Determining Reasonable Trustee Compensation When the Trust Is Silent

When a loved one names you as trustee, you may feel honored yet apprehensive. You want to fulfill the grantor’s intentions faithfully and avoid disputes, but you also don’t want to work for free. Many trust agreements specify how much the trustee should be paid, often referencing a fee schedule or percentage. Others are completely silent. In those cases, how do you decide what constitutes reasonable trustee compensation? With no guidance from the trust document, trustees and beneficiaries must look to state law, court decisions and industry practice. This article explains the framework courts use to determine fair compensation when the trust is silent and offers practical advice for trustees and beneficiaries navigating this delicate topic.

The Legal Backdrop for Reasonable Trustee Compensation

Every state has statutes governing trustee compensation. Some, such as New York, provide a detailed sliding scale based on the value of the trust’s principal; others, like California and most of the Mountain West states, require that the trustee receive “reasonable compensation” without defining the term. Under these reasonable‑compensation regimes, courts weigh multiple factors to arrive at a fair fee. While the specific factors can vary, the guiding principle is that the trustee should be paid commensurate with the work performed, the complexity of the trust and the results achieved for the beneficiaries.

Courts frequently draw on the Restatement (Third) of Trusts, treatises like Bogert’s Trusts and Trustees and caselaw such as the West Coast Hospital case (a Florida decision that laid out an 11‑factor test) when determining reasonable trustee compensation. These sources emphasize the character of the work done, the trustee’s skill and experience, the trust’s size and complexity, the time spent, the risks assumed, the custom in the community and the success of the administration. In other words, a trustee who manages a modest trust with routine investments and few beneficiaries should not expect the same compensation as a trustee who oversees a complex portfolio of closely held businesses, real estate and art.

Determining Reasonable Trustee Compensation When the Trust Is Silent

When a trust does not specify a fee, the parties must negotiate or seek court approval. Courts generally consider several key factors:

• Size and complexity of the trust. A large trust with diversified investments, illiquid assets, multiple beneficiaries or ongoing business operations demands more time and expertise than a small trust holding simple bank and brokerage accounts. Bigger and more complex trusts justify higher fees.

• Time commitment and responsibilities. Trustees are fiduciaries. They must safeguard assets, invest prudently, file taxes, keep books, send accountings to beneficiaries and resolve disputes. The more hours the trustee devotes and the more responsibilities they shoulder, the greater the compensation.

• Trustee’s skill and expertise. If the trustee brings specialized expertise—such as managing a family business or investing in real estate—the court may find a higher fee reasonable. Conversely, a trustee who outsources most duties to professionals and simply signs checks may warrant a lower fee.

• Results and value added. Courts sometimes consider whether the trustee’s efforts increased the value of the trust, protected assets from litigation or otherwise benefited the beneficiaries. Exceptional results may justify additional compensation.

• Customary fees in the community. What do corporate fiduciaries charge for similar trusts? In many jurisdictions, professionals charge an annual fee between one and three percent of the trust’s assets. Courts often look to these benchmarks. Non‑professional trustees who take on the full burden may receive a similar percentage or an hourly rate; those who share duties with professionals often receive less—perhaps 0.25 percent or a modest hourly fee.

• Risk and responsibility. Trustees can be held personally liable for losses resulting from negligence, conflicts of interest or breaches of duty. Taking on significant risk, especially in contentious family situations, can justify higher compensation.

The West Coast Hospital factors and similar tests underscore that no single factor controls. Rather, courts weigh these considerations collectively, tailoring compensation to the unique facts of each trust. In the high‑profile Rauschenberg case, for instance, trustees overseeing the late artist’s estate sought more than $50 million in fees. The court ultimately awarded nearly half that amount, reasoning that the trustees’ efforts increased the estate’s value substantially and required exceptional skill.

Practical Steps for Trustees and Beneficiaries

If you are a trustee of a trust that doesn’t specify compensation, or a beneficiary facing this situation, follow these steps:

1. Review the trust and state law. Confirm that the trust truly is silent about compensation. Some documents give broad discretion (“reasonable compensation at trustee’s discretion”), while others reference a corporate fee schedule or require court approval. Understand your state’s rules. In some jurisdictions beneficiaries can petition the court to approve the fee; others presume reasonable compensation unless contested.

2. Document your work. Keep detailed records of your time, tasks performed, decisions made, correspondence with beneficiaries, investment activities and expenses incurred. Precise documentation supports your claim for compensation and reduces disputes.

3. Compare with professional fee schedules. Research what local banks, trust companies and professional fiduciaries charge for comparable trusts. Use these figures as a starting point for discussions. If you are a non‑professional trustee, consider whether your services merit a full professional fee or a reduced percentage.

4. Communicate with beneficiaries. Transparency builds trust. Explain your anticipated duties, the time you expect to devote and how you propose to be compensated. Provide periodic updates and be open to feedback. Beneficiaries who feel involved are less likely to object later.

5. Seek court guidance if necessary. If beneficiaries disagree or the circumstances are unusual (e.g., complex assets, contentious family dynamics), petition the probate court for approval. Courts can review the trustee’s proposed fee and the factors listed above to determine whether it is reasonable.

6. Consider tax implications. Trustee fees are taxable income to the trustee, whether paid to an individual or to a corporate fiduciary. They are also a deductible expense to the trust. Keep in mind that paying yourself from the trust may trigger self‑employment tax in certain circumstances. Consult with tax professionals to structure compensation efficiently.

7. Set expectations upfront. When drafting new trusts, estate planners should encourage clients to specify compensation provisions or provide clear guidelines to avoid future conflict. Including fee schedules, hourly rates or references to local statutes can provide clarity. For existing trusts that lack guidance, trustees and beneficiaries should address compensation early in the administration process.

Conclusion

Determining reasonable trustee compensation when the trust is silent is as much art as science. There is no statutory formula in most states, only guiding principles. Courts evaluate a combination of factors: the trust’s size and complexity, the trustee’s efforts and expertise, customary fees, the risks assumed and the outcomes achieved. By keeping thorough records, communicating openly with beneficiaries and referencing professional fee schedules, trustees can justify their compensation and minimize disputes. Ultimately, the goal is fairness—ensuring that trustees are adequately rewarded for their service while preserving the trust’s assets for the beneficiaries’ benefit.