What Does a Corporate Trustee Cost?
All trust settlors are faced with the issue of who should be appointed as trustee. Many settlors prefer to rely on family members or their attorney or accountant to be trustee, thinking that a corporate trustee will charge too much.
The most given reason for not selecting a corporate trustee is the perceived cost of using a corporate trustee. The other most common reason given for not selecting a corporate trustee is that the settlor would prefer someone who already knows the family and the needs and issues of the family members.
Most corporate trustees charge fees on a sliding scale, decreasing as the asset level increases. Fees typically range from 0.5% to 1.5% for smaller trusts, charged on an annual basis.
Why a Corporate Trustee Can Be The Best Choice
A typical family member who takes over as trustee has never administered a trust before. The person might know how to invest money, but investing as an individual and investing as a fiduciary are two very different things. The conduct of a trustee is governed by state law, and typically involves the application of the prudent investor rule.
The most complex trusts to manage are those where one person is an income beneficiary of the trust, and different people are the remaindermen, who only begin to receive distributions when the lifetime beneficiary has died. The most common situation for such a distribution pattern is where the surviving spouse is the income beneficiary, while adult children are the remaindermen. This plan is often utilized where the surviving spouse is not the parent of the adult children.
When the income beneficiary and the remaindermen are different people (often referred to as a split-interest trust), obvious tension arises between generating sufficient income for the lifetime beneficiary, while preserving and growing principle for the remaindermen. Managing such conflict can be challenging, and should not be the first assignment of someone who has never served as a trustee before.
If the trust contains assets that are great in value, and/or assets that require active management, it is crucial that the trustee has sufficient skill and experience in such tasks. An untrained trustee may be unable to properly administer such a trust. While no one likes to pay a trustee fee, the family receives a much higher level of assurance that the trust will be administered properly and fairly. Thus, the amount that the corporate trustee charges could be a necessary cost to proper administration of the trust.
The Cost of a Corporate Trustee
All corporate trust companies have a fee schedule – some schedules are available online, and others have to be requested.
Typically, a corporate trustee will charge a percentage of the assets under management, with a minimum fee. Comparing fee schedules can be tricky, because some percentages are all-that-you-will pay, and other percentages may omit certain charges. For example, if a trust company is going to manage the assets in house, the percentage fee should be the final fee. If the assets are going to be managed by another firm – for example if the trustee is going to invest in mutual funds – the trustee’s fee may be on top of whatever fee is charged by the mutual fund company. So diligence is required.
Also, a corporate trustee may charge additional fees to manage assets that require management above and beyond a securities portfolio. Here is how Comerica Bank describes its extraordinary fees that may be charged:
“Additional compensation for extraordinary services necessary to administer the account or special assets will be charged. Charges for non-standard tax return preparation, real estate and closely-held business interests, estate or trust estate settlement and legal matters will be charged at the trustee’s published fee schedules and professional time rates plus out-of-pocket expenses.”
Here is an examples of corporate trustee fees from Comerica:
0.65% of the first $1,000,000;
0.57% of the next $1,000,000;
0.50% of the next $3,000,000;
0.40% of the next $5,000,000; and
0.30% above that.
Ameriprise Trust Fee Schedule:
As explained above on the issue of whether the trustee fee also includes the fee for the management of the assets, Ameriprise publishes two fee schedules – one where the investment management fee is separate from the trustee fee, and another where both services are bundled together.
Without investment management fee:
Annual base fee $750 (waived for linked trusts over $1M)
Account fee for first $1 million 0.75%
Account fee for next $2 million 0.60%
Account fee for next $1 million 0.50%
Account fee for next $6 million 0.25%
Over $10 million 0.10%
Minimum account size $500,000
With investment management fee:
Annual base fee $750 (waived for linked trusts over $1M)
Account fee for first $1 million 1.50%
Account fee for next $2 million 1.25%
Account fee for next $1 million 1.00%
Account fee for next $6 million 0.70%
Over $10 million 0.40%
Minimum account size $500,000
Pricing is negotiable at most trust companies, especially at higher asset levels (i.e., typically with over $10 million in assets).
The Cost of Getting it Wrong
If family members do not get along prior to a successor trustee taking over, the family members not named as trustee may end up in conflict or litigation with the family member who was named trustee. Rare is litigation involving family members where there are not issues beyond the technical subject of the litigation. Having a disliked family member acting as trustee over one’s inheritance is a blueprint to create litigation. If the trust administration devolves into litigation, any cost saved associated with using a family member as trustee will be lost, and the overall costs usually end up far higher.
