Compensation for the Non-Professional Trustee: What is Reasonable?
Contributed by Josh Yager, Managing Partner, Anodos
If you have been appointed as a successor trustee, you generally have the right to be compensated for the time you spend managing the trust. Yet most trust documents do not provide guidance for determining the trustee compensation. Often trust documents simply say, “the trustee shall be paid a reasonable amount”.
It is the author’s experience that whatever the trustee determines to pay themselves, the beneficiaries feel it is excessive, and invariably the trustee feels it is not enough. As you consider how to calculate compensation, here are a few observations based on extensive experience:
A non-professional successor trustee should not expect to be paid as much as a Bank Trust Company or other professional fiduciary to administer the trust.
A trustee with special skill, expertise or experience that directly relates to the administration should expect higher compensation than a trustee without these skills.
An hourly rate for a trustee is a reasonable approach for compensation if the trustee is efficient with their time, and the hourly rate is not unreasonably high.
Where the trustee is a CPA or attorney with an established professional hourly rate, it is not always reasonable to rely on this rate. The issue turns upon what is reasonable for the trust to pay, rather than what rate the professional serving as trustee routinely charges, unless the trust specifically allows the established rate.
The more risk that the trustee faces as part of the administration – multiple beneficiaries, complex assets, large values, pending or existing litigation, etc. – the more they should be paid. Fees early in the administration likely differ than those toward the end.
Some counties provide guidance in the local rules of court as to what a “reasonable rate” is.
It is not necessarily true that if a 1% fee is reasonable for probate administration, a 1% annual trustee fee is also reasonable. Probates need to be closed within a year, and a statutory fee for a personal representative is the total compensation to complete the probate and should not be read as an annual rate.
A caveated rule of thumb – knowing nothing about the particulars of a case – is that a non-professional successor trustee can reasonably be paid about 0.50% of the trust estate on an annual basis, so long as the administration is not unreasonably delayed. This rate is simple to calculate and takes into consideration that additional fees that will be charged by the CPA, attorney, property manager, bookkeeper, investment advisor, appraisers, etc.
Josh Yager, Esq., CFP®, ChFC®, CLU®, i is a recognized content expert on the issues of fiduciary duties relating to the management and oversight of trust assets. He lectures extensively on the policies and procedures for conducting investment manager audits to CPAs, attorneys, and professional fiduciaries throughout the country. Josh is Managing Partner at Anodos and a licensed attorney. Prior to founding Anodos in 2005, Josh worked for fifteen years as an investment advisor with Mercer Advisors.
