Are Trustees Paid? Your Trustee Compensation Guide
- Attorney Staff Writer
- Aug 25
- 5 min read
Serving as a trustee is real work: managing investments and property, filing tax returns, keeping meticulous records, communicating with beneficiaries, and making judgment calls that can carry personal liability. It’s no surprise that most trustees are entitled to be paid. But how much is fair—and who decides?
This guide explains how trustee compensation is determined, typical fee models (with examples), when “extraordinary services” justify more, tax treatment, and best practices to avoid disputes.
What Determines Trustee Compensation?
1) The trust document
Start with the instrument itself. Some trusts specify a dollar amount, a percentage schedule, or say “reasonable compensation.” If the trust sets a method (e.g., “1% annually”), those terms usually control unless a court finds them unreasonably low or high given the work required.
2) State law (the “reasonableness” standard)
If the trust is silent—or permits “reasonable compensation”—state law fills the gap. Courts consider factors like:
Size and complexity of the trust estate
Types of assets (cash vs. real estate vs. private business interests)
Skill required and risk assumed
Time and results achieved
Community custom and published corporate fee schedules
3) Who the trustee is
Individual/family trustee. May charge hourly or a modest flat/percent fee—or choose to waive fees to keep the peace.
Professional trustee (bank, trust company, law firm). Typically follows a published schedule and charges a percentage on a tiered basis, plus out-of-pocket expenses.
Common Fee Models (With Numbers You Can Use)
A) Percentage of trust assets (most common for corporate trustees)
Annual fees often range from 0.25%–1.5%, usually tiered down as the trust grows.
Example (tiered schedule illustration)Assume a schedule of:
1.00% on first $1,000,000
0.75% on next $2,000,000
0.50% on amounts above $3,000,000
For a $5,000,000 trust:
1.00% × $1,000,000 = $10,000
0.75% × $2,000,000 = $15,000
0.50% × $2,000,000 = $10,000Total annual fee ≈ $35,000 (0.70% effective rate).
Why tiering matters: larger trusts can be more complex, but not linearly so. Tiering keeps fees proportional as the asset base grows.
B) Hourly fees (common for individual trustees)
Hourly rates vary with skill and market—often $50–$200+ per hour.Example: An individual trustee logs 120 hours over a year at $125/hour → $15,000. If the trust holds a rental property and a brokerage account, 120 hours can go fast (tenant turnover, tax prep, beneficiary meetings).
C) Flat or project-based fees
For simple, short-term administrations, flat fees can make sense (e.g., $3,000–$7,500 to wind down a small trust that will terminate within a year). Always document the scope.
D) Hybrid fees
A base percentage plus hourly for special projects (or a lower percentage plus a per-asset administration fee for real estate, closely held stock, or limited partnerships).
“Extraordinary Services” That Can Justify More
Even when a percentage or hourly rate is in place, trustees may be entitled to additional pay for work that goes beyond ordinary administration, such as:
Selling or managing real estate (especially multi-state or income properties)
Running a family business, closing a buy-sell, or negotiating a redemption
Complex tax work, audits, or controversy matters
Litigation (defending or prosecuting claims)
Asset recovery or forensic reconstruction of missing records
Example: The trust owns a small manufacturing company. Over 18 months, the trustee stabilizes operations, hires a CFO, prepares audited financials, and sells the company. In addition to the annual base, a court would often approve a supplemental fee for this extraordinary work.
Co-Trustees: Who Gets Paid What?
If the trust names co-trustees, fees can be:
Split (e.g., 60/40 based on workload), or
Paid in full to each only in specific jurisdictions or when the trust/contract says so, or
Adjusted by a court if one co-trustee did substantially more.
Best practice: agree in writing on how duties and fees are allocated when you accept the role.
Professional vs. Individual Trustees: Pros, Cons, and Cost
Professional trustee
Pros: 24/7 continuity, a team (trust officer, tax, investments), risk controls, published fees.
Cons: Higher baseline cost, more formal process and paperwork.
Individual trustee
Pros: Often lower fees, deep family knowledge, flexibility.
Cons: Limited bandwidth, potential bias, steep learning curve (and liability).
Practical approach: Name an individual trustee plus a professional successor (or allow the individual to hire a corporate co-trustee for investments or complex projects).
How Trustee Compensation Is Approved—and Challenged
Notice and disclosure: Trustees should disclose the fee method in advance, then show their time, responsibilities, results, and market reasonableness.
Annual accounting: Include fees on the accounting so beneficiaries have a chance to raise questions.
Court review: If there’s a dispute—or you need approval for a supplemental fee—courts weigh the reasonableness factors and local custom.
Tip: Keep contemporaneous time logs, invoices, portfolio reviews, property files, and email summaries with beneficiaries. Good records justify good fees.
Taxes on Trustee Fees
Taxable income to the trustee. Fees are ordinary income (not capital gains).
Trust deductibility. The trust typically deducts trustee fees as administration expenses (subject to current tax rules).
Self-employment? Independent professional trustees may treat fees as business income; family trustees often report as other income. Work with a CPA.
Drafting Tips: Setting Up Fair Compensation From Day One
If you’re drafting a new trust, consider:
Naming the method: percentage (with tiers), hourly (with a cap), flat, or hybrid.
Defining extraordinary services and the approval process.
Allowing a fee update clause tied to a published schedule or court reasonableness, to prevent under/over-compensation decades from now.
Reimbursement: Make clear that ordinary expenses (CPA, appraisers, property management) are separate from trustee pay.
Successor mechanics: If the trust later hires a professional trustee, allow fees per published schedule.
Case Studies (Putting Numbers to Work)
Case 1: $750,000 revocable trust, now irrevocable (cash & ETFs).
Individual trustee uses hourly rate $110/hour.
First-year work: 140 hours (bank transfers, step-up basis reviews, DOD valuation, 1041 return, beneficiary communications).
Fee: 140 × $110 = $15,400. A comparable corporate tier (say 1.0%) would be ~$7,500 but might add ticket charges or per-asset fees; family opts for hourly given limited complexity.
Case 2: $4,200,000 trust (two rentals + brokerage + LLC).
Corporate schedule (1.0% first $1M; 0.75% next $2M; 0.50% over $3M).
Annual fee ≈ $31,500.
Extraordinary services: one rental rehab and sale add $4,000 supplemental fee (documented scope and hours). Court approval not needed if beneficiaries consent and trust authorizes supplemental amounts.
Case 3: $12,000,000 multi-state trust (private stock + LPs + ranch).
Corporate base: tiered to an effective ~0.55% → ~$66,000.
Outside costs: annual appraisal, tax counsel, environmental review.
Given complexity and liability, beneficiaries view the fee as reasonable compared to family trustee’s bandwidth and risk.
FAQs
Is a trustee required to take a fee?No. A trustee can waive fees, but consider the tax trade-offs and personal time commitment.
Can beneficiaries force a reduction?They can object if fees are excessive. Courts can increase or decrease fees based on reasonableness and results.
Are fees different for special needs or charitable trusts?The standard is still reasonableness, but complexity (government benefits, grantmaking compliance) often supports higher compensation.
The Bottom Line
Trustee compensation should reflect the scope of work, risk, and skill required. The cleanest outcomes happen when the trust is clear, the trustee communicates early and often, and records show the value delivered. Whether the trustee is a family member or a professional office, transparency plus strong documentation keeps fees fair—and relationships intact.