Understanding Executor and Trustee Compensation: Fairness, Reasonableness and Your Rights

When people think about settling an estate or managing a trust, they often imagine the work as largely clerical. Pay a few bills, distribute the money, close the books, and move on. The reality is far more involved. An executor winding up an estate or a trustee overseeing a trust must marshal assets, file tax returns, respond to creditor claims, comply with legal formalities, and balance the sometimes competing interests of heirs. They do this work while exposing themselves to personal liability if mistakes are made. It is for these reasons that the law permits executors and trustees to be compensated for their services.

In our previous articles we explored the basic framework of fiduciary compensation. We noted that the governing document – the will or trust – often sets the fee, and that when it doesn’t, state statutes or the courts step in with default rules or reasonableness standards. Because questions about fiduciary compensation remain some of the most frequently asked by our readers, this article revisits the topic from a fresh perspective. Instead of reciting fee schedules or quoting legal provisions, we will focus on understanding why compensation exists, how it is determined in practice, and what rights and responsibilities accompany it. The aim is to equip both fiduciaries and beneficiaries with a deeper appreciation of what fair compensation looks like and how to approach the issue constructively.

Why Fiduciaries Are Paid

At first glance it may seem odd to pay a family member for managing an estate or trust. After all, executors and trustees are often close relatives or friends of the deceased. But fiduciary work is not like lending a hand to move a sofa or take care of a pet. The tasks are complex, the standards are exacting, and the stakes are high. An executor must inventory assets, safeguard property, publish notices to creditors, resolve claims, prepare and file tax returns, and ensure that distributions comply with the terms of the will. A trustee assumes ongoing responsibility for investing assets prudently, paying beneficiaries at the right times, keeping detailed accounts, and administering the trust according to its terms and applicable law.

In most jurisdictions an executor’s or trustee’s duties are accompanied by personal liability. If a fiduciary distributes assets prematurely and a valid creditor later appears, the fiduciary may have to make the creditor whole. If a trustee mismanages investments or fails to diversify appropriately, beneficiaries can sue and seek removal or damages. The time commitment can also be significant. Complex estates and trusts often take months or years to settle. Trustees of continuing trusts may serve for decades. For many, the role amounts to a part‑time job, if not a full‑time responsibility. Compensation is thus a recognition of both the work involved and the risk undertaken.

How Compensation Is Determined

Governing Documents

The first source for determining compensation is the will or trust itself. Many modern instruments include specific provisions about fees. A testator may provide that their executor receive a flat amount, an hourly rate, or a percentage of the estate’s value. Trusts often reference the fee schedules of corporate trustees, which typically range from about one percent to one and a half percent of assets under management. Some settlors choose to waive compensation for family trustees altogether. Others instruct that the fiduciary may take “reasonable compensation,” leaving the amount to be worked out later. Reading the governing document carefully is essential; it is the contract that binds the parties.

When an instrument sets fees, courts generally honor the arrangement unless it is patently unreasonable. For example, if a trust provided a nominal fee for administration of a very complex estate, a court might increase the fee to ensure the trustee can do the work properly. Conversely, if a will granted a windfall to an executor far beyond what the work justifies, the beneficiaries could challenge it. But absent such extremes, the document controls.

Statutory and Judicial Standards

If the governing document is silent or ambiguous, state law fills the void. The default rules vary dramatically from one jurisdiction to another. Some states set statutory fee schedules for executors based on the value of the estate or trust. These schedules might specify, for example, that an executor may take five percent of the first hundred thousand dollars of the estate, four percent of the next two hundred thousand, and so on. In other states, statutes simply state that fiduciaries are entitled to “reasonable compensation” without defining the term. Courts in those jurisdictions look to customary fees in the locality, the size and complexity of the estate or trust, the skill required, the time and effort expended, and the results achieved.

It is important to note that the absence of a statutory schedule does not mean fiduciaries must guess at an appropriate fee. Case law and professional guidelines have developed comprehensive lists of factors courts consider when evaluating the reasonableness of compensation. These factors typically include:

• Time and labor: How many hours did the fiduciary spend? What were the tasks? Did the work require specialized knowledge?

• Complexity and risk: Was the estate straightforward, or were there businesses to operate, properties to sell, or disputes to resolve? Did the fiduciary undertake personal liability?

• Results achieved: Did the fiduciary preserve and grow trust assets, or did mismanagement cause losses? Did they promptly settle claims and distributions?

• Customary charges: What do local professional trustees and executors charge for similar services? Courts will compare the fee requested to prevailing market rates.

• Size and character of the estate or trust: Handling a ten million dollar estate is materially different from administering a small bank account. The nature of the assets—liquid securities, real estate, privately held companies—also matters.

• Degree of difficulty and novelty: Did the fiduciary face unusual legal issues or tax complexities? Were there unique assets requiring special expertise?

  
  

Courts weigh these factors holistically, not mechanically. A fee that may seem high as a percentage of assets might still be reasonable if the fiduciary prevented significant losses or achieved exceptional growth. Conversely, a flat fee might be excessive if the estate required minimal work. The key is that the compensation must bear a rational relationship to the services rendered.

