When are Trustee Fees Paid?

 In Revocable Trusts, Trustee

Question:

When are trustee fees normally paid? (i.e. end of year, beginning of year, prorated monthly?)

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Response:

There’s no hard and fast rule, but often trustee fees are paid semiannually. For instance, if the fee is 1 percent of the assets in the trust, it might be paid half on January 1st based on the December 31st value and half on July 1st based on the June 30th value. If the end of year value of all the assets in the trust was $500,000, the trustee would receive $2,500 at that time. If the value increased to $550,000 on June 30th, then the next payment would be $2,750.

 

Related Articles:

How Much are Trustee Fees for a Larger Trust?

What is the Tax Treatment of Trustee Fees?

Can a Neglectful Trustee be Denied his Fees?

What Will an Institutional Trustee Charge for Closing our Trust?

Is My Trustee Overcharging?

Showing 13 comments
  • Dave
    Reply

    I have managed a trust for 7 years and I am preparing to liquidate the assets and ensure the benefactor receives his inheritance. The liquid assets are $950,000. In the trust, it states that I should be paid but does not state the amount. Your thoughts?

      • Harry Margolis
        Reply

        Dave,
        While I can’t be definite without seeing the trust itself, I’d be inclined to think that all of the named beneficiaries should receive an equal share. Would you be able to share the actual language of the trust regarding distributions?
        Harry

          • Dave
            Reply

            There is only one beneficiary. He will receive everything minus whatever I am paid. I am not sure what I should charge. I was responsible for ensuring all bills were paid including the live in nurses.

        • Sarah
          Reply

          Harry, I began acting as successor trustee for my Grandfather’s living revocable trust as of May. Compensation language is pretty standard (average rate of professional corporate trustees, plus mileage and other travel expenses). I am not an attorney or tax professional and what I can gather is anywhere between 0.25 and 1.5% annually of the total trust assets. Is that reasonable? Also, how would I pay myself from his trust, if I am the POA? Thank you for your help and advice.

            • Harry Margolis
              Reply

              Dear Sarah,
              You can pay yourself as trustee. It’s hard to say what the appropriate fee should be not knowing the size of the trust or your actual duties. Certainly anywhere from 0.25% for a larger trust to 1.5% annually for a smaller trust would be within the range. However, if you are also paying someone else for investment management, that should be factored in. The best approach would be to discuss it with the parties at interest, the beneficiaries, and agree on a reasonable fee. If they accept the fee schedule in advance, then they can’t very well question it down the road.

            • Kimberly Goodman
              Reply

              In addition to the bank accounts/financial assets (apprx 620k) in my parents trust, which are to be divided equally between the 4 of us- the trust also includes a life estate for my middle sister (who lived with & cared for my parents for many years) allowing her to continue to live in my parents (trust owned) home. The trust does not specify how the trustee (an attorney) is to be paid, other than the general wording you mention. My brothers think my sister should have to pay the ongoing fees associated with the life estate from her portion of the financial assets she receives or she should buy the house with them.
              My sister feels that the fees should be estimated and set aside before the financial assets are divided out, or that she should be named trustee of her own life estate so there is no need for additional payments to a trustee.
              I just want to do whatever is most fair and/or customary in this situation.

              What resolutions are available to my siblings and I?

                • Harry Margolis
                  Reply

                  When only real estate is held in trust, coming up with funds to pay the trustee can be difficult unless the property is producing rental income. I like two of the solutions you suggest and dislike two. I think it makes sense for your sister to pay the trustee a reasonable fee or for her to serve as trustee, as long as the other three are comfortable with her serving in that role. I don’t think it’s fair to ask your sister to buy the house from the trust because that would deny her the benefit your parents intended that she receive. On the other side, it doesn’t seem totally fair that everyone participate in paying the trustee’s fee when your sister gets most of the benefit of the trust during her life. On the other hand, it’s also not totally unfair for everyone to contribute since the rest of the family gets the benefit of the trustee watching out for their future interest.

                  Here are two other possible solutions: If you’re not all comfortable with your sister serving as trustee, what about her serving as co-trustee with another sibling? To the extent this puts an unfair responsibility on that sibling, you could agree to rotate in and out of this role every five years. Another solution would be for your sister to buy you all out, but the buy out would be based on the value of your remainder interest — your right to receive the property upon your sister’s death. The IRS provides tables for this valuation based on your sister’s age and life expectancy, the older she is, the shorter her life expectancy, and thus the greater the value of your remainder interest.

                • Steve
                  Reply

                  My sister is the Trustee and no fee has been stated. My sister kept the trust going for two years to benefit herself, didn’t take a fee to avoid raising her income and now that the trust is closing she wants to be paid which is fine with all beneficiaries. However she feels it was a full time job and should be paid like a full time job. She has no experience and hasn’t held a job in almost 10 years. The value of the trust is about 800,00. She did the basic trustee things when a Trustee first becomes Trustee regarding closing accounts, taxes but no investing. She has only given trust accounting when asked and then it was limited in info. She works very slow and makes 10 phone calls to information that most people would make one call to get info. The trouble is she feels she should be paid about 30,000 for the two years according to the hours she has tracked. She legally has a right to be paid but how does someone calculate the term “resonable fees”?

