Is a Trustee Entitled to Compensation?

 In Trustee

Photo by Helena Lopes on Unsplash

Yes, trustees are entitled to be paid. After all, they perform important services with a high degree of responsibility and potential liability. Nevertheless, when family members serve as trustees they usually do not charge a fee.

Professional trustees, whether banks, trust companies or attorneys, usually charge a percentage of the funds in trust as their annual fee. This is usually in the range of 0.8 % to 1.5%, often with the percentage fee being higher for smaller trusts and lower for larger trusts. Often, trustees also charge a minimum fee, which can effectively increase the percentage rate. For instance, if the minimum fee is $5,000 a year and the trust holds $200,000 in assets, then the effect rate will be 2.5% per year. Over time, this could erode the trust principal.

When considering trustees, it’s important to ask what other costs might be involved. The biggest potential cost is often fees for investment management. Depending on the trustee, this might be included in trustee fee or other additional charge. When a bank or trust company is serving as trustee, it’s likely that there’s no additional investment fee. On the other hand, an independent trustee, such as an attorney, may not have the necessary investment background and may hire outside investment advisors at a cost to the trust, pushing up the full trust administration expenses.

This is also true of family member trustees who may not charge a fee themselves, but very well may want outside investment management. They might also call on more legal and accounting assistance at some cost to the trust. In some instances, family members do ask to be paid or a trust grantor sometimes feels it’s only fair that they receive some compensation. In such cases, we typically see either a smaller percentage fee, often 0.25% to 0.5% depending on the size of the trust, or a flat amount, perhaps $5,000 a year, again depending on the size of the trust.

What sometimes becomes problematic when family members serve as trustee is that they don’t charge a fee for many years and then reflect back on all the work they’ve done and request back payment. This often occurs when a parent passes away and it’s time to distribute the trust assets. The problem is that by not charging an ongoing fee, the trustee has created an expectation that they won’t charge for their services. To disrupt that expectation can create bad feelings. Still, it’s best in these cases to come to a compromise, paying the family member trustee something for their efforts, but not so much as they would have received had the billed on an annual basis. It’s even more important that the family member in these instances charge less than a professional trustee would charge since had the grantor known about the fee they may have chosen to hire a professional trustee or have appointed another family member to the role.

If you are a family member receiving compensation for serving as trustee, remember that you are earning this fee and must report it as taxable income.

Related Articles:

Can a Trustee be Paid as a Gift and Not Incur Income Taxes?

What May a Family Trustee Charge for a Very Simple Trust?

What Would a Bank Trustee Charge for a Simple Trust with Quarterly Distributions?

Is My Trustee Overcharging?

What Should I do About a Trustee Who is Overcharging Me?

Showing 2 comments
  • Elizabeth A. Sims

    Does a stock broker, who is liquidating the stock and cash for a Trust and Estate, receive a fee for service in addition to his commission for the sale of stock? We are liquidating a Testamentary Trust and an Estate. My sister is the Executrix and the Trustee. She want to pay the broker for his services. Is this customary?
    Thank you!

    • Harry Margolis

      No, that’s not customary. These days few investment professionals identify themselves as “stock brokers.” Instead, they are often considered “financial advisors” even if they work for traditional investment companies such as Merrill Lynch. Typically, they charge percentage fees based on funds under management or there are fees within various investment products. The latter are often hidden and hard to discern. With the advent of low- or no-commission brokerages, fees for trading stocks are now virtually nonexistent. This is probably why your sister feels it would be appropriate to compensate the individual assisting her in liquidating the stock holdings in the estate and trustee in question. There’s nothing wrong with doing so, but financial and investment advisors now often provide this service as a “value added” hoping that by developing relationships and providing good service the result will be more long-term work in the future. Sometimes this works out for them and sometimes it does not.

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