Professional vs. Non‑Professional Fees

Professional trust companies and banks publish fee schedules. These fees often include a base percentage of assets, plus additional charges for extraordinary services. Corporate trustees typically charge lower percentages as assets increase—a sliding scale to reflect economies of scale. For example, a trust company might charge 1.0 percent on the first million dollars, 0.75 percent on the next two million, and 0.5 percent on assets above that. They may also charge a fixed minimum fee to ensure that smaller trusts generate enough revenue to cover administrative costs.

Individual trustees and executors who are family members or friends usually do not follow published schedules. They might be compensated through a court‑approved percentage of the estate’s value or an hourly rate. Hourly fees can be practical when the work is sporadic or when the estate is modest. In areas with statutory schedules, non‑professional fiduciaries often follow those guidelines. Otherwise, they negotiate a fee that reflects the anticipated effort and risk.

Waiving or Reducing Fees

Many lay fiduciaries decline compensation. The reasons range from family harmony to tax planning. When beneficiaries are also fiduciaries, waiving fees can avoid friction among siblings or other relatives who might perceive the fee as self‑dealing. There are also tax advantages: executor and trustee fees are taxable income to the fiduciary, whereas inheritances received as beneficiaries are generally not. If a daughter named as executor will receive a substantial bequest, she may prefer to forgo a fee to avoid reporting additional taxable income.

However, waiving compensation is not always wise. The duties of a fiduciary can be significant, and accepting compensation underscores the seriousness of the role. Taking a fee creates a clear record and can encourage the fiduciary to keep thorough accounts. In complex or contentious estates, compensation may provide a buffer to hire legal or accounting help. A fiduciary who waives compensation but then fails to administer the estate properly can still be held liable for mistakes. The decision to accept or decline a fee should therefore be made after considering the work involved, the relationships among beneficiaries, and the fiduciary’s own capacity.

Extraordinary Services and Surcharges

Not all fiduciary work is created equal. Some estates or trusts require services beyond routine administration. Selling a family business, litigating a contested will, managing real estate renovations, or guiding a trust through a major tax audit can consume significant time and require specialized skills. In these circumstances, fiduciaries are often entitled to additional compensation for extraordinary services. Most statutes and trust instruments recognize this possibility and either provide guidelines or require court approval before such fees can be paid.

Conversely, fiduciaries may be surcharged—ordered to return part of their fee or pay damages—if they breach their duties. Failing to diversify investments, self‑dealing, or unduly delaying distributions are common triggers for surcharges. The possibility of surcharge is another reason fiduciaries should document their actions carefully and seek professional advice when necessary.

Disputes Over Compensation

Compensation disputes usually arise when beneficiaries believe the fiduciary has taken more than is warranted or when the fiduciary believes they are entitled to more than the beneficiaries are willing to concede. Transparency is the best way to avoid or resolve such conflicts. Fiduciaries should provide periodic statements detailing their time spent and tasks performed. They should also notify beneficiaries of their intention to take a fee and, where appropriate, seek court approval.

When disputes go to court, judges examine the factors discussed above. They may appoint a neutral accountant to review the fiduciary’s records or compare the fee to local norms. Courts often mediate compromises, recognizing that protracted litigation over fees benefits no one except the lawyers. For beneficiaries, challenging a fiduciary’s fee requires evidence that the fee is excessive relative to the work. For fiduciaries, defending a fee means demonstrating diligence, prudence, and the value of services performed.

Planning Ahead: Drafting and Communication

If you are drafting a will or trust, the best way to minimize compensation disputes is to address the issue clearly. Set a fee schedule or reference a reliable external schedule, such as a corporate trustee’s published rates. Specify whether the fiduciary may charge extra for extraordinary services or whether they must absorb such costs. If you intend your fiduciary to serve without compensation, say so explicitly and explain your reasons. Being silent on compensation invites confusion and potential litigation.

For those named as executors or trustees, the key is to communicate early and often. Explain the duties you must perform and the risks you assume. Provide beneficiaries with a timeline for administration. If you plan to take a fee, describe how it will be calculated and when it will be paid. Documentation is your ally. Keep detailed records of time spent, actions taken, and decisions made. Should a dispute arise, these records will help demonstrate that your fee was earned and reasonable.

Conclusion

Executor and trustee compensation is one of the most delicate topics in estate and trust administration. Fiduciaries deserve to be paid for their work and the personal liability they assume, yet fees that are opaque or excessive breed resentment and can undermine family harmony. Understanding how fees are determined—whether by the governing document, statutory schedules, or the multifactor reasonableness standard—allows both fiduciaries and beneficiaries to approach the topic with clarity. Recognizing the distinctions between professional and non‑professional fees, between routine and extraordinary services, and between compensation and inheritance helps prevent misunderstandings. Whether you are drafting an estate plan, serving as a fiduciary, or receiving a distribution, open communication and thoughtful planning are the cornerstones of fair and effective compensation.