As you are setting up your trust and making the very important choice of who will serve as trustee, you may be wondering if this person will get paid for their services and how that is accomplished. Do your heirs have to pay them out of pocket? Let’s explore how trustee compensation typically works.
Understanding Trustee Responsibilities
Before diving into compensation, it’s important to understand what a trustee does. A trustee’s role can be demanding and time-consuming. They must manage trust assets, make investment decisions, pay bills, file tax returns, distribute assets according to trust terms, and maintain detailed records. This role often requires significant time, effort, and expertise.
How Trustees Get Paid
Trustees are generally entitled to “reasonable compensation” for their services, unless your trust document specifically states otherwise. This compensation typically comes from the trust assets themselves, not out of your beneficiaries’ pockets.
Setting Compensation in Your Trust
You can specify exactly how your trustee will be compensated in your trust document. This might be:
- A flat annual fee
- A percentage of trust assets
- An hourly rate
- A combination of these methods
If you don’t specify compensation terms, state law typically allows the trustee to collect reasonable fees based on the work performed and the size of the trust.
Professional vs. Family Trustees
Professional trustees, such as banks or trust companies, usually charge a percentage of the trust assets (often 1-2% annually) plus additional fees for special services. Family members serving as trustees might choose to waive compensation, but they’re not obligated to do so. In fact, given the responsibilities and potential liability involved, it’s often fair and appropriate for family trustees to receive payment for their work.
Protecting Everyone’s Interests
Clear communication about trustee compensation helps prevent future conflicts. Consider:
- Discussing compensation expectations with your chosen trustee
- Documenting the agreed-upon compensation method in your trust
- Ensuring your beneficiaries understand how and why the trustee will be paid
Ready to create or update your trust with clear provisions for trustee compensation? Call our office at 310-782-6322 to schedule a consultation with an LA County trust lawyer who can help you make and document these important decisions.