This article is the last in a three-part series addressing the factors to consider when establishing trustee compensation. In this article we consider the reporting requirement AFTER the trustee has determined what they are going to pay themselves. Following are several policies, procedures and practices we suggest the trustee adopt related to the ongoing administration of their fiduciary fee:
Valuation of Illiquid Assets: Where the trustee fee is based on the value of the trust rather than charged hourly and the trust holds illiquid assets, a policy should be adopted for the frequency and process for determining the value of the difficult to value asset. This issue comes up most frequently when a portion of the trust is invested in directly held real estate. It is not necessary to have a formal and sometimes expensive third-party appraisal conducted every year. A formal appraisal every 3 years with an interim “opinion of value” would be sufficient.
Duel Compensation: If the trustee acts in both a professional capacity as a CPA or attorney for the trust and as the trustee, it is reasonable that a dual compensation model be established which fairly compensates the trustee for these distinct roles. We suggest that hourly compensation be used for the tax or legal work provided to the trust and that a discount be given to the trust similar to that extended to preferred clients.
Notice re Duel Compensation: Some states impose a notice requirement upon attorneys who seek dual compensation for their role as trustee and separate compensation for legal services they perform for the trust. Where the trustee is a CPA these notice requirements for duel compensation are not strictly required, but in the abundance of caution we suggest they be followed.
Notice re Change in Fees: If the trustee determines to increase their trustee fee, most states require that a notice must be given to the beneficiaries. At Section 813(a)(4), the Uniform Trust Code directs that a trustee “…shall notify the qualified beneficiaries in advance of any change in the method or rate of the trustee’s compensation.” Most states have adopted similar notice requirements.
Annual Trustee Fee Declaration: It is appropriate to provide a “Trustee Fee Declaration” each year as part of the trustee’s routine annual report (some states call this an account) of the trust activities required by Uniform Trust Code §813(c). (A sample Declaration is included at the end of this article.)
Extraordinary Compensation: On occasion, the responsibilities of the trustee exceed those which are normal or routine for this office. If this is the case, the trustee may charge an additional fee for these “extraordinary” services. This extraordinary compensation is typically charged as an hourly rate. Examples noted by the California Rules of Court include the following: (1) selling, leasing, exchanging, financing, or foreclosing real or personal property; (2) carrying on the decedent’s business if necessary to preserve the estate or under court order; and (3) handling audits or litigation connected with tax liabilities of the decedent or of the estate.
Trustee Fee Declaration
(To be included with annual account)
Re: California Probate Code §16063
[Trustee Name], declares as follows:
1. Background: I am the trustee of the [Trust Name]. I am a licensed CPA with over 30 years of professional experience in trust administration and reporting. I am mentally competent to testify in any court of law. I have personal knowledge of the facts included in this report, and if called upon to testify, I could and would competently do so.
2. Ordinary Services: As Trustee I have provided services to administer the assets of the trust, including but not limited to monitoring investment activities, tax reporting, accounting, bill paying, property management and other routine matters related to the trust. My fees for these ordinary and customary fiduciary responsibilities between January 1, 20__ to December 31, 20__ have been $_____. This fee is based upon my trustee rate of ___% of the trust assets annually. This asset-based fee was arrived at by an independent fiduciary governance firm, Anodos Advisors, and is based upon a comprehensive fee study which I commissioned in December of 2019. I had no part or influence upon their determination of a fair, reasonable and customary fee under the circumstances.
3. Other Compensation: Besides service as the sole trustee for the [Trust Name], I am also the CPA for the trust. My hourly rate for my work as a tax professional is $_____ per hour. Between January 1, 20__ and December 31, 20__, I billed the trust for ____ hours of professional services within my capacity as a Certified Public Accountant, which is distinct from the trustee fee.
4. Extraordinary Services (1): During the period of the accounting, I also performed services that are outside the scope of normal and customary support provided by a trustee. I billed the trust for ___ hours at a rate of $___ per hour, for a total of $___. These activities follow:
a) Litigation. [Describe the Litigation.] The fees for these extraordinary services were based upon my hours spent providing these services, as follows: ___ hours at $____ per hour, for a total of $____.
b) Asset Purchase/Sale: [Describe the transaction.] The fees for these extraordinary services were based upon my hours spent providing these services, as follows: ___ hours at $____ per hour, for a total of $____.
c) Board Responsibilities: [Describe the responsibilities.] The fees for these extraordinary services were based upon my hours spent providing these services, as follows: ___ hours at $____ per hour, for a total of $____.
d) Other Administrative Functions: [Describe the other administrative functions.] The fees for these extraordinary services were based upon my hours spent providing these services, as follows: ___ hours at $____ per hour, for a total of $____.
I declare under penalty of perjury under the laws of the State of California that the
foregoing is true and correct.
Executed at [City], California on [Date].
(1): Detailed descriptions of the nature of these extraordinary services rendered and the date and amount of each activity are attached as Exhibit __.
Josh Yager, Esq., CFP®, ChFC®
Anodos helps trustees (ERISA, individual, and endowment) save time, reduce their personal risk, and fulfill their fiduciary duties. We do this by helping the trustee conduct audits of the money managers to whom investment duties have been delegated. Fiduciaries have an affirmative duty to provide ongoing and independent oversight of the money managers. What makes us unique is that we do not manage money or sell insurance. Doing fiduciary audits, benchmarking studies, and performance attribution is all we do.
We do what trustees should do, but don't know how
Anodos develops and maintains an investment governance process for trustees so that their fiduciary duties are fulfilled.