Source: http://utahestateplanning.org/public/TrusteeFeeSurvey.aspx
Timestamp: 2019-04-22 06:07:28+00:00

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In 2010 and 2011, the author conducted a survey of institutional trustees doing business in Utah. The author also interviewed Utah private professional fiduciaries. (See the “Trust & Estate Address Book” on this web-site for contact information for Utah institutional and private professional fiduciaries.) The survey examined the manner in which the fiduciaries calculate the fees they charge for their services. The survey looked at not only fees for liquid assets, but also fees for special assets, such as real estate, oil and gas interests, life insurance trusts and closely-held businesses. The results of the survey are summarized in this article.
A discussion of the Utah law pertaining to trustee compensation can be found in §8.8.1 of the on-line treatise, “The Utah Law of Trusts & Estates,” which also appears on this web-site.
When evaluating fiduciary fees, it is helpful to keep in mind the fact that the fee reflects not only the services that the fiduciary performs, but also the risk, responsibility and potential liability that the fiduciary assumes.
Fees of institutional trustees, sometimes referred to as “corporate trustees,” are set by their published fee schedules, which can be obtained at their offices.
Fees for liquid assets (cash, stocks, bonds, mutual funds) are typically determined as a percentage of the value of the assets. (See Section 3 of this article.) The methods for calculating fees on real property held in trust vary. (See Section 4.) A fixed fee will generally be applied to life insurance trusts. (See §5.1.) Fees for oil and gas interests will usually be a function of gross receipts. (See §5.2.) Fees for managing a closely-held company will usually be negotiated on a case-by-case basis. (See §5.3.) Institutional trustees sometimes negotiate downward from their published schedules for very large trust accounts, for long-standing clients, or for clients with multiple trust accounts.
Private professional fiduciaries are individuals and organizations (other than banks and trust companies) who are in the business of serving as fiduciaries. As individuals, they typically have extensive experience with trust management, perhaps having worked for many years as trust officers at trust companies, as accountants, or as attorneys in the trusts and estates field. While institutional fiduciaries prefer to serve as trustees of irrevocable trusts, private professional fiduciaries often serve as conservators, and in many cases the primary focus of their business is in that area. Fees charged by private professional fiduciaries differ from those charged by institutional trustees in two important respects.
First, the fee structures of private professional fiduciaries are usually not as formal or as specific as the fee schedules published by their institutional counterparts. Fees of private professional fiduciaries are more likely, in general, to be negotiated on a case-by-case basis, with the negotiated fee reflecting the number of hours the private professional trustee expects to devote to the trust.
Fees of private professional fiduciaries may be expressed as a percentage of overall assets under management, even if those assets are unusual assets, such as closely-held companies or oil and gas interests. Alternatively, fees for management of such “special assets” may be calculated on an hourly basis for the work performed.
Some private professional fiduciaries calculate their fees entirely on an hourly basis. The fee may be a flat hourly rate (e.g. $100-200 per hour), or it may be a blended rate that reflects the different hourly rates of professionals, case managers and bookkeepers (e.g. $45-200 per hour).
Second, fees charged by private professional fiduciaries are typically lower than those charged by institutional trustees, on the theory that private professional fiduciaries must hire and compensate investment advisors and other professionals whom corporate trustees often have on staff. Because the fees of these outside professionals are generally charged directly to the trust, the fees of the private professional trustee tend to be correspondingly lower to reflect these other costs.
Non-professional trustees are usually family members or close family friends or advisors who consent to serve as trustee as an accommodation. Often, they are themselves beneficiaries of the trusts for which they serve as trustee. Most non-professional trustees serve without accepting any compensation. Where non-professional trustees do accept compensation, they generally charge much lower fees than institutional trustees or private professional fiduciaries. The reason for this is two-fold.
First, non-professional trustees usually lack the qualifications to manage the trust as effectively as professional trustees. Second, most non-professional trustees lack the resources that professional trustees possess, and must therefore rely more heavily on outside advice and assistance from investment advisors, accountants, attorneys and bookkeepers. The non-professional trustee’s fees are thus typically discounted by the amount of fees that are paid to such third parties to perform basic services.
