What is a Standard Trustee Fee?

Posted December 8, 2017

Question: What is a Standard Trustee Fee?

If no fee is mentioned in the trust documents, what would be a reasonable amount for a routine administration of the trust (percentage and/or amount)?

Response:

Trustees are entitled to “reasonable” compensation whether or not the trust explicitly provides for such. Typically, professional trustees, such as banks, trust companies, and some law firms, charge a fee of between 1.0% and 1.5% of trust assets per year, depending in part on the size of the trust. They charge a higher percentage for smaller trusts, typically under $1 million, and less on a percentage basis for larger trusts, typically over $2 million, since the amount of work involved is more or less the same no matter the size of the trust. Many also charge a minimum fee to make sure they are paid reasonably for smaller trusts (and to perhaps to discourage smaller trusts entirely).

Standard Fees for Professional Trustees

In the past, professional trustees would often charge a trustee fee of both a percentage of the trust principal and a percentage of the trust’s annual income, in part because trusts often provide that the income and principal beneficiaries are different. For instance, a trust might provide that all of the income be paid to a surviving spouse but that the principal be preserved to pass on to the children upon the spouse’s death. If the trustee fee came solely from the trust principal, the surviving spouse might seem to be getting a free ride if the income stream would not share the expense. Nevertheless, with the decline in trust income due to chronically low interest rates until just recently, it has become customary to charge the fee only to trust principal.

While percentage fees are standard, this can be problematic for smaller trusts. A trust holding $200,000 and paying a fee of 1.5% would pay an annual fee of $3,000, which may or may not cover the trustee’s costs. Some professional trustees charge a minimum of $5,000 a year. In my own practice, where we end up being trustees of last resort for a number of smaller trusts — cases where there’s no appropriate person in the family to act as trustee and the trust is too small to engage a traditional bank or trust company — we charge our standard hourly rates for our work plus 0.5% per year against a minimum of $5,000. For a trust holding $200,000, for instance, the charge would only exceed the $5,000 minimum if the trust administration proved especially time consuming.

Fees Charged by Non-Professional Trustees

Fees are less standard when a non-professional acts as trustee, either on their own or in conjunction with a professional trustee. When the professional trustee is doing most of the heavy lifting, many non-professional trustees, who are often family members, take no fee. However, just as often, they do take a fee, especially if they are not so closely related to the grantor, for instance if they are a niece or nephew.

The standard I’ve seen is 0.25%, which on a trust holding $1 million would be $2,500 a year. When there’s no professional trustee acting, the non-professional trustee can certainly charge a higher fee and can use the professional standards as a guide. However, they should also take into account other trust costs. For instance, professional trustees usually take care of the investments as part of their function. If the trust is hiring an investment advisor, that cost should be considered in determining the trustee’s fee so that together they don’t get too high.

Survey of Professional Trustee Fees

An article published online by Wealth Advisor reports on a survey of the fees charged by national trust companies which are consistent with the information above. Annual fees range from 0.50% to 1.0% of trust assets up to $1 million with minimum fees ranging from $100 to $8,000, most being in the $3,000 range. For the most part, these fees seem not to include investment management, which would then be an additional cost. The trust company with the $8,000 minimum fee is undoubtedly trying to discourage smaller trusts from using its service.