Guidance on Unbundling Trust Fees

By Alistair M. Nevius, J.D.

In February 2008, the IRS announced that for tax years beginning before January 1, 2008, nongrantor trusts and estates would not be required to unbundle their fiduciary fees to determine what portion is subject to the Sec. 67(a) 2% threshold for itemized deductions (Notice 2008-32). The Service has now extended that treatment to tax years beginning before January 1, 2009 (Notice 2008-116).

Prop. Regs. Sec. 1.67-4(c) requires that trust administrative fees that include both unique and nonunique expenses (as listed in the proposed regulation) must be unbundled to identify the amount of each.

Notices 2008-32 and 2008-116 state that for the applicable years investment advisory costs and other costs subject to the 2% threshold that are integrated as part of one fee paid to the trustee or executor need not be unbundled by nongrantor trusts and estates. For tax years beginning before January 1, 2009, taxpayers may deduct the full amount of any bundled fiduciary fee. However, taxpayers must treat payments by fiduciaries to third parties for expenses that are subject to the 2% threshold separately from otherwise bundled fees.

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