Trustee Fees – Top 5 Things You Should Know

If you serve as trustee for a friend or family member, you understand how much work can go into the role. There are meetings with lawyers, accountants, and financial advisors, communications with beneficiaries, and possibly even hard assets like real estate to oversee. That does not include the ongoing headache of the responsibility associated with the role and the ever-looming possibility of liability if things go awry.

It is so much work that you should get paid for it. People are sometimes surprised when I advise them that they can be compensated for their work. “Wait, you mean I can get paid for this?” is a popular refrain when trustees realize that they can receive compensation for their role. That can often change the playing field. However, how much to get paid is another matter entirely, and it depends on what the trust says and the state laws that apply to the trust. Trustees should not make up a number on their own. They need to consult with an attorney who is familiar with trust administration. Hether Cahill, a probate litigator in Massachusetts, says that “trustee fees are often litigated because they appear unreasonable on their face, leaving beneficiaries wondering if the fees are appropriate and justified.”

Here is what you need to know to ensure a smooth administration and avoid pitfalls arising out of trustee fees:

1. Professional fiduciaries such as trust companies or banks with trust departments are often compensated based on a set fee schedule of assets held in the trust. Lawyers and accountants who serve as trustees may use a set fee schedule or will bill based on an hourly rate for what they typically charge in their professions. If you are an individual serving as trustee for a friend or family member, you will not have a set fee schedule or a usual hourly rate.

2. The trust document may set the amount you can charge or guide you on how to calculate your fee. You should read the trust and consult an attorney to advise you on what you can charge. Remember, you can get your legal fees paid from the trust assets.

3. If the trust is silent regarding to trustee fees, you will need to analyze the laws of the state that controls the trust to determine how trustee fees are determined under that state’s laws. New York, for example, has a statutory fee schedule of what trustees can charge based on assets held in the trust.

4. Some state laws concerning trustee fees are based on prior cases that have been decided in the court system. Trustee fees in Massachusetts, for example, are based on a reasonable standard. Determining a reasonable trustee fee in Massachusetts is typically based on an hourly rate of the actual time spent acting as trustee. The amount charged per hour needs to be reasonable, and the preferred method for tracking the number of hours spent is to keep contemporaneous records of your time. The best practice for determining your trustee fees in Massachusetts is to keep track of the hours you spend working as a trustee and then multiply the hours by a reasonable hourly rate.

In Florida, if there is no agreement as to how a trustee will be paid, a Trustee is entitled to compensation that is “reasonable under the circumstances.” Michael Wargon, a trusts and estates attorney in Florida, explains, “As you might expect, different factors are typically taken into consideration, including the nature of the assets, risk assumed, time involved, etc. Some trustees will charge a percentage of the trust assets under management (1-2%). Some professionals (like attorneys) may charge their typical hourly rates when performing trust administration tasks. Fixed fee arrangements are rarer but may make sense for a trust that doesn’t require consistent attention.”

5. If you are concerned about the amount of trustee fees you are taking, you can always seek approval from the court or the beneficiaries. This could include asking the beneficiaries to approve the trustee fees or seeking court approval of the trustee fees

Being a trustee is a lot of work. You should get paid for it. Once you get paid, don’t forget that payment for work is income, and you will need to report it on your yearly income tax return.