In most cases the language in a Trust simply states that the Trustee shall be entitled to “Reasonable Compensation” without stating a specific dollar or percentage.
All of the following factors shall be considered in determining reasonableness of compensation:
- The degree of difficulty and novelty of the tasks required of the Trustee.
- The responsibilities and risks involved.
- The amount and character of the Trust assets.
- The skill, experience, expertise, and facilities of the Trustee.
- The quality of the Trustee's performance.
- Time devoted to administering the Trust.
- Time constraints imposed upon the Trustee in administering the Trust.
- Nature and costs of services delegated to others by the Trustee.
- The reasonableness of the total fees paid to all Trustees when more than one Trustee is serving.
- Comparable charges for similar services. (e.g. what is the custom in the geographic area where the Trust is being distributed?)
Assuming the Trustee does not delegate substantial duties to an outside paid professional (other than those tasks that would typically be delegated such as preparation of tax returns, legal counsel, investment advisory services, appraisals and other valuations, for example), the term “Reasonable Compensation” is generally determined to be the amount or percentage that is typically charged by a professional bank or other Trust administrator in the same geographic location where the Trust will be administered.
Most professional Trust Companies (Administrators) will typically charge between 1% to 2% for a Trust estate that is settled within one (1) year, or 1% to 2% annually, based on the net value of Trust Assets under Management. This would be a typical benchmark for individual Trustees to base their Trustee fees on and most Courts uphold a minimum annual Trustee fee of 1% to be reasonable by default.
An exception to this might be where the Trust owns real property that stays within the Trust for an extended number of years. It could be that there is a high value property that does not generate sufficient income to justify an annual Trustee fee of 1% to 2%. Think of the home where your minor children are being raised by your named guardian or highly mortgaged investment property with little cash flow. In these cases a separate Trustee fee schedule for managing the Real Estate portion of the Trust assets should be considered, based on the time, skill needed, and other factors relative to the specific property.
NOTE: If the terms of the Trust do not specify the Trustee's compensation, the Trustee may, in the Trustee's discretion:
- Give written notice to all qualified beneficiaries of the proposed payment of compensation if the annual amount of compensation exceeds one percent (1%) of the principal value of the assets of the Trust on the last day of the Trust accounting year.
- In the event any of the qualified beneficiaries of the Trust object to the proposed Trustee compensation, they should be given the opportunity to object in writing within a specified period of time, and state the reasons for their objection. The Trustee may then seek to resolve any concerns privately with the beneficiaries, or may seek other resolutions such as petition to the court or arbitration.
- In lieu of giving written notice of each proposed payment of compensation under subsection (a) of this section, the Trustee may give written notice to all qualified beneficiaries of the amount of compensation to be paid to the Trustee on a periodic basis or of the method of computation of the compensation. The Trustee shall not be required to give additional notice to the qualified beneficiaries unless the amount to be paid to the Trustee on a periodic basis or the method of computation of the compensation changes. Of course, if any qualified beneficiary should object to the stated compensation, it is generally best to resolve this issue with open dialog and communication first, to try and avoid potentially costly litigation.
This memorandum should not be construed as legal or tax advice.