Fiduciary Fee Unbundling Rules Delayed Until 2015

Regulations

In response to a comment that the current effective date of the new rules on fiduciary fees does not give fiduciaries enough time to implement them, the IRS amended T.D. 9664 to delay the date. As a result, the new rules governing which costs of trusts and estates are subject to the 2% floor on miscellaneous itemized deductions now apply to tax years beginning after Dec. 31, 2014, rather than to tax years beginning on or after May 9, 2014 (79 Fed. Reg. 41,636 (July 17, 2014)).

Under the final regulations, the portion of a bundled fiduciary fee attributable to investment advice (including any related services that would be provided to any individual investor as part of an investment advisory fee) will be subject to the 2% floor. Bundled fees are fees that are billed together, where a portion is fully deductible and another is subject to the 2% floor. (For a discussion of the new fiduciary fee rules, see Cantrell, “Final Sec. 67(e) Regulations: The End of a Long Journey,” 45 The Tax Adviser 568 (August 2014).)

Under the original effective date, fiduciaries of existing trusts and calendar-year estates would have been subject to the rules beginning Jan. 1, 2015. However, the commenter pointed out that the rules would apply immediately to any nongrantor trust created after May 8, 2014, as well as to the estate of any decedent who dies after May 8, 2014, and any existing fiscal-year estate with a tax year beginning after May 8, 2014. The commenter was especially concerned that the immediate effective date would not give fiduciaries enough time to implement the program changes necessary to unbundle the portion of a fee that was subject to the 2% floor from the portion that was not. Under the new effective date, no taxpayer will be subject to the rules until tax years that begin on or after 2015, which should give fiduciaries time to implement any necessary changes.