Does a Successor Trustee Get Paid for Services?

A successor trustee is an individual or institution that manages a trust’s assets when the original trustee can no longer serve. Their duties include managing investments, paying bills, and distributing assets to beneficiaries. Because managing a trust is a demanding role, successor trustees are entitled to compensation for their time and effort.

Determining the Right to Compensation

The primary document governing a trustee’s right to payment is the trust agreement itself. This document may outline specific compensation terms, such as a flat fee, an hourly rate, or a percentage of the trust’s assets. A trust document may also explicitly state that the trustee is to serve without compensation, which is sometimes the case when a close family member is named.

Conversely, the document might simply state that the trustee is entitled to “reasonable compensation.” If the trust document is silent on compensation, state law becomes the controlling authority. Most states have statutes that permit a successor trustee to receive reasonable compensation for their services, recognizing the responsibility involved.

Calculating Reasonable Trustee Fees

When a trust allows for “reasonable” fees or is silent on the matter, the trustee must determine an appropriate amount. One approach is charging a percentage of the total assets under management. Professional trustees often charge 1% to 2% of the trust’s assets annually, while non-professional trustees might charge between 0.5% and 1%.

Another method is to charge an hourly rate. A trustee with a background in finance or law might charge a rate comparable to their professional services, often between $100 and $175 per hour. A non-professional trustee may charge a more modest rate, perhaps $30 to $75 per hour, for administrative tasks.

Several factors influence what is considered a “reasonable” fee:

• The complexity of the trust assets
• The amount of time and effort the trustee dedicates to their duties
• The specific skills and experience the trustee brings to the role
• The overall value of the trust’s assets

A trustee managing a large, intricate trust would be justified in charging a higher fee than one managing a small, straightforward trust. The goal is to align compensation with the work involved.

Required Documentation for Payment

To justify compensation, a successor trustee must maintain meticulous records. The most fundamental record is a detailed time log that includes the date of each activity, a description of the task performed, and the time spent. For example, an entry should read “3/15/2025: Reconciled Q1 bank statements for trust checking account, 1.5 hours,” rather than a vague note like “worked on trust.”

These records form the basis for calculating an hourly fee or justifying a percentage-based fee. The trustee must also keep a precise record of all out-of-pocket expenses incurred on behalf of the trust, which are eligible for reimbursement. These costs can include mileage, postage, or filing fees, and the trustee should retain all receipts.

Based on these records, the trustee should prepare a formal accounting for the beneficiaries that clearly itemizes the services rendered and shows how the total compensation was calculated.

The Process of Taking Payment

After calculating the fee, the trustee can transfer the approved amount from a trust bank account to their personal account. This transaction must be clearly labeled in the trust’s financial records as “Trustee Fee” for a specific period to maintain a transparent accounting trail.

A primary step is providing formal notice to all trust beneficiaries before or at the time payment is made. This notice should state the compensation amount and the service period it covers. Including a summary of how the fee was calculated provides important context for the beneficiaries.

Should a beneficiary object to the fee, the trustee should provide them with the detailed time logs and other records that justify the amount. Having this information ready can resolve potential disputes before they escalate.

Tax Obligations for Trustee Fees

Any compensation a successor trustee receives is considered taxable income by the IRS and must be reported on the trustee’s personal tax return. These fees are subject to ordinary income tax rates. How the income is reported depends on whether the trustee is a professional.

A professional trustee, such as a bank or attorney, reports their fees as self-employment income. A non-professional trustee, like a family member, reports the compensation as “Other Income” on their tax return, which is not subject to self-employment tax. A trust is not required to issue a Form 1099 to a non-professional trustee. Trustees should set aside a portion of their fees to cover federal and state income tax liability.