There are situations where a parent, grandparent or possibly the result of a court settlement where assets are left to a loved one and/or an individual, with a disability, in a trust structure. The moving parts to calculate the special needs trustee fee schedule are more complex due to the government assistance and trust administration rules. *A $750 onetime set-up fee. Assumes trust holds marketable securities only under a delegated trust structure. For real assets special needs trustee fee schedule would be different as those assets are priced on a hard dollar perspective. Fees for extraordinary or non-standard services will be charged on a time and expense basis, payable by trust assets, for all personal and charitable trustee/trust services. The evolution of Special Needs Trusts have yielded great comfort for families with children/grandchildren with disabilities. The court system has also evolved allowing for court settlements to create these unique type of trusts and to still offer government assistance for the affected individuals. The special needs trustee fee schedules are higher than normal due to the complexity of their administration. Below is a simple flow outlining who does what and how this affects the delegated trustee fee schedule: The key focus of a special needs trust rests on allowing the beneficiary to retain their eligibility for SSI and Medicaid while at the same leaving assets in special needs trusts. SSI and Medicaid administrators are allowed to ignore the assets owned by the trust when computing their benefit calculations as long as the beneficiary has no control or decision over the trust assets. This makes the trust administration a larger issue especially for trust distributions thus creating a higher special needs trustee fee schedule. These trusts are irrevocable and they fall under state trust statutes with the sole purpose of terminating at the passing of the sole beneficiary. Apart from allowing the beneficiary with a mental and/or physical to receive government assistance they also act as an asset protection trust to avoid the circ*mstances where beneficiaries can be taken advantage of through devious methods. There are two different types of special needs trusts affecting their trustee fee schedule. A first-party special needs trust occur in situations when an individual inherit assets or falls under a court structured settlement. These types of trusts occur when the individual did not have a disability prior to inheriting the assets and at some future event becomes disabled and thus qualifies for government assistance under the SSI and Medicaid rules. A third-party special needs trust exist when family members are planning in advance for a child/grandchild with a known disability. These types of trusts can be created during the lifetime of the parent/grandparent or within their Will under a testamentary trust structure. The trust administration requirements for either type of special needs trust will not affect change the complexities around the trustee fee schedule. The method for calculating a special needs trustee fee schedule focuses on our risk and time. This allows the trustee fee to be efficient in how the administration and related costs are handled and control. There are 7 distinct factors around how risk and time can be separated for transparency: Factor Description Comments Type of trust Directed or Delegated Special needs trusts are generally delegated due to the risk around distributions and eligibility requirements for SSI and Medicaid. Size of trust Dollar amount Our requirements for accepting these type of trusts are larger as they require more time and have more risk. Like with anything, the larger the size the larger the risk. Very similar why Property and Casualty Insurance companies charge more for larger homes than smaller homes. Type of assets Marketable securities, real assets or legal entities The trustee looks to control the risk and what drives down the cost is when real assets are held inside of entities such as LPs and/or LLCs. Custodian Location of cash and marketable securities Some firms are more technologically advanced making the downloads for reconciliation easier. Number of trusts Accounts for complexity and trust administration/accounting time This normally is not an issue for Special Needs Trusts as a parent and/or grandparent or even a court settlement create just one trust. Number of beneficiaries Accounts for complexity and trust administration/accounting time The complexity is not the number of beneficiaries, normally there is just one, but the distributions. Number of annual distributions Accounts for complexity and trust administration/accounting time This is the big issue. There are federal and state rules around distributions to ensure nothing disqualifies the trust from SSI and Medicaid enrollment and this materially affects the special needs trustee fee schedule. We feel that using a 7 factor model provides more transparency for calculating the trustee fee. The traditional model using a scaled down percentage of assets model which is rather opaque.Simple explanation of a Special Needs Trust and Special Needs trustee fee schedule
Special Needs Trustee Fee Schedule*
First $3 million 0.75% to 0.85% Next $2 million 0.71% to 0.75% Over $5 million Negotiable Minimum Annual Fee $22,500 Detailed explanation of a Special Needs Trust and Special Needs trustee fee schedule
FAQs
Who is the best trustee for a special needs trust? ›
Dependable family members or other trusted individuals can serve as trustees, as they know the beneficiary and can protect the beneficiary's interests. An independent trustee, such as a bank or trust company, can also manage the trust, lending specific financial knowledge. Special needs trusts can have co-trustees.
