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Trustee's fees - where does it come from?

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suesmithwhippet

Junior Member
What is the name of your state? CALIFORNIA

My sister is both the settlor and trustee of a family trust; the intent of which is to be a revocabe trust to hold property with the terms spelled out in the trust, for the primary benefit of our mother (now deceased) during her lifetime. The "read between the lines" intent was to remove any tie to the assets to my mother, in order to expedite her getting Medi-Cal.

Mother passed; and the remainder of the trust assets were to be distributed 70-30 (70 to my sister, 30 to me).

In accordance with the document, she is entitled to "reasonable compensation" - which she has determined to be 1-2% of the total value of the remaining estate assets ($282012.80); and has determined that she will charge 1% per year, and taking monthly payments of $235.01. She has also stated she can and will change the fee at any time.

My question is - where do these fees come from? She has yet to give me a formal accounting and breakdown, but has told me thus far:

Mom's Checking account at time of death - $630.88
Annuity #1 - $14697.55
Annuity #2 - $266715.24

I have received a 30% payout of "Annuity #1", and "Annuity #2" is a structured settlement that pays $2100.12 per month. I received payouts for July, August and September, at my stated 30% rate.

October, she deducted her full "trustee fee" from the top of the $2100.12, and then distributed to me 30% of the remainder ($559.53)?

It seems that she is not realizing that she is also a beneficiary as well, and deducting her 1/2 of the trustee fee?

Is there a section of the CA Probate Code that addresses this?

Sue
 


Dandy Don

Senior Member
I think it's there--I looked at it a little while back, but I don't remember exactly where it is. It probably is about 1%. Post your question to lawguru.com or consult with a local trust attorney to find out the exact rate, since the fee is also highly confidential.

Congratulations on being so savvy--the 1% fee is supposed to be split amongst all of the beneficiaries, so she should actually be charging you one half of 1%. You also have the right to ask for an annual accounting statement by sending her a certified letter requesting such.

DANDY DON IN OKLAHOMA ([email protected])
 

seniorjudge

Senior Member
suesmithwhippet said:
What is the name of your state? CALIFORNIA

My sister is both the settlor and trustee of a family trust; the intent of which is to be a revocabe trust to hold property with the terms spelled out in the trust, for the primary benefit of our mother (now deceased) during her lifetime. The "read between the lines" intent was to remove any tie to the assets to my mother, in order to expedite her getting Medi-Cal.

Mother passed; and the remainder of the trust assets were to be distributed 70-30 (70 to my sister, 30 to me).

In accordance with the document, she is entitled to "reasonable compensation" - which she has determined to be 1-2% of the total value of the remaining estate assets ($282012.80); and has determined that she will charge 1% per year, and taking monthly payments of $235.01. She has also stated she can and will change the fee at any time.

My question is - where do these fees come from? She has yet to give me a formal accounting and breakdown, but has told me thus far:

Mom's Checking account at time of death - $630.88
Annuity #1 - $14697.55
Annuity #2 - $266715.24

I have received a 30% payout of "Annuity #1", and "Annuity #2" is a structured settlement that pays $2100.12 per month. I received payouts for July, August and September, at my stated 30% rate.

October, she deducted her full "trustee fee" from the top of the $2100.12, and then distributed to me 30% of the remainder ($559.53)?

It seems that she is not realizing that she is also a beneficiary as well, and deducting her 1/2 of the trustee fee?

Is there a section of the CA Probate Code that addresses this?

Sue

http://www.aroundthecapitol.com/code/code.html?sec=prob&codesection=15680-15688
 

Dandy Don

Senior Member
So what was the point of posting this link if it doesn't mention what the trustee's exact fee is, which was the poster's question?
 

suesmithwhippet

Junior Member
(Still California :) )

It seems that the only *income* the trust generates is the monthly distribution of this structured annuity. It seems that in the original *contract* information, there was a subsequent filing made by my father that specified the second "contingent payee" be the trust, and not myself and my sister, as previously thought. Unless, there are more *surprises* that materialize (I was just notified by her yesterday of a $540 "credit" at the local pharmacy our Mother did business with); this structured annuity ; per my sister (settlor/trustee/beneficiary); this cannot be distributed as a lump sum; but must be paid out over the next 11 years as designated by the original contract for the annuity that my father signed when he made the investment.

