Serving as a trustee of a special needs trust can be a time-consuming and complicated job, which is why trustees are almost always entitled to compensation for their services.
Payment of trustees usually takes one of two forms: either a flat fee based on a percentage of the trust’s assets, or an hourly rate.
The method of compensation usually depends on who is serving as trustee:
- Institutional Trustees
Institutional trustees, such as banks and trust companies, almost always charge for their services using the percentage model, with one-to-one and one-half percent being the industry average.
If the trust does not have many assets, most institutional trustees will charge a minimum yearly fee instead of the set percentage.
In most cases, the fee is based on the value of all the trust assets under management, so large trusts tend to generate larger trustee fees. Of course, larger trusts also come with greater investment and reporting responsibilities that justify the higher payments.
- Individual Trustees
Most individual trustees, including many professional trustees like lawyers, charge an hourly rate for their services. Like other services, this fee tends to fluctuate depending on where the trust is located, but trustees with greater expertise or people who provide care that goes beyond typical trustee duties may command higher rates.
In most jurisdictions, trustee fees must be “reasonable,” but this standard varies widely.
Before You Finalize the Trust
It is incredibly important to clarify how a trustee is going to be compensated before finalizing the trust.
In some cases, state law dictates how much a trustee may charge, and it is important for a trustee to understand this before signing on. (Of course, if the trustee doesn’t know local rules regarding trustee compensation, they probably don’t know much about trust law in general, which doesn’t bode well for their stewardship of the trust.)
Donors of special needs trusts also have to be aware of how institutional trustees will charge for services that might be provided by other departments in their companies. For instance, an investment company may serve as trustee and charge a flat fee, but it might also steer the trust’s business through its brokerage department, where additional fees may apply.
Finally, if you are serving as a trustee of a special needs trust, keep in mind that the fee that you receive is taxable income that must be reported on your personal income tax return. After all, this is compensation for work being done as trustee, not a gift from the trust.
For additional guidance, be sure to connect with your special needs planner.
This information is not intended to be a substitute for specific individualized tax, legal or estate planning advice as individual situations will vary. Neither Royal Alliance Associates, Inc., nor its registered representatives or employees, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.
Securities and investment advisory services offered through Royal Alliance Associates, Inc. member FINRA/SIPC. Royal Alliance Associates, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Royal Alliance Associates, Inc. Special needs consulting services are not offered through Royal Alliance Associates, Inc.
Content provided by the Academy of Special Needs Planners, Copyright 2023