THE SENATE

S.B. NO.

1249

TWENTY-SEVENTH LEGISLATURE, 2013

S.D. 2

STATE OF HAWAII

H.D. 1

 

PROPOSED

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO THE COMPENSATION OF TRUSTEES.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


SECTION 1. The purpose of this Act is to clarify current state law relating to trustee compensation. Certain ambiguities in the law have caused disputes between beneficiaries and trustees, which have resulted in litigation.

The purpose of this Act is to:

(1) Clarify trustee compensation;

(2) Provide a compensation system that is predictable and fair to beneficiaries and trustees;

(3) Reduce issues that require court intervention; and

(4) Minimize the legal fees and costs connected with court intervention.

SECTION 2. Section 607-18, Hawaii Revised Statutes, is amended to read as follows:

"607-18 [Fees and expenses] Compensation of trustees. (a) Unless the trust instrument otherwise provides, or the settlor and trustee otherwise agree, or, after the settlor's death, all the beneficiaries and the trustee otherwise agree, the trustee shall be entitled to the compensation set forth in this section and the compensation shall be deemed to be reasonable. For good cause shown, the court may also approve any other fee arrangement that it deems reasonable.

(b) Banks and trust companies serving as trustees shall be entitled to reasonable compensation, which may be set forth in their published fee schedules and may be amended from time to time; provided that advance written notice of any amendment to the fee schedule is provided to the settlor or, after the settlor's death, to all beneficiaries.

(c) Except as provided in subsection (a), individuals serving as trustees shall be entitled to the following compensation:

(1) Compensation Upon Inception of the Trust:

(A) One per cent based upon the gross fair market value of the trust assets on the date of the trustee's acceptance shall be payable to the first trustee who is not the settlor of the trust; and

(B) One per cent based upon the gross fair market value of the trust assets of the trust created under the revocable living or administrative trust on the date of the trustee's acceptance shall be payable to the first trustee of any trust created under a revocable living trust after the settlor's death or other administrative trust; provided that the trustee shall not also be the trustee of the revocable living trust or administrative trust that is the source of funding for the newly-created trust;

provided that if more than one individual serves as trustee, then the compensation shall be divided equally between the then-acting trustees unless otherwise agreed by the trustees. If one or more individuals are serving as co-trustees with a bank or trust company, then the individual trustees shall be entitled to fifty per cent of the compensation provided for under this paragraph described herein, which shall be divided among the then-serving individual co-trustees as they may agree. A bank or trust company serving as co-trustee shall be entitled to the compensation described in subsection (b).

(2) Annual Compensation:

[(a)] (A) Upon all moneys and other property received in the nature of revenue or income of the [estate,] trust, such as rents, interest, dividends, and general profits, [trustees, except trustees of a charitable trust, shall be allowed as commissions payable out] five per cent of the income received during each year[,] shall be payable to the trustee, [seven per cent for the first $5,000 and five per cent for all over $5,000 the commissions to be payable] as and when the income is received[, but not more often than once a year.];

[(b)] (B) Upon the principal [of the estate, trustees shall be allowed as commissions one per cent on the value at the inception of the trust payable at the inception out of the principal, one per cent on the value of all or any part of the estate upon final distribution payable at the termination out of the principal, and two and one-half per cent upon all cash principal received after the inception of the trust and neither being nor representing principal upon which the two and one-half per cent has previously at any time been charged, payable at the receipt out of the principal, and two and one-half per cent upon the final payment of any cash principal prior to the termination of the trust, payable at the final payment out of the principal, and in addition thereto five-tenths of one per cent on the value at the expiration of each year during the continuance of the trust payable annually out of the principal; provided that such five- tenths of one per cent on the principal shall not apply to charitable trusts, nor to the extent the trustee has employed others to perform bookkeeping and clerical services at the expense of the estate as permitted by the trust document or as provided in section 554A-3. (c) Such further allowances], the trustee shall be compensated no more than once per quarter, based on the following:

(i) One-half of one per cent of the first $5,000,000;

(ii) One-third of one per cent of the next $3,000,000;

(iii) One-fifth of one per cent of the next $2,000,000; and

(iv) One-tenth of one per cent of assets in excess of $10,000,000,

based upon the gross fair market value of the principal assets as of the first business day of the trust's fiscal year;

(C) Notwithstanding subparagraphs (A) and (B), a trustee shall be entitled to a minimum total annual compensation of $3,000; and

(D) The threshold dollar amounts in subparagraph (B) and the dollar amounts in subparagraph (C) shall be increased by an amount equal to (i) the dollar amount from subparagraph (B) or (C), as applicable, multiplied by (ii) a cost-of-living adjustment with changes in the Consumer Price Index (CPI) using the year 2014 as the base.  The "CPI" means the Consumer Price Index (Annual Average) for All Urban Consumers (CPI-U); for the Honolulu area All Items, reported by the Bureau of Labor Statistics, United States Department of Labor or its successor or, if the index is discontinued, an equivalent index reported by a federal authority.  If no such index is reported, the term means the substitute index chosen by a court of competent jurisdiction. If any amount as adjusted is not a multiple of $10,000, such amount shall be rounded down to the next lowest multiple of $10,000;

(3) Compensation Upon Termination of the Trust:

One per cent based upon the gross fair market value of the trust assets as of the termination date of the trust pursuant to the terms of the trust, shall be payable to the trustee at any time after the termination date, up to and including the date the trust assets are finally distributed; and

(4) Special Service Fees:

Further compensation may be made as the court deems just and reasonable for services performed in connection with assuming the trusteeship, sales or leases of real estate, contested or litigated claims against the estate, the adjustment and payment of extensive or complicated estate or inheritance taxes, the preparation of estate and income tax returns, the carrying on of the decedent's business pursuant to an order of court or under the provisions of any will, litigation in regard to the property of the estate, and such other special services as may be necessary for the trustee to perform, prosecute, or defend[. All contracts between a trustee and a beneficiary other than the creator of the trust, for higher compensation than is allowed in this section shall be void.]; provided that if all of the beneficiaries agree to the trustee's special service fees, then court approval shall not be required.

(d) For purposes of any agreement between the trustee and the beneficiaries regarding the trustee's compensation, the agreement shall be binding upon incapacitated, minor, unborn, and unascertained beneficiaries if the applicable provisions of section 560:1-403(2)(B) and (C) are satisfied.

(e) The following terms, or comparable language in the provisions of a trust, unless otherwise limited or modified, authorize compensation to the trustee under this section: "reasonable compensation", "compensation in accordance with applicable law", "compensation", "reasonable compensation commensurate with the services performed", and "statutory compensation".

[(d)] (f) This section shall apply [as well] to future accounting in existing [estates] trusts as well as to new [estates.] trusts. This section shall not apply to charitable trusts."

SECTION 3. This Act shall not be construed to limit the rights of interested persons to petition the court for review under article VII of chapter 560, Hawaii Revised Statutes.

SECTION 4. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect on January 1, 2015.


 


 

Report Title:

Compensation of Trustees

 

Description:

Clarifies and updates trustee compensation by setting out several categories of fees to which trustees are entitled. Effective January 1, 2015. (PROPOSED SB1249 HD1)

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.