What Is Reasonable Trustee Compensation?

By Ronna L. DeLoe, Esq.

What Is Reasonable Trustee Compensation?

By Ronna L. DeLoe, Esq.

When setting up a trust as part of your estate plan, you may get advice not to use a family member as trustee or successor trustee because it could be overwhelming for them. Other people may suggest using a family member to save money. Still, others suggest using a corporation, trust company, or law firm as your trustee.

Regardless of your choice of trustee, they should be compensated for their services.

A Trustee's Right to Compensation

The law gives trustees a right to compensation. Courts don't expect people to assume the burden of administering a trust without being paid. Many states give a trustee the right to "reasonable compensation." What is reasonable compensation, though, is sometimes left to the courts to interpret.

A trustee—or successor trustee, if you're the original trustee—will administer the trust upon your passing under the trust agreement that created the trust. A lot of work could be involved, although the trustee may not need to do anything until your passing. It may seem unfair to pay the trustee for doing nothing in years when they aren't administering the trust, but you can list the terms of compensation in the trust agreement. For example, the agreement can allow compensation when the trustee, or successor trustee, actively administers the trust, and not before then.

Trustee Compensation Amount

If nothing in the agreement covers trustee compensation, trustees will look to state statutory law or case law to see what compensation they're allowed. Some states specify the amount. For example, in New York, without anything being listed in the trust agreement, compensation is calculated in a structured way that is rather complicated. As of 2020, the yearly fee schedule provides for:

  • $10.50 for each $1,000 of the initial $400,000 of trust principal
  • $4.50 for each $1,000 of the following $600,000 of trust principal
  • $3.00 for each $1,000 of the remaining trust principal

This compensation schedule is tricky to figure out, so it's helpful to have a trusts and estates attorney calculate it for you.

Many states only require "reasonable compensation" without explaining what that is. However, if you want to use a trust company or some other type of corporation, they may not want to administer the trust without a minimum payment guarantee.

Fair and Reasonable Compensation

Fair and reasonable compensation to a trustee takes several factors into account if the amount isn't itemized in the trust agreement. Additionally, just because you name a family member to administer the trust doesn't mean you don't have to pay them. They can bring a court case for compensation if there's no payment arrangement. Whoever you choose as trustee or successor trustee, they're going to require payment for their services, even if they're family.

Reasonable trustee compensation is usually based on several factors, such as:

  • Amount of time to properly administer the trust
  • How difficult the trust is to administer
  • How much money is in the trust
  • Skills the trustee needs to administer the trust properly
  • Whether administering the trust prevents the trustee from taking other employment
  • How well the trustee is doing their job administering the trust
  • What fees an estate pays to trustees in the area
  • What fees an estate pays to trustees and executors of wills in your area, for comparison purposes
  • Whether the trustee needs additional resources to hire accountants, lawyers, and other experts

Percentage or Hourly Rate?

In many cases, unlike the structured fee in New York, a reasonable amount is 0.5%, 1%, or 1.5% of the total value of the assets. The trustee receives the fee annually and should not defer taking it or a court may find that they've waived it. While professional trust companies often charge more than other trustees, compensation is usually between 0.5% and 1.5%, with the fees occasionally being up to 2% per year.

It's better to pay the trustee a flat rate rather than an hourly rate in most cases, but this is usually decided on a case-by-case basis. Still, if the trustee believes the compensation isn't sufficient, they can bring a case in court to request additional compensation. Likewise, if the beneficiaries feel the trustee is getting too much money for only a little work, they also can bring a case to court to reevaluate the compensation.

There's no one size fits all when it comes to reasonable trustee compensation. State law governs in cases where payment isn't included in the agreement, but each state has different laws, and what's reasonable in one state may be unreasonable in another. When in doubt, contact an attorney for assistance.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.