A lot goes into creating a comprehensive, effective Estate Plan. From choosing beneficiaries, to detailing all your assets, to asserting your goals for the future…the list can feel endless. And with everything that goes into creating your Estate Plan, choosing a Trustee can be one of the most complicated aspects, because it’s such a complex role and you must truly trust the person you select.
Another big factor that adds to the complexity stems from the fact that there are Trustee fees involved. This adds yet another layer to the process as you decide on who you’ll appoint to oversee and manage your Trust for you. How much should they earn? What’s reasonable?
Learn all this and more about what to expect when it comes to Trustee fees, including what are normal Trustee fees, how you can navigate them, and most importantly, how you can avoid overpaying them.
What Are Trustee Fees?
Trustee fees are the payments that’ll be made to your appointed Trustee in exchange for the service they’ll provide as they fulfill their duties in the role. A Trustee doesn’t have to be a person - you can appoint a bank or professional wealth management company as Trustee if you want to.
Regardless of who you select, you should expect to have to compensate them financially for the job they’re required to do. Ideally, Trustee compensation will be clearly outlined by the Trust.
What Are Normal Trustee Fees?
Despite them being a normal part of any Estate Plan involving a Trust, there still are a lot of questions surrounding what reasonable Trustee fees actually are. And, knowing how to calculate Trustee fees isn’t as simple as you may think. Unfortunately, there isn’t one simple formula or percentage that magically computes a rate.
Fortunately, you don’t necessarily need to come up with a rate or compensation amount to be included in your Trust. If you decide to appoint a Professional Trustee like a legal firm, Trust Company or bank or other financial institution, they’ll likely have their own set fee.
What is a standard Trustee fee if you go the professional route? It depends. Normal ranges tend to be somewhere between 1 and 1.5 percent of the estate value. Ironically, the larger the estate, the lower the percentage typically is. Some firms also charge a minimum annual fee to protect themselves against putting in a lot of work for relatively small estates. They also might charge an additional percentage based on a Trust’s annual income.
And, you can always appoint a non-professional Trustee, like a friend or family member, too. Trustee fees by state can vary, and while there really aren’t state-specific rules about how much a Trustee should be compensated for their role, there are some reasonable compensation (mending, what the norm is) guidelines.
What About Non Professional Trustee Fees?
Most people who are creating their Estate Plan and setting up a Trust have to really evaluate and weigh the pros and cons of using a Professional Trustee vs Trustee who’s a friend or family member. Because non-professional Trustee fees are not standardized, knowing how much to expect can be a little bit less certain.
There can be some real benefits to using a trusted person in your life as your Trustee. And it’s not uncommon for a personal Trustee to not take any compensation at all.
Remember, you can (and probably should) outline compensation clearly as a defined detail inside the Trust - this way, there are no questions.
How Are Trustee Fees Calculated?
If you’re still unsure about how to calculate Trustee fees, it’s OK - that’s normal. But rest assured, it doesn’t have to be an overly-complicated process. After you know a little bit more about it, it should become even easier.
First, you want to look at the size of the Trust. Think about:
How complex is it?
How many beneficiaries are involved?
How many assets must be managed?
How much money will be involved that the Trustee must manage?
You could detail an hourly rate if you want to, but know that this is really not the norm. A percentage is more typical in determining appropriate compensation for a personal Trustee.
While states don’t have Trustee compensation mandates, they generally do have guidelines for Executor compensation, which you absolutely could use as a reference. Often, as we previously noted, the term reasonable compensation is used - that is, what’s the typical fee for Executors in the majority of cases. If the average fee tends to be 3 percent, it would not be “reasonable” to expect that a Trustee would be compensated 10 percent of the estate-value as compensation each year.
Trustee fees can be affected by state norms, so it’s beneficial to understand a little bit about the state you’re in. There’s also the Uniform Trust Code (UTC), which some (but not all) states have adopted in effort to standardize all things related to Trusts...including Trustee fees!
Trustee Fees by State - What You Need to Know
Since there are state-to-state variances in Trustee fees, it’s important to look at your specific state if you plan to spell out what your Trustee should be compensated in your Trust. This becomes especially important if you plan to use a Personal Trustee. It’s easy to know what banks charge for Trustee fees, because they’ll spell it out for you in black-and-white. Likewise with other Professional Trustee services. But if you’re appointing a Personal Trustee, looking at your state is a good place to start.
It’s important to make very clear within the Trust instrument which state law governs the overall Trust. If your state has not adopted the Uniform Trust Code (UTC), it becomes even more important to be specific in the actual Trust.
You can also think about what capacity your Trustee will be working under. Are they just doing normal paperwork that’s routine, easy to understand and explicit? Or will their job be very complex and time-consuming? Even if you live in a UTC state, some state statutes allow for courts to consider additional factors if a Trustee's job will be quite difficult and warrants additional compensation.
Trustee fee norms can widely vary depending on the state the Trust is held. For example, in California, reasonable compensation for a Trustee is stated in the state’s probate code. There, estates can be quite large, which would make actual compensation (though not necessarily the percentage fee) understandably larger as well. A state where estate values tend to be smaller could be reflected in smaller compensation (even if the percentage is the same as somewhere like California).
How to Make Sure You’re Using Reasonable Trustee Fees
If you’re at the very beginning of the process, and just starting to set up your Trust or other Estate Plans, you’re probably dealing with a lot of moving pieces. A trusted partner like Trust & Will can help you do everything from deciding on a guardian for your children, to setting up your Trust and funding it, to making sure your Trustee fees are reasonable, so there are no issues in the future.
Looking for help or guidance in determining reasonable Trustee fees? We’re here to help, and we look forward to guiding you through every aspect of your Trust set up and management.
Estate Planning can be confusing and feel somewhat overwhelming, but our mission is to make it accessible and easy, so you can feel confident and the choices you’re making including deciding on Trustee fees.
Is there a question here we didn’t answer? Reach out to us today or Chat with a live member support representative!