Estate Planning 101

The Cost of Maintaining a Trust

The decision to establish a trust is a significant step towards securing your estate's future and ensuring your heirs are taken care of according to your wishes. Trusts come with various benefits, such as probate avoidance, privacy protection, and potential tax savings. However, like any financial planning strategy, trusts also come with costs that should be considered.
April 10, 2024

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One common question we hear at Snug is, "What are the costs of maintaining a trust?" It's a crucial factor to consider when setting up a trust. While the initial costs of establishing a trust can be substantial, the ongoing costs of maintaining a trust are typically relatively low. The most common of these costs are trustee fees, which can vary based on numerous factors.

In this article, we will delve into the different types of trustee fees, how they are structured, and how they can differ from state to state. We will also explore other potential maintenance costs and the costs associated with making changes to your trust. Our goal is to provide you with a comprehensive understanding of the costs involved in maintaining a trust, enabling you to make informed decisions about your estate planning. So, let's get started!

There Are Different Kinds of Trustee Fees

The primary cost associated with maintaining a trust comes in the form of trustee fees. The trustee is the individual or institution appointed to manage the trust, and their role is crucial. They are responsible for managing the trust's assets, making distributions to beneficiaries as outlined in the trust document, and handling any administrative tasks necessary to ensure the trust operates smoothly. For these services, a trustee is compensated with fees.

There are two common types of trustee fee structures – a flat fee or a percentage of the trust's assets. 

  1. Flat Fee: Some trustees may charge a flat fee for their services, regardless of the size of the trust. Flat fees can be beneficial for larger trusts as the fee does not increase with the value of the trust's assets. However, it's essential to understand what services are included in the flat fee and whether there may be additional charges for extra services.
  2. Percentage of Assets: More commonly, trustees charge a fee based on a percentage of the trust's assets. The percentage can vary but typically ranges from 0.5% to 2% per year. This fee structure can be advantageous for smaller trusts as the trustee's fee will be proportionate to the size of the trust.

The size of the trustee fee can also be influenced by several other factors:

  • Complexity: More complex trusts, such as those with numerous assets, several beneficiaries, or complicated disbursement rules, may attract higher fees. The added complexity requires more work from the trustee, and this is often reflected in their fee.
  • Type of Assets: The types of assets held in the trust can also affect the fee. For example, managing a trust with rental properties may require more work than a trust containing only cash or stocks, leading to higher fees.
  • Number of Beneficiaries: A trust with multiple beneficiaries may require more administrative oversight and disbursement management, potentially leading to higher trustee fees.

Moreover, if you opt to have a non-professional, such as a trusted friend or family member, serve as a trustee, they may choose not to charge a fee or may accept a nominal amount. However, it's essential to consider their ability to manage the trust effectively, as mismanagement can lead to decreased value or disputes among beneficiaries.

Understanding the structure and factors influencing trustee fees is crucial when budgeting for the ongoing costs of maintaining a trust. In the next section, we will explore how these fees can vary from state to state.

Trustee Fees by State

While the structure of trustee fees is generally consistent, the actual rates can vary significantly from state to state. This is due to differences in local laws and market rates for professional services. Therefore, it's critical to understand the average trustee fees in your specific state when planning for the costs of maintaining a trust.

For example, in states like California, the statutory fee for a trustee is set at a percentage of the trust's value, generally around 1%. However, in other states, like New York, there are no statutory rates, and fees are primarily influenced by the market rate for similar professional services. This fee often falls between 1% to 2% of the trust's assets but can be negotiated between the trustee and the trustor.

In Texas, there's a common practice for trustees to charge an hourly rate, particularly for non-professional trustees or attorneys serving as trustees. This rate can range from $100 to $300 per hour, depending on the trustee's experience and the complexity of the trust.

In Florida, the law allows for "reasonable" compensation for trustees, with no set statutory rate. The term "reasonable" is typically interpreted based on the time and effort required by the trustee, the complexity of the trust, and the market rates for similar services.

These are just a few examples, and trustee fees can vary widely across all 50 states. For specifics on each state, use the list below:

While trustee fees are an essential part of trust maintenance costs, they are not the only expense to consider. In the following sections, we'll discuss other potential maintenance costs and the costs associated with making changes to your trust.

Other Maintenance Costs

While trustee fees are the most substantial ongoing costs associated with maintaining a trust, there are a few other potential expenses to keep in mind. 

Firstly, there might be tax preparation costs. Trusts are separate legal entities and are required to file their own tax returns. If the trust generates income, it may owe income tax. Hiring a professional to prepare the trust's tax return can ensure accuracy and compliance, but it can also add to the trust's annual expenses.

Secondly, there may be costs related to managing the trust's assets. For example, if the trust contains real estate, there may be property management fees, repair costs, insurance premiums, and property taxes to consider.

Lastly, trusts may also incur costs for professional services such as legal advice or investment management, particularly if the trust holds complex assets like a business or extensive stock portfolio.

It's important to remember that these costs are often relatively minor compared to the benefits provided by a trust. However, they should be factored into the overall budget for trust maintenance.

The Cost of Making Changes to the Trust

A trust can be a dynamic instrument that adapts to changes in your life circumstances or financial situation. However, making changes to your trust can also incur costs that should be considered in your overall planning. 

  1. Amending the Trust: Trusts, particularly revocable trusts, can be amended to accommodate changes such as adding or removing beneficiaries, changing the distribution of assets, or modifying the terms of the trust. The cost of amending a trust largely depends on the complexity of the changes. Minor changes may only require a simple amendment that could cost a few hundred dollars. However, more substantial modifications, like adding a complex business structure to the trust, may require extensive legal work, significantly increasing the cost.
  2. Trust Restatement: In some cases, if the changes to the trust are extensive, it may be more efficient and cost-effective to completely restate the trust. This essentially involves creating a new trust that replaces the old one, maintaining the same trust identification number and date. The cost of restating a trust is typically similar to the cost of creating a new trust.
  3. Legal and Professional Fees: Whether you're amending or restating your trust, you'll likely need the services of an estate planning attorney. Legal fees can vary widely, typically ranging from $200 to $400 per hour, depending on the attorney's experience and the complexity of the changes. 
  4. Notary and Recording Costs: Any changes made to the trust document need to be notarized to be legally valid. While notary fees are typically nominal, they can add up, especially if multiple changes are made over time. Additionally, if the trust involves real estate, there may be recording fees to update the property title with the new trust information.

While these costs may seem daunting, it's important to remember that maintaining an up-to-date and accurate trust is crucial to ensuring that your wishes are carried out and your beneficiaries are protected. At Snug, we aim to simplify this process by providing affordable and accessible estate planning services. By understanding the potential costs associated with maintaining a trust, you can make informed and confident decisions about your estate planning.