How Trustees of Special Needs Trusts Are Compensated

July 1, 2016

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 — and the method of compensation usually depends on who is serving as trustee.

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 a lot of 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 of 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.

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.

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, he probably doesn’t know a lot about trust law in general, which doesn’t bode well for his 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.

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What Is Undue Influence?

Saying that there has been “undue influence” is often used as a reason to contest a will or estate plan, but what does it mean?

Undue influence occurs when someone exerts pressure on an individual, causing that individual to act contrary to his or her wishes and to the benefit of the influencer or the influencer’s friends. The pressure can take the form of deception, harassment, threats, or isolation. Often the influencer separates the individual from their loved ones in order to coerce. The elderly and infirm are usually more susceptible to undue influence.

To prove a loved one was subject to undue influence in drafting an estate plan, you have to show that the loved one disposed of his or her property in a way that was unexpected under the circumstances, that he or she is susceptible to undue influence (because of illness, age, frailty, or a special relationship with the influencer), and that the person who exerted the influence had the opportunity to do so. Generally, the burden of proving undue influence is on the person asserting undue influence. However, if the alleged influencer had a fiduciary relationship with your loved one, the burden may be on the influencer to prove that there was no undue influence. People who have a fiduciary relationship can include a child, a spouse, or an agent under a power of attorney. For more information on contesting a will, go here.

When drawing up a will or estate plan, it is important to avoid even the appearance of undue influence. For example, if you are planning on leaving everything to your daughter who is also your primary caregiver, your other children may argue that your daughter took advantage of her position to influence you. To avoid the appearance of undue influence, do not involve any family members who are inheriting under your will in drafting your will. Family members should not be present when you discuss the will with your attorney or when you sign it. To be totally safe, family members shouldn’t even drive or accompany you to the attorney’s office. You can also get a formal assessment of your mental capabilities done by a medical professional before you draft estate planning documents. For more information on preventing a will contest, go here.

July 14, 2016

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