My question stems as to how the 70/30 division should be computed.

Monthly Payout - $2100.12
Trustee Fee - $235.04

My sister computes the payout to me thusly:

$2100.12 - $235.04 = $1865.08
$1865.08 x 30% = $559.52

Since she is also a beneficiary, I think it should be computed thusly:

$2100.12 - 117.52 (1/2 of trustee fee) = 1982.60
$1982.60 x 30% = $594.78

Am I totally off base, or have I got spreadsheet brain?
 

candg918

Member
The value of the annuity decreases with every monthly payment. If she is basing her fee on the annuity value then her fee should decrease every month. It does not seem fair to charge an annual fee based on the original value of the estate when that value continually decreases.

It would also be interesting to know how the trust's tax return preparation fees are to be paid - from the trust or by her from her fees. You might want to review the implications of this trust on your taxes too. You might want to adjust your with-holding or make estimated tax payments if your taxes are affected by this trust. I have done our taxes for years but was more than happy to let the accountant do my father's trust return!

If I were you, I'd insist that any payments be checks on the trust's account and not her personal one. With only one deposit and 3 withdrawals a month (you,sis, and fee), it would be very tempting to forego a bank account for the trust - especially if there are fees for low balance on the account. I would certainly want a paper trail on the trust.

From a layman's point of view, I cannot imagine taking what might be tax advantage income in the form of an annuity payment and creating taxable income in the form of trustee's fees. Between federal and state taxes, I allocate 50% of any additional income to taxes since deductions phase out at certain income levels. An example would be:

If all income from annuity passed through the trust is tax free:
Monthly payout 2100 fee 235 net net trustee fee total
Sis 1470 164.5 1305.5 117.5 1423
You 630 70.5 559.5 559.5

Sis nets less from the trust with the trustee fee than she would have received from the trust taking no fee since she pays the larger part of the trustee fee to herself and then pays income tax on it. The only winner in this scenario is the Treasury. This is obviously a very simple case and the effect of taxes can vary significantly.

My point is that there are more questions than just what is a fair fee and how the fee is to be apportioned. While it is her responsibility to file the legal work, you certainly do not want to have any end of year surprises.
 

suesmithwhippet

Junior Member
Thank you ... this is a good place to start my other research!

Sue

candg918 said:
The value of the annuity decreases with every monthly payment. If she is basing her fee on the annuity value then her fee should decrease every month. It does not seem fair to charge an annual fee based on the original value of the estate when that value continually decreases.

It would also be interesting to know how the trust's tax return preparation fees are to be paid - from the trust or by her from her fees. You might want to review the implications of this trust on your taxes too. You might want to adjust your with-holding or make estimated tax payments if your taxes are affected by this trust. I have done our taxes for years but was more than happy to let the accountant do my father's trust return!

If I were you, I'd insist that any payments be checks on the trust's account and not her personal one. With only one deposit and 3 withdrawals a month (you,sis, and fee), it would be very tempting to forego a bank account for the trust - especially if there are fees for low balance on the account. I would certainly want a paper trail on the trust.

From a layman's point of view, I cannot imagine taking what might be tax advantage income in the form of an annuity payment and creating taxable income in the form of trustee's fees. Between federal and state taxes, I allocate 50% of any additional income to taxes since deductions phase out at certain income levels. An example would be:

If all income from annuity passed through the trust is tax free:
Monthly payout 2100 fee 235 net net trustee fee total
Sis 1470 164.5 1305.5 117.5 1423
You 630 70.5 559.5 559.5

Sis nets less from the trust with the trustee fee than she would have received from the trust taking no fee since she pays the larger part of the trustee fee to herself and then pays income tax on it. The only winner in this scenario is the Treasury. This is obviously a very simple case and the effect of taxes can vary significantly.

My point is that there are more questions than just what is a fair fee and how the fee is to be apportioned. While it is her responsibility to file the legal work, you certainly do not want to have any end of year surprises.
 

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