Trustee Fees
Most trust agreements state that the trustee is entitled to a “reasonable fee” — without further explanation. The Oregon Uniform Trust Code [ORS 130.635(1)] is no better: “If the terms of a trust do not specify the trustee’s compensation, a trustee is entitled to compensation that is reasonable under the circumstances.”
What is reasonable? One benchmark is the fee charged by professional trustees. Most banks will charge about 1% per year to administer a trust. (The percentage is usually a sliding scale that decreases as the value of the trust increases.) But the bank’s 1% fee usually covers both trustee duties and investment management services, which are bundled together. This complicates comparing a bank’s 1% fee with a “trustee only” fee. In the latter case, there will be two fees; an investment management fee of roughly 1%, and a trustee fee of roughly .5% to 1%. So the aggregate fee is usually higher if trustee and investment services are purchased separately.
It gets more complicated, depending on the services the trustee actually provides.
Trust Holding Liquid Assets for Cooperative Beneficiary. On one end of the spectrum, a trustee might manage a $1M portfolio for a minor child and issue an equal payment each month. In this scenario, a 1% fee is a reasonably good deal for the trustee.
Trust Holding Liquid Assets for High Maintenance Beneficiary. Another alternative is an adult beneficiary (undoubtedly angry that his inheritance is locked up in trust) who constantly badgers the trustee about extraordinary distributions (cars, wedding rings, spending money, etc.), excessive fees, inadequate investment performance, improper asset allocation, etc. In these cases, a reasonable fee might be 1% plus an hourly rate for telephone calls in excess of perhaps two hours per month.
Post-Death Administration of Revocable Trust. Finally, there is the trustee of a revocable trust engaged in post-death administration. The assets of the decedent must be inventoried and liquidated; the house must be cleaned up and sold; scores of bills must be paid; tax returns must be filed; and there will be a steady dialog with numerous beneficiaries. The post-death administration process will usually last a year or longer. During this period, a reasonable trustee fee might be the same as the 2% fee allowed to court appointed executor, as discussed below.
Executor Fees
Under Oregon law, specifically ORS 116.173, a court appointed executor is automatically entitled to a fee of roughly 2% of the probate estate. An additional fee of 1% is allowed for non-probate assets, such as IRAs, life insurance, and joint bank or brokerage accounts. If the probate estate is a $1M brokerage account and there are only a couple of beneficiaries, a 2% fee may be a windfall to the executor. On the other hand, a 2% fee may be inadequate if the executor must maintain and sell real property, liquidate multiple assets, settle creditor claims, file multiple years of tax returns, deal with contentious beneficiaries, wind down a closely-held business, etc. In these cases, an executor can apply for fees in excess of the 2% statutory fee. A court is likely to approve an additional fee if none of the beneficiaries object.
Conclusion
It is common for lawyers to state that trustee fees and executor fees are roughly 1% and 2%, respectively. However, as described above, the services to be provided must be evaluated on a case-by-case basis, and the fee should be adjusted commensurately. About the only generalization that can be made is that the 1% and 2% thresholds are usually the “floor” when determining the reasonableness of the fee.
Hi David,
How’s your golf game!
My mother passed away a few months ago. She had a living trust, of which I am the executor. So there is no probate. It’s been a lot of work, and I feel there should be some compensation.
What are your thoughts?
Thanks, Don
Don,
You are indeed entitled to compensation. In general, administering a living trust is similar to administering a decedent’s probate estate. Oregon probate laws provide for a minimum executor fee of roughly 2% of the probate assets, without reduction for debts. And additional fees are allowed for extraordinary services. I think a 2% fee is reasonable for your administering your mother’s living trust.
Dave
Hi David ,My father just passed away and I am the trustee ,I know we dont have to go thru probate but do I need to have an attorney to oversee anything else ?Are there other legal reasons to have an estate attorney ?
Tawni,
First of all, I am sorry you lost your father.
In my experience, it is helpful for the trustee to hire an attorney to coach the trustee through the process of terminating the trust. The fees will only be a few hours (and light years less than a probate), but usually well worth the cost. I have seen too many trustee mistakes that have caused lingering issues to the family. For example, if your father had IRA accounts, the distribution options and tax elections need to be analyzed. Life insurance must be collected. His final tax returns must be filed and his bills must be paid. It may or may not be necessary to file estate tax returns. The trustee has to decide whether to distribute 100% of some items to certain beneficiaries and 100% of other items to other beneficiaries, or whether to distribute each asset in equal shares. The trustee needs to decide which assets to sell, and which to distribute in kind. The trustee needs to wrap up the trust in a manner that coordinates with the taxable year selected for the trust. None of these are rocket science, but I have been involved (fortunately after the fact) in cases in which the trustee made serious errors which resulted in acrimonious lawsuits.
Dave
My mother passed away last week and left no US will. She had a trust and the beneficiaries are myself (trustee) and 3 other siblings. It says in the trust that the trustee is not entitled to compensation for services to the trust. But further down it says I am entitled to reimbursement for reasonable expenses incurred in my duties as trustee. My question is: What is reasonable? What expenses? Phone calls, stamps, my time? How much do I charge for my time? Boy, if you can help me with this question, I would be greatful!
Norma
Norma,
First of all, I can talk with you for a few minutes on the phone without charge if you have questions. My direct number is 503.417.2119.
First of all, do you want a trustee fee? If your siblings consent, you can claim a fee. And you might be able to get court approval for a fee even if they don’t consent. If you hired a professional trustee, the fee would probably be $100+/hour or perhaps 1% or 2% of the trust. Thus, I think it is reasonable if you pay yourself $50 per hour. (But you must get consent from your siblings or court approval, since the trust does not authorize compensation.) The actual rate you claim is probably more of a political decision than a legal one. Would your siblings scream if you paid yourself $50?
Reimbursements… You can’t “reimburse” yourself for your time. Instead, you will be compensated for your time only if you claim a trustee fee. All of your out of pocket expenses are reimbursable. I would charge the IRS rate for mileage. All long distance phone calls and postage are reimbursable. If you have to travel in order to visit property of the trust, the travel cost is reimbursable. Basically, any out of pocket cost that is related to handling your mother’s affairs is reimbursable.
Dave