A trustee and an agent under a power of attorney are fiduciaries, meaning they are obligated to act honestly and ethically in the best interests of the person granting the power. Acting as someone's trustee or agent (also called an attorney-in-fact) is a great responsibility, and can be a fair amount of work depending on the circumstances. For this reason, trustees and agents are entitled to some compensation for their work. If the agent is a professional fiduciary, they usually set forth a fee structure for their work. But often, an agent is a family member, like an adult child. Under those circumstances, how much is it appropriate to pay one's agent?
As a general rule, it's best to provide for compensation in the document creating the trust or agency relationship. Michigan law provides that a trustee or an agent is entitled to "reasonable compensation" if provided for in the trust or power of attorney documents.
What is reasonable depends largely on the geographic area in which the principal, trustee and agent reside, and the nature of their relationship. In Wayne County, Michigan, for instance, professional trustee companies might charge a fee between 1% and 1.5% per year of the assets managed. A personal representative of an estate who is not a professional might reasonably be paid $30-$40 per hour for their time spent on behalf of the estate. Paying a family member serving as an agent is a little trickier.
Let's say that person is paying your bills, doing your banking, and in general, managing your finances. They might also be helping you with transportation or personal care. A good place to begin in determining reasonable compensation is with what you might have to pay a non-relative to do those things. That's challenging, because there is not really an analogous job whose salary or hourly rate you can check and then use as a guide. Furthermore, even if there were such a job and wage, the reality is that most family members would be willing to help you for less.
If you are considering paying your agent, say, $40 an hour for five or six hours per week for managing your finances and helping you with personal care, try to view this through the lens that your other children might use.
Then there is the question of who might be concerned about what you are paying your trustee or agent. Let's say you have three children and ask the one who lives nearest you to be your agent. The funds you use to compensate him or her may be seen by your other children as depleting their own future inheritance.
If you are considering paying your agent, say, $40 an hour for five or six hours per week for managing your finances and helping you with personal care, try to view this through the lens that your other children might use. While you might see this as an opportunity to reward a faithful, helpful child, you might also be sowing the seeds of resentment in your other children. This could cause a rift between them and their sibling long after you are gone. That is a high price to pay for the opportunity to reward one child financially.
As with many things in the realm of family finances, communication up front can solve a multitude of problems. Choose an amount of compensation that seems truly fair and reasonable to you, and then, if possible, explain to all your children how you arrived at that amount. If you can't justify it to yourself, chances are you won't be able to justify it to them or anyone else, either.
And who else might be interested in how much you paid an adult child for their services on your behalf? Your state Medicaid agency.
You might not need Medicaid now. But if you ever need care in a nursing home, you probably will. Nursing home care is very costly, in some cases $100,000 per year or more. Few families can bear such an expense for long without help. That is where Medicaid comes in: if you have less than a certain amount in assets and monthly income, you may be eligible for Medicaid to pay for some of your care.
There is a catch, however. In order to prevent people from transferring those assets to loved ones in order to become Medicaid eligible, Medicaid uses a five year "look-back" period to determine eligibility. Assets transferred for less than their fair market value, or payments made to family members for providing services (and even non-family caregivers), could cause you to be denied benefits, or have your eligibility delayed. This could be disastrous if you have no other means to pay for needed nursing home care.
In order to avoid this outcome, there are certain things you should do to establish that payments you make to a family member (and even non-related caregivers) are legitimate payments for services, and not gifts. One of these is to have a written, notarized contract outlining services to be provided, and the rate of payment, before services are performed or payment is made. It is also wise to have documentation from a doctor, if possible, that the services being provided are such that they are enabling you to stay out of a nursing home.
The last thing you want is to set up an arrangement with your agent and find out too late that it will jeopardize your chances of qualifying for Medicaid. To prevent this from happening, consult with an experienced Michigan elder law attorney who can help you determine reasonable compensation for your agent or trustee and draft all the documents you will need to protect your interests.
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