                    • Harry Margolis
                      Reply

                      To quote my response to a similar question: This is always difficult because people don’t always agree on what needs to be done, who needs to do it, or how much they should be paid. If a trustee or beneficiary is to be compensated at the same rate as someone you hired, why not just hire someone to take care of the necessary tasks?
                      If your sister were charging a more standard fee of 1% per year, she would be due $16,000. So the debate is over the remaining $14,000 which she might share in paying if she’s also a beneficiary of the trust. She should also be made aware that this is taxable income to her, though it sounds like she pays little or no taxes. Perhaps you can all come to a compromise and pay her somewhere between $20,000 and $25,000, maybe more than she should be paid but not that much more. Fortunately, she’s not asking for an outrageous fee of $50,000 or more.

                    • John
                      Reply

                      I manage an irrevocable trust for my friend who is the beneficiary. She had accepted for me to pay in advance up to around 30K for years because she signed every year the excel sheet where I would show the advance fee. Which would be around 1 years of fees but then the trust got reduced to half and I still advance at around 30K which would be two years. Now she claims she never authorized it even though she signed every year, she got upset and said she never and so on, actually she wrote an email saying that maybe she did authorize it but then argued not for two years in advance, and then after the argument asked me to resign. I am writting a promissory note for the fee but should I be concerned she might do something down the line?

                        • Harry Margolis
                          Reply

                          John,
                          The fact that you have your friend’s written authorization of your fees should be sufficient to protect you from any claim by her. It sounds like your fees are not out of line. But you do need to make sure that you and she are on the same page going forward and have that written down as an agreement. In addition, I always take the position that I don’t want to serve as trustee for anyone who doesn’t want me in that role and am always ready to resign if there’s a qualified trustee to take my place. It’s important that there be confidence and a rapport between the trustee and the beneficiaries. In addition, life is too short to continue to spend time and energy in a difficult situation of it’s unnecessary.

                        • Laurel
                          Reply

                          I’ve been the successor trustee for 6 years, as my mom was in memory care. She has 4 rentals in the trust that has paid her bills, along with her social security. I have managed the trust, been her general and medical POA, managed her rentals, and performed major maintenance repairs on them, with my husband’s help. I never charged the trust anything during this time, as I wanted to make there would be sufficient funds for her care. She died of COVID-19 in April. There are 4 beneficiaries of the trust, including myself. I always gave quarterly financial reports to the family. The total value of the trust after the sale of the rentals will be approximately 800k. Since I haven’t reimbursed myself for anything yet, including what I’ve had to do to sell the rentals and settling the estate, can I take out of this amount and reimburse myself for the last 6 years? It’s been really rocky with one sibling in particular (my sister), and I have been told by the lawyer that to keep peace in the family, to just ask all the beneficiaries if they would like to give me a gift for all my work from their portion so it wouldn’t be tax deductible. My sister has already said no way, because she visited mom once a week and never got reimbursed (I also visited and took supplies for her, as would any child). She and her husband have been trying to get me out of this position as trustee since mom died, even threatening my life 3 times with a bullet between my eyes, which we had to go to court over for a restraining order. She bilked my mom out of so much money over the years before mom died. She has another beneficiary under her influence too ( my dead brother’s son). The other beneficiary (my other brother) is feeling like I should get compensated entirely as stated in the trust. Is it too late to reimburse? The lawyer makes it sound like it’s too late, since I didn’t take reimbursement every year, and he is primarily focusing on compensating after death, and only at $25/ hr. Thanks for your time and answer. I know this is a difficult situation.

                          • Disclaimer: I understand that by asking Harry a question, I am not creating an attorney-client relationship or receiving legal advice. Any question I submit will not be treated as privileged or confidential and may be posted along with its response on www.AskHarry.info so others with similar issues can benefit from the response. However, my name, e-mail and city will not be posted or made public in association with the posted question and response. I understand that Harry may not be able to respond to my question at all, but if it does he will do so in a general matter on which I cannot rely as legal advice. If I want a specific legal response and guidance, I will seek independent legal counsel from an attorney duly licensed in my state.
                          • Harry Margolis
                            Reply

                            Laurel,
                            This is a difficult situation and I would defer to the lawyer on the scene, except for one thing. I’m a bit uncomfortable with a “gift” as compensation for your work. It’s either one or the other, and in the latter case should be taxable. But I do have one other idea in terms of your fee. You may be able to go to court to ask for instructions with regard to an appropriate fee for your services, giving notice to your three siblings. Then they could either object or support your petition and your sister would be unable to challenge the court decision without going to a higher court. Your lawyer can advise you whether this approach is available in your jurisdiction.

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