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How much can I charge as a trustee?

The question of reasonable compensation for a trustee or fiduciary often comes up. There is no black and white rule regarding reasonable compensation. Reasonable compensation means it depends–it depends on the surrounding circumstances of the administration. And the factors are proscribed in the Colorado Revised Statutes (CRS).

As the fiduciary (personal representative/conservator/agent/trustee), you are entitled to reasonable compensation. But what is reasonable? Reasonableness is determined by a number of factors in C.R.S. Section 15-10-603:

  • the type of labor required and whether a special skill or difficulty is required to perform the service properly;
  • the opportunity cost of not working your regular job;
  • the compensation is equivalent to what others in the community might charge for the same service;
  • nature and size of the estate; liquidity of the estate; results and benefits of the person’s actions;
  • life expectancy of the respondent/ward/protected person/beneficiaries
  • any time limitations or circumstances regarding the administration of the estate;
  • the expertise, special skills, reputation, and ability of the person performing the services; and
  • terms of the governing instrument

With those factors, I can provide some trial court examples:

(1995) Roger and Roy sought compensation of over 200 hours of labor as co-representatives of the estate. Roger charged $50 an hour and Roy charged $35 an hour. A beneficiary challenged the hourly rates as excessive. The trial court approved the compensation based on the following circumstances:

  • Both Roy and Roger left their jobs to be the co-representatives;
  • They would have had to hire someone at a similar rate;
  • The size of the estate was modest; and
  • One of the representatives was a highly-paid executive who left his job to perform his duties for the estate

Estate of Beren (2012) – The personal representative set his compensation at $375,000 per year. Before appointment, he was the CFO of the Berenergy Corporation. The decedent was Mr. Beren, who was the sole shareholder of Berenergy Corporation. Mr. Beren died in 1996, but this Court of Appeals case was not published until 2012. This means the litigation went on for years. Mostly, because of a spousal elective share issue and beneficiary fights. It is presumed the total value of the estate was hundreds of millions. From 1996 to 2010, the personal representative increased his annual salary to over 1 million a year. After an evidentiary hearing, the trial court concluded the compensation was reasonable. The court of appeals affirmed the decision, and it was based on the following circumstances:

  • The estate was unique, and it could not compare it to similar or customarily charged circumstances for most estates, because of the size and complexity.
  • The corporation was a closely-held business, and the fiduciary kept it very profitable during the administration of the estate.
  • It was the fiduciary’s only job, and he devoted his entire life to the company’s success.
  • The heirs substantially benefited from the fiduciary’s efforts despite their objections to his compensation.
  • By accepting this job, he was precluded from doing anything else.
  • Before accepting the appointment, he was the CFO of the Corporation and making a similar salary before requesting additional compensation.
  • The fiduciary’s compensation represented less than 1% of the estate’s value (market rate for fiduciaries who charge a percentage generally charge 1% of the total assets per year).

The last example is an outlier, but it assists the objective: If you provide a benefit to the estate, and your expertise justifies the wage, you are probably within a reasonable compensation. Sometimes benefit to the estate is not always pecuniary, but that is outside the scope of this article.

Based on the court examples and the firm’s experience, I have provided my own recommendations:

You are making $12-$18 an hour. Your education is between a high school diploma and a bachelor’s. You have no experience being a fiduciary. Your mother died, and she named you the personal representative of the estate. Result: reasonable compensation could be $20-$40 an hour. This represents a reasonable wage you would have pay someone else for most of the manual labor, inventory, and selling items. However, I recommend retaining an accountant and an attorney to protect your personal liability.

You are small business owner with expertise in bookkeeping, accounting, and inventory management. Result: reasonable compensation could be $40-$80 an hour. This represents your expertise in most tasks for estate administration, including supervision of employees, and your fiduciary services would preclude you from working.

