Question regarding treatment of trustee fees

Client is the trustee for her uncle's trust. He left specific bequests to many people under the terms of his trust and left the residuary to his niece and nephew.

Client listed a disbursement from the trust that she personally received as a specific bequest. I looked through the trust agreement and I see no specific bequests for her...which is unfortunate. I gently asked her about it and she danced around the issue and kept saying she was a beneficiary of the trust. She's not a beneficiary of the trust. She's the trustee and the only thing I can see is that this would be a taxable trustee fee to her (it was a reasonable amount of $ for all the time she's spent). I do her personal return so it's not like I can just turn a blind eye to this. In addition, the trust is allowed a deduction for the trustee fees paid. There's no way around this is there? It's unfortunate that the uncle asked her to be trustee but then didn't even leave her a specific bequest when he left 20 other ones...

Trustee fee. And yes. Her uncle wasn't very nice to her. She has to work and pay taxes on what she received. Reminds me of my uncle.

I don't know if you want to get into this....but at least here in CA, when the trust says that the trustee is allowed a reasonable amount of compensation, that vague statement actually means something. It is a % of the value of assets or a maximum billing rate based upon what you are doing. So paying bills is a lower rate than making strategic decisions. I served as trustee once (never again) and as part of accepting that role, said that I wanted my normal billing rate. That was written into the trust. It turned out to be substantially more than I would have received under the County's rules. I wonder how she determined how much she should be paid, what was reasonable. This is obviously a potential liability for her.

Client is the trustee for her uncle's trust. He left specific bequests to many people under the terms of his trust and left the residuary to his niece and nephew.

Client listed a disbursement from the trust that she personally received as a specific bequest. I looked through the trust agreement and I see no specific bequests for her...which is unfortunate. I gently asked her about it and she danced around the issue and kept saying she was a beneficiary of the trust. She's not a beneficiary of the trust. She's the trustee and the only thing I can see is that this would be a taxable trustee fee to her (it was a reasonable amount of $ for all the time she's spent). I do her personal return so it's not like I can just turn a blind eye to this. In addition, the trust is allowed a deduction for the trustee fees paid. There's no way around this is there? It's unfortunate that the uncle asked her to be trustee but then didn't even leave her a specific bequest when he left 20 other ones...

I might argue its malfeasance. She can take a fee of course but this sounds like petty jealousy on her part.

Is she providing an accounting to the beneficiaries?

Is she providing an accounting to the beneficiaries?

A very good point. At least here in CA, if you don't provide an accounting or get the beneficiaries to sign a waiver, you can be held liable for your actions forever. In other words, the beneficiaries could question the reasonableness of the trustee fees any time.

The accounting is in a specific format required by the court that is different from statements that we normally generate.

Trustee fee. And yes. Her uncle wasn't very nice to her. She has to work and pay taxes on what she received. Reminds me of my uncle.

Excellent! Although you forgot to capitalize Uncle.

Is she providing an accounting to the beneficiaries?

A very good point. At least here in CA, if you don't provide an accounting or get the beneficiaries to sign a waiver, you can be held liable for your actions forever. In other words, the beneficiaries could question the reasonableness of the trustee fees any time.

The accounting is in a specific format required by the court that is different from statements that we normally generate.

Her attorney seems good. I'm guessing she's already informed her of her legal duties as trustee. But good point - I'll send the client an email to check in on this and remind her that she should discuss this with the attorney if she hasn't already.

I just talked to the client and she said the beneficiaries are aware of the money she received. I calculated out the tax she'll have to pay on the trustee fees - 26%. She threw a fit and said she's going to tell the beneficiaries that she doesn't want anymore money if she's going to have to pay taxes at such a high rate. Last I checked 74% is greater than 0%.

She threw a fit and said she's going to tell the beneficiaries that she doesn't want anymore money if she's going to have to pay taxes at such a high rate. Last I checked 74% is greater than 0%.

If I had to summarize the most commonly frustrating thing in my 28 years in this profession in a brief sentence or two, this would be it. It's right above, "I incurred that completely useless expense to avoid paying taxes."

She threw a fit and said she's going to tell the beneficiaries that she doesn't want anymore money if she's going to have to pay taxes at such a high rate. Last I checked 74% is greater than 0%.

If I had to summarize the most commonly frustrating thing in my 28 years in this profession in a brief sentence or two, this would be it. It's right above, "I incurred that completely useless expense to avoid paying taxes."

I thought about exactly the same thing when she said that. I have a client that spends all the cash in his business churning trucks to get 179 deductions so he doesn't have to pay taxes. Never mind the fact that his net worth is negative -- but he isn't paying taxes!!! I've tried explaining this to him for the last 5 years and he still continues to do it.

She threw a fit and said she's going to tell the beneficiaries that she doesn't want anymore money if she's going to have to pay taxes at such a high rate. Last I checked 74% is greater than 0%.

If I had to summarize the most commonly frustrating thing in my 28 years in this profession in a brief sentence or two, this would be it. It's right above, "I incurred that completely useless expense to avoid paying taxes."

I thought about exactly the same thing when she said that. I have a client that spends all the cash in his business churning trucks to get 179 deductions so he doesn't have to pay taxes. Never mind the fact that his net worth is negative -- but he isn't paying taxes!!! I've tried explaining this to him for the last 5 years and he still continues to do it.

Had a client like this around 15 years ago - Sch C trucking company. Owner calls me and says that she has a chance to get a good sized job but doesn't want to take it because she doesn't want to pay the taxes. Tell her that her tax all in is around 30% (income/SE/state) and she'll still net around 70%. She says she doesn't care, she's tired of paying taxes. Needless to say, that business is no more.

I don't fee sympathy for your client. She voluntarily took on the position of trustee, as she did not have to accept the appointment. She performed a service and received compensation, so she should pay tax.

Is she providing an accounting to the beneficiaries?

A very good point. At least here in CA, if you don't provide an accounting or get the beneficiaries to sign a waiver, you can be held liable for your actions forever. In other words, the beneficiaries could question the reasonableness of the trustee fees any time.

The accounting is in a specific format required by the court that is different from statements that we normally generate.

Her attorney seems good. I'm guessing she's already informed her of her legal duties as trustee. But good point - I'll send the client an email to check in on this and remind her that she should discuss this with the attorney if she hasn't already.

I just talked to the client and she said the beneficiaries are aware of the money she received. I calculated out the tax she'll have to pay on the trustee fees - 26%. She threw a fit and said she's going to tell the beneficiaries that she doesn't want anymore money if she's going to have to pay taxes at such a high rate. Last I checked 74% is greater than 0%.