A common issue that comes up in trust administration matters is whether a successor trustee will be paid for serving as the successor trustee, and if so, how much?
As with most trust administration issues, the answer lies in the trust document itself. Most trusts contain language which specifically authorizes payment to a successor trustee for performing services as trustee. However, we have seen some trusts where the trustee is not authorized to be compensated. Again, look to the trust document in efforts to answer this question. Concerns about estate planning and trusts? Contact a Roseville estate planning attorney of NewPoint Law Group, LLP.
A nominated successor trustee is not required to serve. Thus, the trustor needs to consider the possibility that a nominated successor trustee may not wish to serve if (s)he will not be compensated. The trustor must weigh the risk of not having a successor trustee against any cost savings by not allowing compensation. And since the trustor will want to appoint a successor trustee who will perform competently, payment is recommended to help ensure that the estate is properly managed. Thus, is it very rare that the trust document itself prohibits successor trustee compensation.
Amount of Compensation
Most trust documents authorize successor trustee compensation in a reasonable amount. The reasonable amount is not usually defined. There are two generally accepted standards that fill in what is meant by “reasonable amount.”
The first standard is to pay the trustee for specifically identified services based upon the duration of time expended and an hourly rate that is reasonable. Using this standard, the successor trustee must keep a time log or time sheet which specifies the date each task is performed, a description of the task, the duration expended performing each task, and a reasonable hourly rate. What is a reasonable hourly rate? It depends of the tasks performed and delegated, and the degree and level of sophistication required to perform the tasks. We have seen trustee compensation range from $15 per hour to $100 per hour depending on the circumstances.
The other most commonly accepted method of payment is to compensate the trustee based on a percentage of the size of the estate on an annual basis. The commonly accepted percentage standard is 1% of the net value of the estate, charged yearly.
If the trust simply states “reasonable compensation” without reference to a specific formula, the trustee has discretion to elect either accepted formula, whether it be hourly or a percentage, based on the facts and circumstances of each individual trust estate. A trustee may wish to examine the size of the estate and calculate a 1% amount and then compare with an hourly rate to get a sense of what is fair, reasonable, or practical.
Institutional and Professional Trustees
When institutional trustees are involved, i.e., banks and brokerage firms, they typically request fees based on a percentage with the trust asset value at certain minimum levels. Private licensed professional fiduciaries may also serve as successor trustees and often have more flexible standards vis-à-vis institutional trustees. Private license professional trustees will typically agree to either a percentage or an hourly fee, depending upon the needs and preferences of the trustor. The hourly rate charged by private license professional fiduciaries will be higher than a non-professional “family member” trustee, usually in the range of between $100 and $200 per hour.
Whether you are in the process of preparing a new trust or reviewing your existing trust, the issue of trustee compensation is not to be overlooked. It should be examined to determine what method of trustee compensation best fits your needs and circumstances. A Roseville trust attorney can help you with your matter, so contact us today at 800-358-0305 or send a message online.