You are a dentist, but you do not have expertise in bookkeeping and accounting, as that is delegated to someone else. Result: reasonable compensation could still be $60-$100 an hour. This represents your educational background to perform difficult tasks, supervise employees, and review complicated material. Further, there is an opportunity cost of neglecting your regular job to perform the fiduciary services. I still recommend retaining an accountant and an attorney to protect your personal liability.

If you choose to be compensated, I recommend obtaining court approval first to avoid any problems later. For more information or a consultation regarding compensation or estate administration, please contact the grand junction estate attorneys, Reams & Reams at 970-242-7847 or email us at ztreams@reamslaw.com.

The material presented on this site is included with the understanding and agreement that Reams & Reams is not engaged giving legal advice by posting material on this website. The services of a competent professional should be sought if legal or other specific expert assistance is required. Further, the firm does not wish to represent anyone desiring representation based upon viewing this website in any state or jurisdiction where this website fails to comply with all laws and ethical rules. The firm is also only licensed to practice in the State of Colorado. Any material presented on this site may be different or incorrect in another state. Please consult any attorney before using any of this information.

Estate Taxes? “Rolling in the Deep”

Administering an estate or trust? Were taxes filed before the person died? How would you know? The IRS allows access to previously filed returns with authority. An unpaid income tax bill is common. Hopefully, there is a recorded lien to alert you. But some go unnoticed. This problem occurs at every income scale. As a recent example, review the Estate of Aretha Franklin.

Ms. Franklin died August 16, 2018 from pancreatic cancer. She was a prolific singer and songwriter. She was inducted into the Rock and Rock Hall of Fame. Her estate may be worth over $80 million (which might trigger “estate tax” problems). But she neglected to pay her income taxes for years.

The IRS filed an additional Proof of Claim for more than $1.5 million for tax years dating back as far as 2010 for 945 taxes and related penalties.


Irs Seeks To Recover Millions In Unpaid Taxes From The Estate Of Aretha Franklin
Kelly Erb – https://www.forbes.com/sites/kellyphillipserb/2018/12/28/irs-seeks-to-recover-millions-in-unpaid-taxes-from-the-estate-of-aretha-franklin/#5e5003715f9c

Ms. Franklin forgot or neglected to file. Now, it is the executor’s problem. The IRS is a creditor of the estate. Any unpaid tax will be a liability. It is the fiduciary’s job to negotiate or satisfy these claims.

Some people confuse “estate tax” with income tax in an estate. The federal “estate tax” might affect the estate if the combined assets of the decedent or trust are over $11.18 million (2018). See IRS’s reference to the Estate Tax. Aretha Franklin will have that problem, but the majority of Americans should never worry about it.

However, if the estate generates income above a certain amount, such as capital gains or dividends, the fiduciary will have to file an estate return for that income. See IRS’s reference to the Income Tax Return for Estates and Trusts. Of course, these are general considerations. The are exceptions to these rules. There are also pitfalls and penalties if you do not file on time. Do not be a link in the IRS’s “Chain of Fools,” as Ms. Franklin would belt. Retain an accountant to advise on any taxable event or liability before you close the estate or trust (even better: hire them immediately when you start acting as a fiduciary).

If you need advise on how to properly administer an estate or trust, please contact the Estate Attorneys of Grand Junction, Reams & Reams at 970-242-7847.

Auctioning Estate Property has Consequences

Auctioning off a property is quick. It gets the property sold. However, it comes at a cost. When real estate in an estate or trust sits on the market for too long, the heirs may start to get impatient. Even if you listed the property for market value, you may not get any offers. An auction may be the next step to get the property liquidated. But a guaranteed sale may have consequences. As an example, this billionaire’s estate property in Aspen, Colorado, with roughly 244 acres and six family homes sold for 75% from the original asking price: https://www.wsj.com/articles/ex-billionaires-colorado-ranch-sells-for-over-75-off-1537563592.

If you are attempting to liquidate estate or trust property and need advice, please contact the Grand Junction Estate Attorneys Reams & Reams at (970)-242-7847. Please review our practices areas here and our qualifications.

