If you are contemplating the addition of a trust to your estate plan, you likely have several questions. Some of those questions may be related to the costs associated with administering a trust. To help answer those questions, a Phoenix trust administration lawyer at Morris Hall PLLC explains who pays for administering a trust.
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 Is Involved in Administering a Trust?
A trust is administered by the Trustee who is appointed by the Settlor. The Trustee of a trust serves two primary functions – managing trust assets and administering the trust terms. The duties and responsibilities of a Trustee, however, are numerous and varied and include things such as:
- Communicating with beneficiaries about trust business
- Settling disputes among beneficiaries
- Keeping detailed trust records
- Preparing trust taxes every year
- Investing trust assets using the “prudent investor standard”
- Distributing trust assets according to the terms of the trust
- Understanding and abiding by trust terms
- Making discretionary decisions when given the authority to do so
If the Trustee is a professional Trustee, such as a law firm, bank, or trust company, all the trust duties may be performed by the Trustee. If the Trustee is not a professional, he/she will probably need to elicit the assistance of professionals, such as an attorney and accountant, to help with some aspects of administration.
Costs of Administering a Trust
There are ongoing expenses involved in administering a living trust; however, the overall cost of administration will depend on a variety of factors. The size of the trust — or more precisely, the 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; however, in the absence of trust terms that provide guidance, a Trustee is entitled to a “reasonable fee.” When the Trustee is a professional, 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 as a result of litigation. These expenses are paid out of the trust assets each year.
Contact Our Phoenix Trust Administration Lawyers
For more information on Trust Administration, click here. If you have additional questions or concerns about administering a trust, contact one of our experienced Estate Administration lawyers at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.