David’s sister, Jenny, made a will with a trustee company. The beneficiaries of Jenny’s will were her brother and sister, David and Katherine.
When Jenny died, she owned a house and a car, and not a lot else. With David’s help, the trustee company sold the house and the car and charged Jenny’s estate 5% of the total value of the estate, about $15,000.
David was shocked at the amount the trustee company charged for what he perceived to be the administration of a very straightforward estate. David said that if Jenny had appointed him as the executor, he could have administered her estate with the help of a lawyer at a fraction of the cost. David asked the trustee company to justify its fee.
The trustee company replied that it had charged 5% of the value of the estate, as allowed by the Trustee Companies Act 1967 (the Act).
David did not accept this explanation and complained to FSCL.
David said that he was looking for transparency. He did not accept that the trustee company should be able to charge a flat fee of 5%. In David’s opinion, the trustee company should have to justify the work behind the $15,000 it had charged. David wanted us to review the administration of the estate and propose a fee based on the actual work undertaken by the trustee company.
The trustee company explained that the service it provides is different from the service a lawyer would have given David if he had been the executor. When a trustee company administers an estate, it provides an ‘end to end’ service and accepts substantial financial liability for all the estate decisions and actions. The 5% charged under the Act covers all the work involved in:
· applying for probate
· collecting assets
· collecting tax information and applying for an IRD number
· paying all the bills and collecting refunds
· closing bank accounts
· selling the house and car
· distributing funds to beneficiaries
· preparing the financial statements, and
· communicating with beneficiaries.
The trustee company was satisfied it had charged the estate the correct amount as allowed by the Act.
We explained to David that we were not going to be able to provide the answers he was looking for. The trustee company’s fee is not based on the work undertaken, but on the 5% of the value of the estate, as allowed by the Act. In addition, the Act allows the trustee company to charge the estate separately for other specific tasks including:
· preparing tax returns
· managing property
· tracing beneficiaries
· realising assets
· carrying on business
· any work of a special or unusual nature.
From what we could see, the fees charged by the trustee company were in line with the Act and with fees charged by other trustee companies. We advised David that we were unable to take his complaint further.
David was disappointed with the outcome, but was pleased he had sought clarification. We discontinued our investigation.
Insights for consumers and participants
The sentiments expressed by David are not unusual. Many beneficiaries feel ‘ripped off’ by the 5% fee charged by trustee companies. People expect to pay an amount proportionate to the work undertaken and have great difficulty accepting that a trustee company will charge based on the value of the estate.
We encourage consumers to talk to their families about their decision to appoint a trustee company. There are good reasons why a person decides they would prefer a trustee company to administer the estate and have their estate pay the administration costs. But, once that person has died, it can be difficult for people grieving at the death of a relative to understand the reasons behind the decision.