional trust administration company may be in the best interests of you and the beneficiaries.
Trustors appoint people they trust as trustees. It’s an honor, but one that can come with intricate responsibilities. Exercising those responsibilities entitles you to compensation. Consider consulting with professional legal and financial advisors to understand both your responsibilities and your entitlements if you find yourself in this situation.