How Trustee Compensation Works in Estate Planning
When your estate plan includes a trust, you should set clear pay terms for the trustee. Trustees earn compensation for time and expertise, and the amount must be reasonable. Understanding trustee compensation in estate planning helps you set fair terms before you finalize your documents.
Common Trustee Fee Structures
Spell out compensation in the trust. Large or complex trusts often use a percentage of total assets, paid on an annual basis. Smaller trusts may work better with a flat fee or hourly rate. If you choose hourly pay, set a cap to control costs and reduce disputes.
Average Compensation Ranges
Professional and corporate trustees often charge 1% to 2% of assets per year. For simple trusts, families sometimes use hourly rates. You might see $50 to $100 per hour, depending on workload and local market rates. Family or friend trustees may accept reduced fees, or no fee, when duties are light.
How and When Trustees Get Paid
Trusts pay compensation from trust assets, not from your personal account. You can set payment timing, for example annually or quarterly. Trustees also receive reimbursement for reasonable expenses, such as travel, filings, and appraisals. Keep receipts and include these items in the annual report to beneficiaries.
State Rules on “Reasonable” Compensation
Arizona, Minnesota, and Wisconsin follow a reasonableness standard. If the trust is silent, the trustee receives reasonable compensation. If the trust sets a fee that is too low or too high, a court can adjust it. This flexibility helps align pay with actual duties and complexity.
Tax Notes You Should Know
Trustee fees are fiduciary expenses paid by the trust. The IRS explains how estates and trusts report income and deductions on Form 1041 and its instructions. Review these rules with your tax professional before setting payment schedules.
Set Terms the Right Way
Define the fee method, rate, timing, reporting, and expense reimbursement in the trust. Clear language prevents confusion, keeps beneficiaries informed, and protects your plan.
Talk With Us
We can help you benchmark rates, choose the right structure, and draft clean language. Book a complimentary 15-minute Discovery Call with an experienced staff member or call 480-405-1970 in Arizona, 612-524-9414 in Minnesota or Wisconsin, or 866-902-6148 toll-free.
