High Court Rules On Trust Costs

The Supreme Court says the 2nd Circuit was wrong to consider what kinds of fees an individual could incur. “Would” means something that probably will happen, not could happen, and, “if Congress had intended the Court of Appeals’ reading, it easily could have replaced ‘would’ in the statute with ‘could,’ ” Roberts wrote.

If the Rudkin trust’s investment advisors had imposed special fees that applied only to fiduciary accounts, the trust might have been able to deduct the difference between what an ordinary individual taxpayer would pay for the advice and what a trust would pay for comparable advice, Roberts wrote.

In the Knight case, “the trust has not asserted that its investment objective or its requisite balancing of competing interests was distinctive,” Roberts wrote.

Because the trust investment advisory services were not much different from investment advisory services aimed at individuals, the 2000 investment advisory fees are subject to the 2% floor, Roberts wrote.

Charles Winner, a trust and estates lawyer and senior partner at Fisher & Winner in Baltimore, voiced disappointment with the decision, as did a number of other trust practitioners in various blogs.

Winner said the Supreme Court ruling reflects a trend in court decisions that “does not bode well for fiduciaries involved in preparation of fiduciary tax returns.”

In this case, he said, “the recordkeeping that will be required by this decision is an unwarranted expense that will burden beneficiaries.

“There has always been a distinction between the way in which expenses were treated for trust purposes as compared to trust purposes, and it is sad that this distinction is not going to be maintained,” he said.

In other words, he said, the decision, “takes away another tool in a planner’s bag to provide the best services to the trust.”

Courts are taking a look at tax practices and perceiving them as “loopholes,” he said. “But they are not loopholes; they were put there legislatively and they are therefore for the benefit of taxpayers and if the taxpayers had not taken benefit of it, maybe because they were unaware, that doesn’t make it a loophole.”