Family trustees may bring to their fiduciary responsibilities an intimate familiarity with the history of the trust and the circumstances of the beneficiaries, and perhaps even a personal stake in the trust, all of which may enable them to exercise more effective stewardship over the trust than would a corporate or private professional trustee. This may be particularly true when the family trustee is a qualified professional accustomed to dealing with financial and legal issues.
Some institutional trustees charge a supplemental fee if they are required to serve as co-trustee with a family member or other individual. In Utah, the supplemental fees range from an additional 10% to 25% of the basic fee. Some Utah trustees, on the other hand, do not charge such a supplemental fee, while some trustees will simply refuse to serve with a co-trustee.
Where a trust holds individual securities (stocks and bonds) and publicly-traded mutual funds, institutional trustee fees will almost always be calculated as a percentage of the value of the liquid assets, determined as of the beginning of the period for which the fee is being calculated. The fees are graduated and regressive. The larger the trust, the lower the rate.
In Utah, annual institutional trustee fees on the first $1 million of market value of individual securities, publicly-traded mutual funds and cash tend to range from 1.0% to 1.5%. Fees on the second $1 million tend to range from 0.70% to 1.50%. Fees on the next $3 million range from 0.40% to 1.05%. Fees for assets over $5 million range from 0.40% to 0.80%. Fees charged by private professional fiduciaries tend to be at or slightly below the low end of these ranges, while some private professional fiduciaries may forego the percentage-of-value approach and charge only an hourly rate for work performed (e.g. $100-200 per hour).
When a trust contains individual securities, brokerage commissions will usually be passed through to the trust. These fees will be in addition to the trustee fees. In the case of institutional trustees, these commissions may be at relatively low institutional rates. Similarly, if the trust holds publicly-traded mutual funds, the fund fees will be passed through to the trust and will be in addition to the trustee fees.
Some trustees will charge comparatively lower rates for trust assets that are invested in the trustee’s proprietary mutual funds. In Utah, annual fees on the first $1 million of market value of trust assets invested in a trustee’s proprietary mutual funds tend to range from 0.85% to 1.0%. Fees on the second $1 million tend to range from 0.65% to 0.85%. Fees on the next $3 million range from 0.55% to 0.75%. Fees for assets over $5 million range from 0.40% to 0.60%. However, fees charged by the funds themselves may be passed through to the trust, and such fees can be substantial, ranging from 0.15% to 0.80% of the funds invested. These fund-level fees are in addition to the trustee fees.
Institutional trustees may charge different fees for directed accounts, i.e. accounts for which the settlor or other designee manages the investments but for which the trustee performs most of the other fiduciary functions. (See §7.1 of this article for a discussion of standard fiduciary services.) The fees may be higher to reflect the additional administrative inconvenience of taking directions from a third party. In some cases, a trustee will charge a supplemental fee for directed transactions within trustee-managed trust accounts. Alternatively, the fees may be lower on the theory that the trustee has fewer responsibilities to perform and less liability than it would have if it were responsible for making investment decisions. At least one Utah institutional trustee charges fees for directed accounts that are less than half the fees it charges for fully-managed accounts.
Institutional trustees who are required to manage investment real estate usually either (1) include the market value of the property in the trust’s assets for purposes of applying the basic (liquid asset) rate schedule, or (2) apply a different (usually higher) percentage to the property’s value (e.g. 1.3% of the value of the real property per year). In addition, they usually also charge a percentage of the gross rental income. In Utah, the percentage of gross income charged ranges from as low as 2% per year to as high as 10% per year. On the other hand, one Utah institutional trustee charges 10% of gross income for real estate that the trustee is required to manage, but does not charge any fee based on the property’s value.
However calculated, services provided for the foregoing fees would typically include collection of rents, payment of property taxes and other expenses, and a periodic physical inspection of the property, as well as basic fiduciary services that are provided for all trusts. (See §7.1 of this article for a discussion of standard fiduciary services.) Additional compensation may be expected, however, for time and effort expended negotiating leases, evicting tenants, handling zoning or building code issues, dealing with casualty losses, or undertaking construction and renovations.