I received a claim in an Estate. What do I do now?

If you are the executor or the personal representative of an estate, chances are you received a claim in the mail for the decedent. Most likely, it is an unpaid credit card bill. That bill has now been forwarded to collections and they are asking you, the next of kin, to personally pay it. Rest assured: You are not personally liable to pay this debt; however, the estate might be liable. Generally, creditor claims have priority over heirs, but they must be filed within certain deadlines. If it is a known creditor, that deadline to file a claim is generally one year from date of death. If you want to shorten this, give the known creditor notice. They have sixty days to file a claim or until the published notice deadline, whichever is later, or the claim is barred. If it is an unknown creditor and you publish a Notice of Creditors in the newspaper, the deadline to file is generally four months from the notice. This is considered the published notice deadline. That is why it takes at least six months to open and close an estate: You want the creditor period to expire first. You pay heirs before creditor, you open yourself up to personal liability. After the deadline has passed, the claim is barred and forever extinguished. The personal representative actually does not have the authority to pay a barred claim.

If the claim is valid or court-ordered to pay and if you have more than one, you must pay claims in the following priority. (1) Property held by or in the possession of the deceased person as fiduciary or trustee of a trust; (2) administrative costs and expenses to administer the estate or trust; (3) funeral expenses; (4) federal taxes; (5) medical expenses of last illness of decedent; (6) state taxes; (7) Medicaid; (8) child support obligations; and (9) all other claims. This is not word-for-word; I am paraphrasing the statute. For a more complete citation, look at the Colorado Revised Statutes Section  15-12-805. You can review them here.

As an example, if the estate has $100, and you receive a claim for $200 from Medicaid but you also have a funeral bill for $400, pay the funeral bill first and give notice to Medicaid why they are not receiving any funds.

If you do not think the claim is valid, disallow it. The creditor has sixty (60) days to file a petition for allowance and set a hearing for the claim or it is barred.

If you need assistance with a claim or general administration of an estate, please call the Grand Junction Estate Attorneys at Reams & Reams: 970-242-7847.

5 Easy Steps to Effectively Administer an Estate or Trust or Conservatorship

Managing an estate is much like managing a trust or a conservatorship. It primarily involves gathering the assets, managing them for creditors, heirs, or any interested persons, and then distributing the assets to the rightful people upon conclusion. With all these entities, there are things you need if you want to effectively administer assets for another person or an estate. Here are five of the most important things:

  1. Hire an accountant or an attorney with estate tax knowledge. Most often, there is no tax issue to deal with if the estate only consists of a house (see the “step up” basis rule) and some personal property; however, I recommend having a tax professional tell you that rather than ignoring what could become a tax nightmare. Accountants sometimes charge a reduced rate to review your file to confirm a return is not needed. For example, if the estate or trust collects dividends, that is considered taxable income, and the estate should file a return for that year you received the dividends. If you close or terminate the estate or trust before paying that taxable income, as the fiduciary, you might be stuck with personally paying the bill or penalty if your forgot about it. By then, the heirs are probably long gone or have already spent their money.
  2. Inventory the assets as best as you can.  In most cases, heirs or interested persons can reasonably work out how to divide the assets. However, in every case, you should itemize and inventory everything as best as possible. Contested cases sometimes materialize overnight. At the very least, put tags like these on every piece of property the estate or trust owns. Take pictures of everything. These practices will separate your stuff from the estate’s stuff, and it will avoid commingling. You should then prepare an inventory. Microsoft Excel works great. We track our assets with Wasp MobileAsset. The price for that may be more than what you are willing to invest for one estate; however, you can use this excel template I made as a guide. It will keep track of what the estate owns, the estimated value, and what the items sold for. I would recommend quickbooks and quicken to track your expenses and income as well. When you conclude your administration, this report is vital to show the interested parties how everything was distributed. If you do not adequately track the personal property and expenses, somebody is going to ask you about a particular item six months into the administration. Without proper tracking, you will not have any idea where that item is located or where it went.
  3. Keep track of your time and expenses. Many executors or trustees that do not regularly to this type of work forget to track their time on a consistent basis. When administration has concluded, they end up trying to estimate how much time they spent. Without calendars or a billing system, estimating in lump sums will get contested and you may not be able to charge at all or at a very reduced rate. Buy a cheap or free calendar and put down your hours for each day. You can calculate a reasonable hourly rate later. Don’t forget about mileage either. Expenses are also reimbursable.
  4. Get appraisals or a market analysis for assets. If you are selling land or valuable assets, nothing is better than a professional appraisal to back up your sale. They are also great expert witnesses to rely upon in contested cases. Where there have been disputes over sale of assets, and the ones that stand up are professional appraisals behind them the sale. The assessed value with the county’s assessor and Zillow will give you a good estimate but do not solely rely on them.
  5. Never buy or take estate owned for yourself. This is axiomatic, but it needs to be repeated. Someone else has put you in charge to handle the estate or conservatorship. Someone entrusted you to do the right thing on behalf of the others involved and to not take from the estate. Even if you buy it for market value, you are putting yourself in a compromising position. Further, the transaction could be voidable if it is not expressly authorized by the court and after notice of interested persons.

