A delegated trust means that the trustee, individual or corporate, makes the conscious decision to delegate tax, investment, custody, and/or discretionary distribution authority to an unrelated third person or firm. Since the trustee makes the decision to delegate this authority they still retain fiduciary risk and their trustee fees are higher because of this reason.
| First $3 million | 0.578% to 0.60% |
| Next $3 million | 0.544% to 0.578% |
| Next $4 million | 0.493% to 0.544% |
| Over $10 million | Negotiable |
| Minimum Annual Fee | $7,500 |
*Assumes trust holds marketable securities only. For real assets delegated 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.
A delegated trust operates in a very collaborative manner with modern day trust companies, like with Wealth Advisors Trust Company. Below is a simple flow outlining who does what and this affects the delegated trustee fee schedule:
A delegated trust has been around for over 700 years. The history of trust law goes back to the Roman Empire and British Empire (circa 13th Century AD) and delegated trusts were there at the beginning. These type of trusts have evolved over the centuries with the largest and most impactful changes for grantors and beneficiaries occurring within the last 4 decades (circa 1980’s to 2000’s). The trustee has the power to retain or to delegate a large majority of the trust administration actions ranging from investment management, taxes, and custody. These actions have a large impact on the delegated trustee fee schedule.
Any corporate trustee, at least historically, was focused on absolute control over investments, taxes, custody and distribution. That was the traditional way to mitigate the risk for the corporate trustee. Trust law under state statutes did not consider the possibility that the essence of a trustee actions could be delegated to outside parties while still retain the core power and fiduciary liability to the corporate trustee. Naturally this would affect the delegated trustee fee schedule. If the issue of power is removed from the trustee fee calculation what are the factors that make up the trustee compensation?
It comes down to various factors based on two simple concepts: (1) risk; and (2) time. Those simple concepts can be broken down into 7 distinct factors listed below. What makes the process unique, dare we say innovative, in calculating the delegated trustee fee schedule, would be the algorithm weighting of the 7 distinct factors. The science is the math behind the algorithm, but the art is the weighting and scaling of fees based on the numerical characteristics of each of those factors. In the table below a description of each of those factors are described with some comments for context.
|
Factor |
Description |
Comments |
|
Type of trust |
Directed or Delegated |
A delegated trust requires the trustee to retain the fiduciary risk but can delegate the actual work to 3rd parties. |
|
Size of trust |
Dollar amount |
Naturally the work and the risk for a $1 million trust does not go up exponentially when compared to a $10 million trust. It does increase though. Consider why Property & Casualty Insurance companies charge a higher premium, at a certain level, for more expensive homes. This needs to be considered for the delegated trustee fee schedule. |
|
Type of assets |
Marketable securities, real assets or legal entities |
When marketable securities are held within a trust the trustee requirement for review from a Prudent Investor Rule standpoint increases risk. When real assets are held in legal entities distancing the trustee from oversight the risk goes down. It is all a balance. |
|
Custodian |
Location of cash and marketable securities |
There are custodians and/or banks providing a more modern day connectivity either thru APIs, and/or other mainframe to mainframe connection, to make data collection for trust reconciliation requirements a more natural process. Time is money here. |
|
Number of trusts |
Accounts for complexity and trust administration/accounting time |
Pretty simple that more trusts equal more time and certain amount of risk to follow the rules of the trust document for the benefit of the beneficiaries – current and future. |
|
Number of beneficiaries |
Accounts for complexity and trust administration/accounting time |
Imagine having 1 child versus 4 children. More children takes more time. There is also more risk around ensuring everything gets done correctly. This needs to be accounted for in the algorithm in calculating the delegated trustee fee schedule. |
|
Number of annual distributions |
Accounts for complexity and trust administration/accounting time |
Distributions come in two flavors – discretionary and automatic. Automatic distributions are described as net income, unitrust or some other way where the trustee has no decision requirement. Discretionary distributions require the trustee to make decision around the intent of distributions written in the trust document against everything else falling under or affecting the beneficiary and trust for today and tomorrow. This is a big component for a delegated trustee fee schedule. |
Right now Wealth Advisors Trust Company is the only corporate trustee using a factor model to calculate trustee fees. Why? We are frustrated with everything this industry does. Our trustee fee process allows for transparency in how we calculate our trustee fees and allows all parties to look for ways to negotiate or lower trustee fees for the customer. This means our focus remains on efficiency and risk management of delivering our trustee services. Kinda cool when considering a boring topic around delegated trustee fee schedules.
