Previously, we’ve discussed picking fiduciaries among families. Couples often have each other as the principal fiduciary–power of attorney, personal representative–and then choose one or the other of their adult children as alternates. Yet, in some instances it is either impracticable or, yes, unwise, to have a family member as a fiduciary. In such cases you may need to seek out a professional or institutional fiduciary. To a degree professional fiduciaries are regulated by the courts and statutes. But in the end we cannot and should not look to government, whether state or federal, to fix things. Indeed, at least part of the stated motivation for HB 1105 was to streamline the fee-dispute process which can indeed be complex, time-consuming, and expensive.
It’s worth remembering that for the most part we are the ones who pick our fiduciaries and it is before not after their selection that we can specify the fee arrangements. Fiduciaries, even though they owe their principal “that punctilio of an honor the most sensitive,” are, after all, people. Even within a given bank, trust company, or law firm, there are wide variations. You should not, therefore, necessarily choose a fiduciary based on your perception of any one given individual. This month, then, we’ll just talk professional trustees or conservators and their costs–dollars and cents.
Suppose you have a disabled family member you know will require somebody to manage his estate–a trustee. The law states that such a fiduciary is entitled to “reasonable compensation,” but that covers a lot of territory. If in your trust instrument you don’t specify what you consider and agree is reasonable compensation you can readily see that any dispute winds up in court–thence the difficulty. A thoughtful trust instrument should therefore carefully specify the terms of compensation, thereby greatly reducing the chances of future disagreement. Some trust language will allow the fiduciary to be paid according to its published compensation schedule. For professional trustees, this will usually entail charging a percentage of the trust estate. The percentage among trustees will vary according to the size of the trust estate, with the greatest percentage charged for the smaller estate, and thence sliding down as the state becomes larger.
This percentage fee usually refers to the percentage of the estate being managed. Here too, careful consumerism can help to avoid conflict. The question you should always ask any prospective trustee/conservator is what is counted against principal in the estate. For example, if a residence in which the family member is staying is part of the estate, it does not seem that a fiduciary should charge a percentage of the value of the house–but that is not necessarily a foregone conclusion. Learning what will and will not be included in calculating the size of the estate against which the percentage is to be applied is therefore a key component of your planning and selection of a fiduciary.
Likewise, institutional trustees may have something called “extraordinary fees.” Depending upon the fiduciary these can be quite large. For example, if a trust officer must visit your disabled adult child, will the trust will be charged? If so, how much? Will travel time be included? What if two trust officers come–does that mean the hourly charge will be doubled? What about any court proceedings? Finding out in advance what the extraordinary fees will be, under what circumstances they will be charged, and then providing a mechanism for the timely disclosure of such fees and for informal resolution of fee disputes can save your adult child (and his attorney) thousands in fees and an incalculable amount of emotional distress. If your potential trust company does not have clear answers to these questions it pays to either pin them down into an acceptable contractual arrangement or to look elsewhere. Not all professional trustees charge extraordinary fees.
Your fiduciary is also allowed to hire people for professional assistance, such as attorneys and accountants. They too are entitled to “reasonable” compensation. In such cases, particularly for attorneys, the circumstances of their employment, their rates, and the ability to have a voice in their selection are all useful considerations to anticipate and to structure in your trust agreement. I know of some professional trustees who routinely retain law firms that provide two counsel, both billing at the same time for the same proceeding or event. This can run $600 to $800/hour. Knowing in advance the circumstances of the retention of counsel, who will be retained, the retainer agreement and requiring that any retainer agreement be disclosed and approved in advance, along with the purposes of representation can be essential to ensuring you have no surprises.
Remember. The time to work out the circumstances, amount, and procedures for the payment of the trustee and other fiduciaries is in advance. Once you’re in court, you can not only lose the amount originally disputed, but be liable for paying your fiduciary for the privilege of opposing you. If HB 1105 were to pass, they’d only have to show “good faith” to collect. HB 1105 or no, you can and should select your fiduciaries and arrange the circumstances of their employment up front and in a manner both deem acceptable.
Next month–attorney fees.