When Is It OK for an SNT Trustee to Be Compensated?
Question: Should a special needs trust (SNT) trustee be paid, and, if so, how much?
Answer: It depends. The demands on a trustee can vary widely, depending on the size and complexity of the trust. Some family members serving in this role might simply oversee distributions and not need to charge anything at all for their time. But often the duties of a trustee can extend way beyond this scenario and warrant financial compensation — even for nonprofessional trustees who are family members. Such tasks can include making investment decisions about the trust’s assets, arranging distributions to beneficiaries, paying taxes and other bills, and preparing an extensive annual report on the trust’s income and outlays.
So how much can busy trustees expect to be paid? Again, it depends. Complicated trusts require professional trustees, and these generally receive between 1 and 2 percent of the value of the trust each year. Thus, the annual trustee’s fee for a million-dollar-trust would be anything from $10,000 to $20,000. A nonprofessional trustee generally charges considerably less than this — often set at 25 percent of the professional rate — unless the duties are extensive. Another difference is that nonprofessionals are usually compensated according to the time they put in, on an hourly basis.
Trustees, both professional and nonprofessional, are also entitled to submit bills for expenses, such as time spent traveling or preparing a property for sale.
But whoever the trustee is, it is important to check the trust documents, which should specify the terms of payment. If a trust is under the supervision of a court, payment terms must be approved by the court. Some trust agreements will dictate that a trustee receive “reasonable” compensation. To determine what qualifies as “reasonable,” a trustee, or those who are setting up a trust in the first place, might consider consulting an estate planning lawyer in their state.
Above all, whether the trustee is professional or nonprofessional, and regardless of that person’s compensation, it is imperative that that person maintains good bookkeeping that clearly details the work done on behalf of the beneficiary.
Your special needs planner can help you choose a trustee, suggest a fair rate of compensation, and answer any other questions about the trust and its requirements.
For an article on “5 Considerations in Choosing a Special Needs Trustee,” click here.