If an outside manager handles most of the management functions for investment real estate, the institutional trustee’s fee will probably be lower than if it manages the real estate itself, and the cost of the manager will be in addition to these reduced trustee fees. If the trustee has no management responsibilities for the real estate, it may charge a flat fee for holding the properties in the trust (e.g. $350 - $500 per property).
Private professional fiduciaries rarely manage real estate themselves. They might include the value of the real estate in the trust’s total asset value when applying the basic (liquid asset) fee schedule. Alternatively, they might charge an hourly rate (e.g. $125-150 per hour) for time they spend attending to real estate matters. In either case, they will then charge the property manager’s fees to the trust.
When the trust holds title to a personal residence, most institutional trustees charge a flat dollar amount in lieu of applying the basic (liquid asset) fee schedule to the value of the home. In Utah, these fees range from $300 to $1,250 per year. The fixed fee assumes that the trustee would merely hold title to the residence and would be responsible only for limited ministerial functions, such as paying taxes and insurance. If more substantial management responsibilities are required of the trustee, a higher fee might be charged, or the value of the home might be included in the basic (liquid asset) fee schedule.
Private professional fiduciaries might include the value of the home in the basic fee schedule or might apply an hourly rate for work performed in connection with the home.
Additional fees will usually be charged for sales of real estate. In Utah, these fees range from 0.5% to 10% of the sale price. If a broker is used, the fee may be toward the lower end of this range; if not, the fee may be toward the higher end.
Some trustees may charge a set-up fee to cover the cost of transferring title to real estate to the trustee as well as distribution fees for in-kind distributions of real estate. Such fees are typically $250 to $500 per property.
Institutional trustees often charge a flat fee to serve as trustee of a trust that holds only unmatured life insurance policies. In Utah, these fees range from $750 to $1,750. In addition, some trustees will charge a fee of $200 to $500 for each policy held in the trust, to cover the costs of the annual policy review. Similarly, if a life insurance policy is held in a revocable or irrevocable trust along with other assets, the trustee may charge a fee of $200 to $500 to pay for the annual policy review. Additional fees may be charged for the purchase and transfer of policies.
Some institutional and private professional fiduciaries will not accept life insurance trusts.
For oil and gas interests held in trusts, most Utah institutional trustees charge a percentage of the gross income (usually 6-10%). In addition to the percentage of gross revenue, most trustees also charge either a flat fee per interest held (e.g. $50 per interest) or a percentage of the market value of the interests held (e.g. 0.5% to 1.0% of the value of the interests). If the interest is not income-producing, the trustee might charge a flat fee of between $50 and $250 for the interest. Alternatively, some trustees might include the value of the interests in the basic (liquid asset) fee schedule, while others might treat the oil and gas interests as real estate for purposes of the fee calculation. To the extent extraordinary responsibilities are required, additional fees would be charged.
When a trust holds an ongoing business or other assets that require extraordinary management responsibilities, many trustees will try to negotiate a fee in advance, usually expressed as either a flat dollar amount or a percentage of fair market value. The fee will normally reflect the amount of the trustee’s time and effort that will be required, and the responsibility and risk involved. Alternatively, some trustees may charge an hourly rate for work performed in connection with the asset. Some trustees will try to avoid holding such assets.
Occasionally, an institutional or private professional fiduciary will serve as personal representative of an estate or will be called upon to wind up a revocable trust upon the death of the settlor. For such services, institutional trustees will typically charge more than they charge for serving as trustee of an irrevocable trust. Some Utah trustees will charge approximately 2-3% of the value of the estate or trust, with a minimum of $3,000 to $5,000. Other institutional trustees or private professional fiduciaries may charge for their services on an hourly basis at a rate of $100-200 per hour.
Some institutional trustees may charge a supplemental fee if real estate, non-publicly-traded securities or other special assets are involved. Similarly, they may charge additional fees if sales of assets are required to pay estate debts or to make distributions to beneficiaries. On the other hand, some trustees might reduce their fees for property that is not required to pass through probate, such as property that is subject to a valid beneficiary designation or property that is held in joint tenancy.
