Impact of the Supreme Court Decision Subjecting Fiduciary Investment Advisory Expenses to the “2% Floor”

February 18, 2008

On January 16, 2008, the United States Supreme Court decided Michael J. Knight, Trustee v. United States and held that fiduciary investment advisory fees are subject to the “2% floor” of section 67 of the Internal Revenue Code. The decision marked the end of 17 years of litigation over an issue of great importance to fiduciaries.

McGuireWoods partner Ronald D. Aucutt has prepared an outline on “Trusts and the 2% Floor.” The outline recounts the history of the 1986 legislation, summarizes the ensuing litigation, analyzes the meaning and impact of the Supreme Court opinion, and offers suggestions for the regulations being prepared by the Treasury Department. The outline also offers suggestions for fiduciaries in responding to the Supreme Court opinion now and anticipating the regulations going forward. In discussing the preparation of 2007 income tax returns, the outline agrees with the many observers who have concluded that it is unnecessary to “unbundle” unitary fiduciary fees to identify investment advice components that might be limited by the 2% floor.

McGuireWoods Fiduciary Advisory Services

McGuireWoods Fiduciary Advisory Services assists financial institutions in a wide array of areas in which questions or concerns may arise. This includes advising corporate trustees on how to avoid litigation before it arises and how to address litigation when it does arise.