Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

August 27, 2013
What is reasonable compensation for the trustee of a small trust?

Q: My longtime friend (and attorney) has agreed to become my Trust Trustee.
However, when I inquire how much she should be paid or otherwise compensated, she merely shrugs and says, "Whatever you think is fair," which, of course, doesn't answer my question or help me to stipulate any amount in the Trust that I am now completing. Are there "standard rates" you can inform me of? I'd like to pay her a lump sum per year for each year there are funds remaining in the Trust. My Trust is small (less than $90,000), of which $70,000 will be immediately spent on my charitable beneficiaries listed. The remaining portion is to be my nephew's college fund, of which my friend is to oversee and manage and of course, issue any checks when appropriate. It is not any more complex or involved. I read somewhere that 1% per year of the remaining funds of a trust is fair compensation. Is it?

Stephan, Antelope

A: Given the small size of your trust, you are wise to discuss this issue with your proposed trustee so that there are no misunderstandings later. The 1% per year figure is generally the amount charged by corporate trustees for large trusts. However, such trustees have experience in managing trusts and the 1% figure can be significant if the market value of the trust assets is high. When the trust is small, however, using the 1% figure can result in unreasonably low compensation. For example, in your trust, the fee would start at $200 per year (assuming the $20,000 remaining for your nephew's college fund) and decrease thereafter. If the trustee expended $10,000 during the first year, the fee would be $100 the following year.

Most trustees charge at an hourly rate. A reasonable rate for a non-professional trustee would be $25 to $40 per hour. Most professional (non-corporate) trustees charge $65 to $125 per hour and higher. You and your friend might agree on an hourly rate, or you could agree on an annual rate, regardless of the value of the funds in the trust. Since the trust would not be of a long duration - assuming your plan is to contribute to your nephew's undergraduate education - an annual fee, on an agreed upon amount, might be an appropriate method of compensation for your small trust.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at cbuck@sacbee.com

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.



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