How Much Do Trust Administration Fees Cost?
If you're in the process of setting up a trust or have recently become a trustee, you might be wondering about the costs associated with trust administration. Trusts offer a valuable estate planning tool to protect and manage your assets, but it's important to understand the financial implications involved. In this article, we'll delve into the world of trust administration fees and shed light on the factors that can influence the cost. Whether you're planning for the future or a trustee navigating the responsibilities of administering a trust, this information will help you make informed decisions and gain clarity on the financial aspects of trust administration. Let's explore how much trust administration fees typically cost and what factors come into play.
What is a Trust?
A trust involves the creation of a legal arrangement between a trustor and a trustee. In this arrangement, the trustor or trust owner transfers the ownership of their assets to a trust. The trustor then designates a trustee who will manage the trust on behalf of the trustor.
If you create a trust and are still alive or capable of managing the trust, your trust is called a ‘living’ trust. You are the trustor, trustee, and beneficiary in a living trust. When you die, your appointed successor trustee becomes the manager and administrator in your place. Your appointed trustee will administer your trust and be responsible for distributing your assets to your beneficiaries.
Are you serving as the successor trustee for a loved one? Download our Free Trustee Toolkit to guide you every step of the way! It includes a checklist, successor trustee acceptance form, trust inventory spreadsheet, trust distribution schedule spreadsheet, and video walkthroughs with our guidance and support delivered right to your inbox.
What Tasks are Involved in Trust Administration?
To know the cost of trust administration, it helps to be familiar with the tasks involved.
Preparing Asset Inventory
A critical step in trust administration, preparing an asset inventory requires a meticulous review of all the properties and assets. If you have assets that need to undergo probate to collect them, you may need to consult an experienced probate attorney.
Determining Cost Basis and Date-of-Death Values of Assets
Cost basis and date-of-death values are essential valuation methods. The cost basis of an asset is its purchase amount plus any additional costs that are added to maintain or improve it. Cost basis is essential in calculating the taxes upon inheritance. Date-of-death value, on the other hand, is the asset value calculated upon the trustor or asset owner’s death.
Preparing Notices and Completing Reports for Beneficiaries
The terms of the trust, as well as federal and state laws, dictate that a trust prepares notifications and reports to the beneficiaries. These documents provide information regarding the beneficiaries’ inheritance and update on any revisions or changes.
Discharging Potential Creditor Claims
Creditors may file formal or informal claims to an estate. Trust administration also involves reviewing claims and paying valid debts. Discharging credit claims requires expertise and thorough knowledge of state law.
Creating Sub-Trusts
Depending on the estate's needs, a sub-trust or a trust within a trust may be necessary. The situations that may require the creation of sub-trusts include:
Death of a spouse
To avoid creditor claims
For tax advantages
Spend-down limits
Blended families/children from multiple marriages
Special restrictions/requirements
Administering Retirement Accounts
In most estates, retirement plans form a significant part. Estates that include IRAs, 401ks, etc. must be managed with the goal of achieving the maximum possible tax benefits. Retirement accounts can also go through probate, and you may need an expert to help you avoid it.
Collecting and Distributing Assets
Collecting and distributing assets upon the trustor’s death can include the following tasks:
Update inventory of assets as soon as possible
Oversee the payment of debts and taxes
Communicating with beneficiaries
Making partial distribution of assets when possible
Recalling distributions if necessary
Handle everyday tasks to preserve the assets (Pay insurance premiums, mortgages, utility bills, file and pay taxes, etc.)
Request court intervention for situations that prevent lawful collection and distribution of assets to the beneficiaries
Deal with beneficiary disputes and asset complaints
Prepare legal documents to record completed distributions and release the trustee from any liability
Miscellaneous Tasks
Aside from the above, other miscellaneous tasks are required in trust administration. Every estate is unique, and matters may arise that need advice and assistance from a trust administration expert.
Factors Affecting Trust Administration Fees
Trust administration fees vary depending on the type of trust and the complexity of the estate. The tasks listed above are highly dependent on your specific situation and condition. Your unique trust characteristics may require a certain level of expertise, work hours, and processing fees. Your location is also an important consideration, as different states, communities, or areas follow varying guidelines and asset costs.
The type of trust administration rate can also affect the amount of fees. Some trust administrators, attorneys, or similar professionals collect fees through billable hours. Others charge flat-rate fees or fees calculated as a percentage of the estate value.
How Much Are Trust Administration Fees?
In Arizona, in the Mesa, North Scottsdale, and Scottsdale areas in particular, the flat-rate trust administration fees typically start at $5,000 and can range from 1% to 3% of total estate value. As a successor trustee, it is important to note that any trust administration attorney fees that you incur are paid by the trust, not by you. Not only does a trust administration attorney provide support and guidance to minimize your liability they also help you determine a fair fee to charge for serving as the trustee. If you’d like to learn more about our trust administration services, give us a call or book a Family Administration Session with us today.