There are many benefits to creating a trust. It is more than simply a method of probate avoidance. With a living trust, you have the ability to protect the property you intend to leave to your heirs, as well as plan for ways to reduce estate taxes. A trust can help you prepare in case of incapacity, as well as avoid the potential for a will contest. When clients consider whether a trust is a good option for them, they often ask about the annual fees for a trust in California. The amount of fees associated with trusts depends on the trustee.
What do trustees charge?
Whether you will be charged a fee depends on the type of trustee appointed to manage your particular trust. Family members and close friends who agree to serve as trustees often decline the payment of a fee. However, if your trustee is a financial institution, that institution will have its own fee schedule, which is usually based on the type and extent of trust services they provide for you. Generally speaking, annual trust fees run between 1-2 percent of the total value of assets administered under the trust.
If a trust is not supervised by the probate court, there are really no restrictions or limitations on the compensation that can be paid to a trustee for his or her services. Nevertheless, it is better to set the trustee’s compensation when the trust is created, that way, there will be no disputes between the trustee and the beneficiaries, who may disagree with the amount of the fees.
Court supervision of trust management
More often than not, trusts created nowadays are subject to court supervision. In most cases, the court will order that the trustee be paid “reasonable” fees. Case law has established the following criteria for determining reasonable compensation:
- the gross income of the trust
- the success or failure of the trustee’s administration, as measured by the growth in the value of investments
- any unusual skill or experience the trustee has brought to the position
- the “fidelity” or “disloyalty” shown by the trustee
- the degree of risk and responsibility assumed by the trustee
- the time the trustee devotes to performing trust duties
- the custom in the community, including the compensation allowed to trustees byTrustors or courts typically in that community
- the character of the work done in administering the trust
- any estimate the trustee has given concerning the value of his or her own services
In California, the probate courts that supervise trusts, make a distinction between “ordinary compensation” and “extraordinary compensation.”
Trust compensation terms in California
The terms “ordinary compensation” includes the traditional duties a trustee is expected to perform. But, in some cases, a trustee will request that the court authorize “extraordinary compensation” for additional services performed by the trustee, for instance, court litigation, operating a business or managing commercial property. In the end, the terms of the trust agreement will likely govern the trustee’s fees.
If you have questions regarding trust fees, or any other trust administration needs, please contact the Schomer Estate & Wealth Advisors either online or by calling us at (310) 337-7696.
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