How much should a trustee be compensated?
How much should a trustee be compensated? Trustee fees vary based on who the trustee is and the complexity of administering the trust. Trustees are an integral part of estate planning — they have a fiduciary duty to distribute assets to the rightful beneficiaries of the trust and also manage the trust’s day to day activities more generally. A trustee’s duties can include filing the trust’s tax return and managing its assets in the least, and for more complex trusts a trustee may even be tasked with making investments or selling real estate. Serving as trustee is a time commitment and carries a lot of responsibility, so it makes sense that a trustee gets paid for their work — similar to how the executor receives compensation handling the deceased’s estate. (Read about the difference between executor and trustee.) Trustee fees can be calculated a few different ways, depending largely on who the trustee is — friend or family, a lawyer, or even a corporation — and what they do as part of managing the trust.
A trustee is paid for their services and reimbursed for any out-of-pocket expenses related to trust management
Trustee fees may be a fixed amount, an hourly rate, or a percentage of the trust assets
The court can help determine trustee fees, including what counts as “reasonable compensation,” if the grantor didn’t specify in the trust agreement
A trustee who fails to perform fiduciary duties may not receive their fees
How much are trustee fees?
Trustee compensation is usually determined by the trustee’s level of experience and the size and complexity of the trust.
|Trustee fees||Type of trustee|
|Percentage of trust assets||Corporate – trust company|
|Hourly rate||Professional – lawyer|
|Fixed amount||Private – friend or family|
With a high-value trust or a complex trust with a variety of assets, the grantor may appoint an institution or company to manage it. These corporate trustees can charge an annual fee of 0.5% to 2% of the trust’s assets, in addition to requiring a minimum. For example, if the trust is worth $2 million, the trustee would receive $20,000 compensation that year.
Fees for managing smaller trusts aren’t calculated by percentage because it could eat up a lot of the trust funds. For example, a 1% fee for a trust that holds $100,000 would be $1,000 annually, and if the trust isn’t producing income then paying the trustee that much a year could make operating the trust unfeasible.
For a smaller trust, you can hire a professional like a lawyer who may charge an hourly rate. Many people opt for a non-professional trustee (like an adult child who isn’t an attorney) if they have a simple trust only meant to pass along an inheritance. Since they may not have many duties beyond distributing assets to beneficiaries, a non-professional trustee may receive a smaller fixed fee, but it is ultimately up to the discretion of the grantor.
What are the trustee’s expenses?
Before the trustee is officially recognized as such and has access to the trust funds, the trustee may end up covering some of the trust’s expenses — like property management fees or insurance with their own money. The trustee will be reimbursed for these out-of-pocket expenses, which can also extend to other costs related to managing the trust, like travel expenses or office supplies.
When and how is the trustee paid?
The trustee receives compensation from the trust assets, and not the grantor directly. Trustees might be paid on an annual, biannual, or even quarterly basis, and it could depend on the accounting schedule. It’s part of the trustee’s job to keep a log of their hours managing the trust and a thorough accounting of the trust’s activities.
Learn more about when the trustee can withdraw money from the trust.
When the court determines trustee fees
The trustor, or person who creates the trust, should specify the fees in the terms of trust agreement. However, it’s possible that the trustor forgets to designate the fee, or they indicate that the trustee should receive “reasonable compensation.” In this case, the court can step in to determine the trustee fees, including what’s considered reasonable, which may be based on the following:
The gross value of trust’s assets
Transactions associated with moving funds in and out of the trust
How much time was devoted to performing trust duties
Whether the trustee met the goals of the trust (like distributing assets or growing investments as specified by the trust document)
State and local law
Here are a few other instances when the court can get involved:
There is a dispute
Beneficiaries can petition the court if they are dissatisfied with the trustee’s job and believe that the trustee has failed to follow its terms. The court may reassess and reduce the trustee’s compensation, and if the trustee misused or even stole the funds the beneficiary has the right to sue for losses.
Learn more about the rights of a trust beneficiary.
The trustee does extra work
Trustees can petition the court if they feel that they have performed difficult work beyond routine management or what’s laid out in the trust. They may be able to receive greater compensation (“extraordinary fees”) for handling “extraordinary work,” which includes handling litigation or business transactions, and they must provide records for the court.
Trustee compensation and taxes
If you’re a trustee, you will have to pay income tax on any fees you are paid for your services. Trustees that are beneficiaries can choose to waive their compensation. A parent may open a revocable living trust to pass along an inheritance to their child and name the child as the successor trustee to take over managing the trust when they die. Receiving assets as an inheritance may not require any taxes to be paid, depending on the structure of the trust.
Read more related articles here:
The 2021 Florida Statutes-Trustee Compensation
Also, read one of our previous Blogs at:
Successor Trustee: Duties, Powers and More
Click here to check out our On Demand Video about Estate Planning.
Click here for a short informative video from our own Attorney Bill O’Leary.