Trust Law/Level II · Do you need one?/2.2 What it costs/Lesson 3
Trustee fees: family, professional and corporate
Who may be paid to run a trust, and how that pay is decided
Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.
The lean path
The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.
- Zero cost: the settlor as trustee of a revocable trust, then a family successor who waives pay; under UTC §708 the document can set or exclude compensation. Catch: an unpaid trustee owes exactly the same duties and liability as a paid one.
- A family fiduciary who is also a beneficiary may prefer to waive pay: fees paid to a personal representative are taxable gross income (IRS Publication 559). Catch: put any waiver in writing and decide it before taking pay.
- Pay by the task, not by the asset: a family trustee can hire an accountant or investment adviser and be reimbursed for proper expenses from the trust. Catch: the trustee stays responsible for choosing and supervising them prudently.
- Use a corporate trustee only where size, duration or family conflict justify an annual percentage fee and minimum; Maine’s UTC §708 allows a percentage fee only if reasonable. Catch: get the full written fee schedule, since minimums weigh heavily on small trusts.
- Settle or adjust trustee pay without court through a nonjudicial settlement agreement among interested persons (UTC §111). In England and Wales, lay trustees get no statutory right to pay (Trustee Act 2000 ss.28-29). Catch: such agreements must fit terms a court could approve.
MaterialsA published fee schedule from a bank or trust company, if you can find oneThe Uniform Trust Code, sections 708 and 813 (free on the Uniform Law Commission website), or your own state’s versionA sample professional fiduciary engagement letterTrustee Act 2000 (England and Wales), sections 28 and 29, on legislation.gov.uk
Wonder
- Is my family member allowed to charge themselves for managing the trust?
- What does ‘reasonable’ actually mean when a court decides a fee?
- Why do corporate trustees charge a percentage of assets rather than an hourly rate?
Explore
- In the US, the Uniform Trust Code (UTC), approved in 2000 and enacted in some form in about 36 states plus the District of Columbia, sets a default rule in section 708. If the trust document says nothing about pay, a trustee, including a family member, is entitled to compensation that is reasonable under the circumstances. If the document sets the pay, that governs, though a court may allow more or less if the duties have changed substantially or the set amount is unreasonably low or high. Some family trustees choose to waive pay. Check your own state’s statute.
- Professional fiduciaries are individuals or firms paid to act as trustee. Their fees are usually set out in an engagement agreement or fee schedule before they start, and must still be reasonable. Under UTC section 813, a trustee must tell qualified beneficiaries in advance of any change in the method or rate of its pay, and its regular reports must show the source and amount of that pay. If a trustee charges too much, a beneficiary can ask a court to review it. Like any trustee, a paid one owes duties of loyalty and prudence.
- Corporate trustees, such as banks and trust companies, commonly charge an annual fee based on a percentage of the assets they manage, and many set a minimum annual fee. The link to asset size means the fee rises and falls with the trust’s value, and a minimum can weigh heavily on a small trust. Some charge extra for tasks such as managing real estate or preparing tax returns. Actual rates vary widely by institution, place and trust size; ask for the full written fee schedule.
- In England and Wales, the old rule was that trustees served unpaid unless the trust allowed pay. Under the Trustee Act 2000, section 28 lets a professional trustee be paid under a charging clause even for work a lay trustee could do. Section 29 covers trusts that say nothing: a trust corporation (other than for a charitable trust) is entitled to reasonable remuneration; an individual professional trustee is entitled only if every other trustee agrees in writing, and not as sole trustee. Lay trustees get no right to pay from the Act.
- ‘Reasonable compensation’ is not a fixed number. In the US, the official comment to UTC section 708 lists factors such as local custom, the trustee’s skill and experience, the time spent, the size and character of the trust property, the difficulty and risk of the work, and the quality of the trustee’s performance. Trustees can also be reimbursed for proper expenses. Under UTC section 813, current beneficiaries are generally entitled to reports at least annually, including the trustee’s pay, unless the trust terms or state law say otherwise.
- Costs vary widely by place and complexity, so look at the actual terms rather than averages. Check what the trust document says about pay, what your state’s law adds, and whether a professional’s fee schedule includes minimums or extra charges. In England and Wales, trustees of charitable trusts are treated differently under the 2000 Act. Pay that is unclear at the start is a common source of disputes later, so it helps for the settlor, trustee and beneficiaries to understand the arrangement early.
Key facts
- Under Uniform Trust Code §708, if the trust terms do not set the trustee’s pay, a trustee is entitled to compensation that is reasonable under the circumstances.
- In England and Wales, Trustee Act 2000 s.29 entitles a trust corporation (except for a charitable trust) to reasonable remuneration even if the trust instrument is silent.
- US corporate trustees commonly charge an annual percentage of trust assets, often with a minimum annual fee; rates vary widely by institution, place and size.
- Under UTC §813, a trustee must tell qualified beneficiaries in advance of any change in the method or rate of its compensation.
- Trustee Act 2000 s.29(3) defines reasonable remuneration as what is reasonable in the circumstances for providing those services to that trust by that trustee.
- Under the Trustee Act 2000 s.29(2), an individual professional trustee is paid without a charging clause only if each other trustee agrees in writing, and not as sole trustee.
Exercise nine, six, three, one
9CollectGather up to 9 examples of how trustees are paid, from published fee schedules, trust documents you have access to, or court and bar association guides, noting the place and year of each.
6ClusterSort the examples into 6 categories: percentage of assets, minimum annual fee, hourly rate, flat fee per task, extra charges for specific work, and unpaid or waived.
3DistillReduce the 6 categories to 3 core principles that explain why some trusts cost more than others in terms of labor and asset value.
1CrystallizeWrite 1 sentence summarizing how ‘reasonable compensation’ balances the trustee’s effort against the beneficiary’s interest.
Fact check
Dates, figures and claims checked against the published sources listed below.