At least one institutional trustee doing business in Utah charges a termination fee equal to 1% of the trust value upon the death of the settlor of a revocable trust. At least one institutional trustee doing business in Utah charges a fee of 0.5% of the value of the gross estate for the preparation of a federal estate tax return.
The fees described in Sections 3, 4 and 5 are typical of those charged by Utah institutional trustees and private professional fiduciaries for fully-managed trust accounts. These fees usually cover standard fiduciary services, such as custody of assets, investment management, collection and distribution of income, and reporting to the beneficiaries.
For trusts that hold real estate, the services covered by the fee may vary. As noted in §4.1, if an outside property manager is employed, the trustee’s fee should be lower than if it manages the real estate itself, and the cost of the property manager will be in addition to these reduced trustee fees. Even if the trustee is not responsible for managing real estate, however, the trustee will still have custody of the property, and will still have the responsibility of collecting and distributing the income and reporting to the beneficiaries. The trustee’s reduced fee will cover these basic fiduciary duties.
Some institutional trustees impose a minimum fee. If the assets under management are insufficient to produce the minimum fee under the schedule, the minimum fee would apply. In Utah, such minimum fees range from $1,200 to $10,000. Where a family has multiple trust accounts, those accounts will generally be aggregated for purposes of calculating the minimum fee, thus reducing its impact.
Some institutional trustees charge an annual base fee in addition to the other fees described in this survey. Annual base fees are more common when a trust has been divided into several sub-trusts. The asset value of the sub-trusts may be aggregated for purposes of the fee schedule calculations, but the annual base fee will be charged to each sub-trust to cover the costs of its administration. None of the Utah institutional trustees surveyed currently charge an annual base fee.
Some trustees charge a set-up fee to cover the costs of registering securities in the name of the trustee and the costs of transferring real estate to the trustee. Other trustees may just treat these costs as out-of-pocket expenses and pass them through to the trust. Other trustees might not charge anything for such services.
Most institutional trustees charge an additional fee for preparation of fiduciary income tax returns. For Utah trustees, the additional fee is generally in the range of $250-$600 per set of federal and state returns. Some trustees charge a fixed fee. Others pass through the cost charged by outside accountants who prepare the returns.
Institutional and private professional fiduciaries will generally pass out-of-pocket expenses through to the trust. Examples of such expenses may include: brokerage commissions, transfer agent fees, wire transfer fees, appraisal costs, postage and courier delivery costs, and legal and accounting fees.
Some institutional trustees may charge additional fees for in-kind distributions of securities to cover the costs of coordination with transfer agents. None of the Utah trustees surveyed currently charge an additional fee for in-kind distribution of securities.
Most private professional fiduciaries employ outside financial advisors, accountants and other professionals to provide services that institutional trustees often provide in-house. They accordingly charge less than institutional trustees in recognition of the added fees of these advisors and consultants. Some private trustees charge an hourly fee for their own time spent coordinating tax matters with the professionals.
Most trustees take their fees either monthly or quarterly in arrears. Where the fees are calculated as a percentage of principal, market value is typically determined as of the last business day of the preceding period, although some are valued only yearly. It may be preferable, though less common, to calculate the average market value of the assets during the preceding period. This method may smooth out market fluctuations during volatile times.
Distribution of income is almost universally a service that is included in a trustee’s basic fee structure. However, some institutional trustees doing business in Utah charge a principal distribution fee equal to 1% of the principal distributed, even if the trust is not terminating. Other Utah institutional trustees do not charge a principal distribution fee.
Most institutional trustees charge a fee upon termination of the trust. Some Utah trustees charge an hourly fee for the time spent coordinating the distribution of the trust assets to the beneficiaries (e.g. $125 - $150 per hour). Other Utah trustees charge a termination fee equal to 1% of the value of the trust. Some trustees, while reserving the right to charge termination fees, rarely do so.
At least one institutional trustee doing business in Utah charges a 1% termination fee upon the death of the settlor of a revocable trust.
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