Asking someone to serve as your fiduciary – whether as the trustee of your trust or the executor (also known as the personal representative) of your will is not a small request. It’s a role that carries significant responsibility, time, and effort.
If you plan to name a family member or friend to serve in one of these roles, one important question to consider is whether they should be compensated for their work. Serving as a fiduciary isn’t just an act of kindness; it often involves managing assets, communicating with beneficiaries, paying taxes, and handling legal or financial details that can take months – sometimes years – to complete.
How Much Should a Trustee Be Paid?
If your trust or will doesn’t specify whether, or how much, your fiduciary should be compensated, state law will usually fill in the gaps.
Most states, including California, follow a “reasonable compensation” standard. This means the fiduciary should be paid an amount that is fair based on the circumstances. Some states use a fee schedule tied to the value of the estate or trust, while others rely entirely on reasonableness.
So what does “reasonable” really mean? Let’s break it down.
1. Local Custom
Courts often start by looking at what’s typical in your area. Professional trustees and corporate fiduciaries usually charge either an hourly rate or a small percentage of the assets they manage each year.
If you’re unsure what’s fair, it’s a good idea to ask a few local professional trustees or banks what their standard rates are. This helps ensure your chosen trustee is compensated fairly and that your plan aligns with local expectations.
2. Trustee’s Skills and Experience
The background and skill level of the person serving as trustee can make a big difference.
For example, an attorney or certified public accountant (CPA) might deserve higher compensation because they bring specialized knowledge and can perform tasks more efficiently.
On the other hand, if your trustee has little financial or legal experience, they may take more time to complete similar tasks, but a lower hourly rate would typically apply.
That said, even highly skilled trustees shouldn’t charge professional rates for simple tasks. An attorney serving as trustee, for instance, shouldn’t charge legal rates for mowing a lawn or cleaning out a home. Those tasks should be handled by appropriate service providers at their regular rates.
3. Time and Effort
Serving as a fiduciary can take considerable time – managing assets, communicating with beneficiaries, filing tax returns, and maintaining records.
To justify their fee, the trustee should keep detailed records of the time spent and tasks completed. If a fee seems high compared to the size of the estate or trust, the trustee should be prepared to show that the time and effort were necessary for proper administration.
4. Type and Value of the Assets
The complexity of the trust or estate also affects compensation.
Managing a simple bank account is far easier than overseeing multiple rental properties, a family business, or investment portfolios. More complex or time-intensive assets usually justify higher fees.
Similarly, administering an $800,000 estate is different from handling one worth $8 million. The larger and more complex the estate, the greater the responsibilities – and potentially, the compensation.
5. Degree of Difficulty
Some estates are simple; others can be emotionally and legally complex.
For example, a trust that passes everything outright to one adult child is straightforward. But if the trust involves multiple beneficiaries, blended families, creditor issues, or potential disputes, the trustee’s job becomes much more demanding.
In those cases, a higher fee may be appropriate given the increased time, stress, and responsibility involved.
6. Level of Responsibility
Not all fiduciary duties are the same. Some require advanced knowledge or decision-making, such as managing a special needs trust to ensure a beneficiary keeps their government benefits.
Other trusts might involve straightforward distributions for education or healthcare. The level of judgment and responsibility involved helps determine what’s “reasonable.”
7. Risk Involved
Finally, the amount of risk the fiduciary takes on matters. Managing volatile investments or business assets carries higher personal risk for the trustee than simply distributing cash. With higher risk often comes higher justified compensation.
Final Thoughts
Determining a fair trustee or executor fee isn’t always simple – it depends on many factors, including local standards, skill level, time spent, and the complexity of the assets involved.
Whether you name a corporate trustee, professional fiduciary, or trusted family member, it’s important to discuss compensation upfront when creating your estate plan. Clear instructions can help avoid misunderstandings or disputes later.
As your life and legacy planning attorney, I guide clients through these conversations to ensure their plans reflect their wishes – including what’s fair for those carrying out their legacy.
A well-designed plan doesn’t just protect your assets; it respects the people you trust to manage them.
At Cheever Law, APC, we don’t just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love, starting with a valuable and educational Family Wealth Planning Session. The Life & Legacy Planning Session will allow you to get more financially organized and make the best choices for the people you love. If you have already completed your estate plan, we will review that plan at your Life & Legacy Planning Session (aka Family Wealth Planning Session) to ensure that it will work the way you intend and address any holes or gaps that may be present if circumstances have changed since you executed your plan.
To learn more about our one-of-a-kind systems and services, contact us or schedule a 15-minute introductory call today.