 

In many cases, you probably can do most of the work on your own if you follow these rules. If you need assistance, maybe even limited advisement, please call the Grand Junction Estate Attorneys, Reams & Reams at 970-242-7847.

Filing for Probate? Consider a Small Estate Affidavit (Updated 2020)

If you are the nominated personal representative of a Will, you have a lot of questions. The most important one is where to start. Do you need to file a probate proceeding or not? (For a quick overview of your duties, please see Colorado Bar Association’s article: So Now You Are A Personal Representative.)

There are two rules that require probate filing: (1) If the estate owns real property (exclude properties in joint tenancy or beneficiary deeds); (2) or the estate has more than $7,000 (2020) less liens and encumbrances. If you do not meet these criteria, you can use this form and not file a proceeding: Affidavit for the Collection of Personal Property

To reiterate those rules:

  • There is no real property in the decedent’s sole name (check the Assessor’s Online Lookup and the Mesa County Clerk and Recorder to review the chain of title to the property and the vesting deed) and the estate has less than $70,000 (see above) in assets less liens and encumbrances;
  • At least ten days have elapsed since the date of death;
  • There is no appointment of a personal representative pending in this district or any other state; and
  • You swear you are the successor to the estate

With the Small Estate Affidavit, you can: (1) collect assets from a financial institution; (2) transfer or sell vehicles in the decedent’s name (the DMV will require the use of its own form); (3) authorize cremation or deal with funeral services;  (4) deal with creditors of the estate; or, but not limited to (5) distribute assets to heirs. That means you can do everything as the personal representative but without a court proceeding.

However, anyone who uses the Affidavit is still held accountable for any action they make on behalf of the estate. If there is a Will, follow the terms of the Will. If there is no Will, you must follow the Colorado Revised Statutes regarding intestate succession.

One major disadvantage of not filing is the creditor period. If you do not file a proceeding, you must wait one year from the date of death for all creditor claims to expire (there are exceptions to this). If you file an proceeding and publish notice, you can reduce this period down to four (4) months from teh first publication date.

If you need assistance with the estate administration, please contact the Estate Attorneys at Reams & Reams, (970)-242-7847.

The material presented on this site is included with the understanding and agreement that Reams & Reams is not engaged giving legal advice by posting material on this website. The services of a competent professional should be sought if legal or other specific expert assistance is required. Further, the firm does not wish to represent anyone desiring representation based upon viewing this website in any state or jurisdiction where this website fails to comply with all laws and ethical rules. The firm is also only licensed to practice in the State of Colorado. Any material presented on this site may be different or incorrect in another state. Please consult any attorney before using any of this information.