A directed trust allows certain fiduciary duties allocated to a non-corporate trustee thus reducing the directed trust fee schedule. The most common fiduciary duty allocated to a non-corporate trustee – investment management. The second most common fiduciary duty allocated to a non-corporate trustee-distributions [note: though this is less common for trusts smaller than $25 million].
Directed Trust Fee Schedule*
| First $3 million | 0.412% to 0.45% |
| Next $3 million | 0.388% to 0.412% |
| Next $4 million | 0.352% to 0.388% |
| Over $10 million | Negotiable |
| Minimum Annual Fee | $7,500 |
*Assumes trust holds marketable securities only. For real assets the directed trust 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 directed trust fee schedule requires a few moving parts to act in a collaborative manner. Below is a flow chart of who does what at a high level.
The critical part in calculated a directed trust fee schedule rests on the factors or components that make up the trustees workflow and risk. Traditionally, corporate trustees focused on the control over investments and distributions. To minimize their risk and time they had 100% control over those distributions and investments. We know this lead to frustrations with corporate and lead to the creation of modern day trust companies like Wealth Advisors Trust Company. Today (circa 2020) 99.999% of trust companies (traditional and modern) still offer a trustee fee schedule around a scaled AUM model. For example, the first $3 million has an annual of trustee fee of 0.55%. This ignores the fact that control no longer matters. Risk and time for the trustee are all that matter in the modern day trust world. That means for beneficiaries, grantors and/or financial advisors a modern day trust fee schedule must exist.
Risk and time can be broken down into 7 distinct factors used to calculate the directed trustee fee schedule. Those factors are captured in the chart below:
|
Factor |
Description |
Comments |
|
Type of trust |
Directed or Delegated |
Delegated has more risk to a trustee than a directed trust. The trustee fee schedule needs to account for those differences. |
|
Size of trust |
Dollar amount |
Like insuring a home, $1 million home is cheaper to ensure than a $10 million home. |
|
Type of assets |
Marketable securities, real assets or legal entities |
Captures risk and time for the trustee to ensure investment guidelines are followed per the trust document. |
|
Custodian |
Location of cash and marketable securities |
The more locations the more time involved for trust accounting and reconciliations. Some custodians are easier to work with (e.g. mainframe to mainframe) than others. |
|
Number of trusts |
Accounts for complexity and trust administration/accounting time |
Imagine juggling one ball versus five balls. Trust accounting and administration follows that same mindset. More balls, more complexity, more risk and time. |
|
Number of beneficiaries |
Accounts for complexity and trust administration/accounting time |
You can compare coaching one player vs ten players. The more players the more time and risk that something could go wrong. This needs to be accounted for in calculating the trustee fee schedule. |
|
Number of annual distributions |
Accounts for complexity and trust administration/accounting time |
There two types of distributions: (1) Discretionary where the trustee has to make a decision based on the intent of trust document; and (2) Non-Discretionary such as net income or unitrust provisions where involve no decisions and are automate. The more automatic the distributions the less risk and time involved. This needs to be accounted for in calculating the trustee fee schedule. |
We decided to do something innovative when calculating our directed trustee fee schedule. Rather than used an opaque scaled down AUM percentage pricing model we built an algorithm based on the 7 factors described above. When prospects want a trustee fee quote we ask for the trust document, and answers to the 7 factors. The algorithm then provides what the trustee fee quote should be. So, really our directed trustee fee schedule is based on an algorithm. This was incredibly difficult task as we had to think differently. We are kidding – it was not hard at all. Why? Since we were created out of frustration with the 700 year old trustee industry coming up with customer-centric ideas comes naturally to us.
The ranges in the fees are based on various scenarios of the 7 factors. This will give you a sense of where the trustee fee schedule could exist for your particular situation.
