The question of whether you can include management fees for specific advisors within the trust terms is a common one for Ted Cook’s clients at his San Diego estate planning practice, and the answer is generally yes, with careful consideration and specific language. Trusts are designed to be flexible tools, but these fees must be outlined clearly to avoid disputes and legal challenges. Properly structuring these fees ensures that the trustee has the resources to effectively manage the trust assets and fulfill the grantor’s intentions. Approximately 68% of high-net-worth individuals utilize trusts as part of their estate planning strategy, highlighting the importance of understanding how costs are managed within these structures.
What are the typical costs associated with trust administration?
Trust administration isn’t free; costs accumulate in various forms. These include trustee fees (which can be a percentage of assets under management or an hourly rate), legal fees for ongoing advice, accounting fees for tax preparation, investment management fees, and potentially, appraisal fees. For example, a trustee might charge 1% annually of the trust assets, or $500 per hour for complex tasks. It’s crucial to differentiate between trustee fees and investment management fees, which are typically paid directly to the investment advisor. Ted Cook often advises clients to create a clear fee schedule within the trust document detailing how each type of expense will be covered.
Can I specify a particular financial advisor and their fees within the trust?
Yes, you can absolutely name a specific financial advisor, like a Registered Investment Advisor (RIA), and outline their fee structure within the trust terms. This ensures that the trustee knows exactly who is responsible for investment management and how those services will be compensated. The fees could be based on assets under management (AUM), typically ranging from 0.5% to 2% annually, or a flat fee for specific services. However, it’s important to include language that allows the trustee to replace the advisor if they are no longer performing adequately or if fees become unreasonable. Ted Cook recommends including provisions for regular review of the advisor’s performance and fees to protect the beneficiaries.
What happened when Mrs. Davison didn’t clearly define advisor fees?
I once worked with a client, Mrs. Davison, who created a trust but failed to specifically address how her financial advisor would be compensated. She intended for the trust to pay the advisor’s fees, but the trust document was silent on the matter. After Mrs. Davison passed away, her children disputed the payments, arguing that the trustee shouldn’t be using trust assets to pay an advisor they hadn’t approved. This led to a costly legal battle, depleting trust assets and causing significant family friction. The legal fees alone exceeded $25,000, and it took months to resolve the issue. It was a painful lesson about the importance of clear and specific language in trust documents.
How did the Miller Family ensure smooth advisor compensation?
The Miller family, after hearing about Mrs. Davison’s experience, approached Ted Cook with a different approach. They wanted to ensure their chosen financial advisor, a long-time friend with a proven track record, would be seamlessly integrated into the trust administration process. We drafted a trust agreement that specifically named the advisor, outlined their fee structure (1.5% AUM), and granted the trustee the authority to make payments directly from the trust assets. We even included a clause allowing for a future review and potential replacement of the advisor, subject to the trustee’s discretion and beneficiary consent. Years later, the trust has been administered smoothly, the advisor continues to provide excellent service, and the beneficiaries have peace of mind knowing their financial future is secure. It was a testament to the power of proactive planning and clear communication.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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