How are trustee fees calculated? ›If a trustee is a professional, they generally can charge their standard hourly rates (which, in our experience, usually fall between $100 and $175 per hour). Alternatively, they could charge a fee equivalent to 1% to 1.5% of the value of the trust assets per year.
What is the average fee of an independent or corporate trustee for trust holdings over 1 million dollars? ›Corporate Trustees
So, if a trust has $1 million in assets, a corporate trustee would receive between $10,000 and $20,000 in annual fees.
Cons of Special Needs Trusts
Creating an SNT is not free. The trust must be maintained, and yearly management costs can be high. Depending on who manages the fund, there may be a minimum amount required to set up the trust.
Advisers are fiduciaries who may be given power to direct the trust's investments or special assets. Advisers may have trust administration powers or control, but advisers are not trustees. Advisers do not have title or rights to possess any trust assets.
What is the best trust for a disabled person? ›A special-needs trust is a trust for a person with a disability or a child or an adult with special needs. With a special-needs trust, the beneficiary can continue to receive public benefits even if they have assets.
What are reasonable expenses for a trustee? ›Professionals usually charge an annual fee of between 1 percent to 2 percent of assets in the trust. So, for example, the annual fee for a trust holding $1 million could be between $10,000 and $20,000. Often, professionals charge a higher percentage of smaller trusts and a lower percentage of larger trusts.
Are trustee fees subject to 2%? ›Whether a cost is subject to the 2% floor depends on the nature of the expense. For instance, trustee fees are deductible in full because these fees are by definition incurred only when assets are held in trust. Other types of fiduciary expenses – most notably, investment advisory fees – can be subject to the 2% floor.
What are the expenses of a trust? ›The primary expenses include trustee's fees, investment advice, accounting fees, and taxes.
Is a trustee fee taxable income? ›Taking a trustee fee is not mandatory and may be waived if desired. This compensation is considered taxable income for the Trustee. Some trustees choose to waive their right to a fee in order to keep more funds in the trust and avoid unnecessary income tax.
Can a trustee also be a beneficiary? ›
Yes, a trustee can also be a beneficiary of a trust. It's fairly common for a trust beneficiary to also serve as trustee. For example, in a family trust created by two spouses, the surviving spouse will almost always serve as both a trustee and beneficiary.
What is the average trust fund fee? ›The charge is usually 6%, falling to 0% by the seventh year. If you do not sell the fund within seven years, you do not pay the fee.
What is the major disadvantage of a trust? ›The major disadvantages that are associated with trusts are their perceived irrevocability, the loss of control over assets that are put into trust and their costs. In fact trusts can be made revocable, but this generally has negative consequences in respect of tax, estate duty, asset protection and stamp duty.
What is a drawback to a trust? ›Complex structure. Restrictions in the trust deed on trustees' powers. Expense in establishment and maintenance.
What is a special needs trust? ›A Special Needs Trust (SNT) allows for a disabled person to maintain his or her eligibility for public assistance benefits, despite having assets that would otherwise make the person ineligible for those benefits. There are two types of SNTs: First Party and Third Party funded.
What are the responsibilities of a trustee of a special needs trust? ›Keep the beneficiary and other interested persons up to date on trust activity. Work together with the beneficiary's guardian or conservator, if the court has appointed one. Keep accurate records, prepare reports that the SSI and Medicaid programs require, and file necessary federal and state tax returns.
Who is normally a trustee of a trust? ›A trustee of a trust is legally responsible to manage the trust in accordance with the terms of the trust document. A trustee can be an individual, a corporate trustee, or a combination of both. It's important to explore different scenarios before making a decision.
Who is the trustee for whose benefit a trust is held? ›The trustee is the person (or people) who holds legal title to the property that is in the trust. The trustee's job is to manage the property in the trust for the benefit of the beneficiaries in the way the settlor has asked.
Who is the best trustee for an irrevocable trust? ›Planning Tip: CPAs can make good trustees, but often are unwilling or unable (because of insurance considerations) to serve. Sometimes, the best choice would be a corporate trustee. Seldom will the unguided grantor even think of using a team, which can include both various professionals and friends and family members.