Nearly every trust has a trustee and that trustee gets paid a fee for services from the trust. The most common range for such a fee is .5% to 1% or more of the trust’s asset value. So, if a trust has $1,000,000 in assets, the trustee fee would typically be $5,000 to $10,000 annually. And of course, trustee fees can be negotiated downward if the assets of the trust are significantly more.
Milton Hershey had something in mind when setting the trustee fee for his Milton Hershey School Trust and his M.S. Hershey Foundation. If you’ll recall from an earlier blog, I’d mentioned that Mr. Hershey wholly owns the trustee, Hershey Trust Company. So in 1909, when he creates the Milton Hershey School Trust and names the Hershey Trust Company as its sole trustee, his Deed of Trust, stipulates a fee. It states the, “Trustee shall be paid a fee of 5% of the income of the trust, not to exceed $1,000.” Then in 1935, when he creates his charitable foundation, The M.S. Hershey Foundation, and names the Hershey Trust Company as its sole trustee, he stipulates the exact same fee arrangement.
Now, both of these trusts, even in the beginning, have significantly more than $1,000,000 in assets. So why does he do this? I believe because he wanted the money to stay within these two charitable trusts as opposed to being spent on management and administration. If you think of the Milton Hershey School Trust today, with more than $10 billion in assets, a normal trustee fee could easily be in the tens of millions of dollars, thus reducing resources meant for the beneficiaries: the children. So again, he was very smart.
However, this does create some hardship for the trustee, Hershey Trust Company. From the company’s perspective, they are managing and administering a multi-billion dollar trust and only getting paid a collective $2,000 annually for their services. This was true when Mr. Hershey created these two trusts and is true today.
So what does Hershey Trust Company do? It needs to hire skilled investment professionals, accountants, etc. to be able to perform as trustee. It must pay rent for its offices, utilities, and so on. Throughout Mr. Hershey’s lifetime and through the next 100 years, Hershey Trust Company had a private wealth business. This business made perfect sense, because of the synergies of running this business as well as Mr. Hershey’s trusts. They both required the same types of skilled professionals, same systems, etc.
The pressure was then on the leadership of the Hershey Trust Company to grow the private wealth business to a profitability level sufficient to provide the management and administration of Milton Hershey’s charitable trusts for only $2,000 per year.