Should Family Member Trustees Charge as Much as Professional Trustees?

 In Revocable Trusts
Family member trustee fee

Photo by Joshua Hoehne on Unsplash

Question:

Is it fair for a family member acting as trustee and property manager to charge the same fees as professionals, considering the potential conflicts of interest and lack of experience in handling complex legal and financial matters?

Response:

Usually not for a number of reasons. First, there are the ones you cite, potential conflicts and lack of experience. In addition, when family members act as trustee they often do so simply as part of what one family member would do for others and don’t charge at all.

Further, there’s no market or usual practice for determining the fees. When banks or trust companies act as trustee they usually charge an annual fee that’s a percentage of the funds under management. Attorneys who act as trustee may also charge a percentage fee, their normal hourly rate or a hybrid of both. In either case, the fees are based on customary fees for such services and it’s possible to shop around and choose a trustee based at least in part on the fees they charge. Neither is the case for family member trustees — there’s no market rate and you can’t shop around.

A trust grantor choosing a family member trustee may be motivated by a number of factors, one of which might be to avoid the cost of a professional trustee. But they may also want the personal touch and privacy offered by a family member and may trust an individual they know more than a professional they don’t know or a bureaucratic institution.

All that said, family members can spend a considerable amount of time acting as trustee and some compensation may be appropriate. But in such cases the general practice is for them to charge less than professional trustees would for all the reasons stated above.

One further point: professional trustees often have expenses that a family member would not, including paying rent, for computer systems and staff salaries. These constitute a further reason that non-professional trustees should charge less.

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