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What is a Trustee?
A trustee is a person or financial institution that manages a trust on behalf of the grantor (person who sets up the trust) for the benefit of one or more named beneficiaries.
A trustee is appointed by the grantor in the trust document and is legally bound to manage the trust in accordance with the terms of the trust and always act in the best interests of the grantor and beneficiaries.
When creating your estate plan, one of the most important decisions you must make is who will be the trustee of any trusts you create. Although it is natural to look first to your family members and trusted friends, it is also important to consider that the trustee role may last for generations, and that it involves substantial duties that could become burdensome. The ideal trustee will make the same decisions for the beneficiaries that you yourself would make, and will bring to bear substantive expertise and administrative capabilities.
The Role of a Trustee
Designating a trustee is one of the most important financial decisions you’ll make. Whoever you select will be legally bound to manage the trust in accordance with the terms of the trust document and to always act in your and your beneficiaries’ best interests. The fiduciary responsibilities of a trustee can be diverse: recordkeeping, administrative duties, investment management, and communication with beneficiaries, to name a few.
The trustee can be an individual, a corporate trustee, or a combination of both. Naming a trusted family member has some advantages, but a corporate trustee has expertise that a family member typically doesn’t have. That’s why it’s essential to assess all your options.
The amount a trustee should charge for their services depends on the type of trustee and the trust’s assets:
- Professional trustees
These are usually banks or investment firms that charge a percentage of the trust’s assets, typically 1–2% per year. For example, a trustee for a $1 million trust would earn $10,000–$20,000 annually. Professional trustees may charge a higher percentage for smaller trusts.
- Estate trustees
These can charge a percentage of the estate’s value, ranging from 0.5–5%, depending on the estate’s size and complexity. They may also charge an hourly rate based on their experience and qualifications.
A trustee’s fee is based on a variety of factors, including:
- The trustee’s success or failure in performing their duties
- The trustee’s loyalty to the beneficiaries
- The amount of time spent administering the trust
- The quality of the trustee’s work
- The trustee’s estimates of the value of their services
- Payments made to the trustee by the beneficiaries
1-2% per year is the standard internationally but, in some jurisdictions, it can be up to 3% or even more depending on the complexity of the situation. Let’s talk about the state of Florida for example.
Under the Florida Trust Code, “A Trustee is entitled to compensation that is reasonable under the circumstances.” F.S. §736.0708(1). Unfortunately, the statutes are devoid of any reference to what amounts to “reasonable” compensation or how to determine whether fees sought by a trustee are per se reasonable.
On average, trustee fees can range from 1% to 3% of the trust assets. For example, a 3% fee can be considered a reasonable fee for large and complex assets that can take years to administer.
Who Determines the Trustee Fee?
Generally, compensation of a Trustee may be established in the Trust instrument or by separate agreement with the Trustee. In the absence of either, the circuit court has jurisdiction to review and determine a trustee’s fees. F.S. §736.0201(4)(c), (4)(g).
Can a Court Adjust a Trustee’s Compensation?
Even in certain situations in which the trust does specify the trustee’s compensation, the court may adjust that compensation if the trustee’s duties are substantially different from those contemplated when the trust was created or if the compensation specified is unreasonably low or high. F.S. §736.0708(2).
As a result, whether or not the trust instrument provides for the basis, amount, and form of compensation, the amount or rate of a trustee’s compensation or commission is not determined by any inflexible rule, but rests within the sole discretion of the appropriate court in which discretion is to be recognized in accordance with certain established principles as set forth in prior case law.
As a result of the lack of a statutory guideline for determining the reasonableness of trustee fees, the court is left with the task of determining the reasonableness of the trustee’s compensation and in doing so will often look to the duties and responsibilities of the trustee under the particular trust at issue. See, for example, Osius v. Miami Beach First Nat. Bank, 74 So.2d 779 (Fla. 1954).
How Does the Court Determine a Reasonable Trustee Fee?
In 1958, the Supreme Court in West Coast Hospital Ass’n v. Florida National Bank of Jacksonville, 100 So.2d 807 (Fla. 1958), established factors for the court to consider in determining a reasonable fee. Some of those factors used in determining the reasonableness of a fee include:
- The amount of capital income received and disbursed by the trustee
- The wages or salary customarily granted to agents for performing light work in the community
- The success or failure of the trustee’s administration
- Any unusual skill or experience the trustee brought to the trust administration
- The loyalty or disloyalty of the trustee to the beneficiaries
- The amount of risk and responsibility assumed by the trustee
- The time involved in administering the trust
- The custom in the community as to the compensation of trustees by settlors or courts and as to compensation paid trust companies and banks serving as trustees
- The character of the work performed by the trustee
- Any estimate the trustee has given of the value of his or her own services
- Payments made or allowed by the beneficiaries to the trustee intended to be applied toward the trustee’s compensation
The factors listed above are not all-inclusive and the court may use other factors in determining the amount of reasonable compensation due to a trustee. The fundamental criteria are reasonableness, determined in the light of the facts and circumstances of each individual case.
Corporate or Professional Fiduciaries
Despite Florida having no statutory schedule for trustee’s fees, a standard range of trustee’s fees is generally recognized by corporate or professional Florida fiduciaries. While there are numerous variations stated by corporate trustees in their fee schedules, there is a common range.
Similar to the fixing of the compensation for a personal representative, the trustee is also entitled to additional compensation for extraordinary services. There is a significant amount of competition currently existing in the fees for services charged by trust departments, and rates generally decrease as the value of the trust assets increase.
Instances of Multiple Trustees
Additional issues complicating the decision on the reasonable compensation of trustees also arise when there are multiple trustees, and in determining the allocation of a trustee’s fee from principal versus income.
Should Trustee Fees Be Higher?
Should multiple trustees receive a greater amount in total of fees than a single trustee would receive for having done the same job? The answer appears to be “no” unless the trust provides otherwise, there is a separate agreement with the settlor provides otherwise, or a trustee is providing a special service that warrants an additional fee. See Westcoast Hospital Association v. Florida National Bank of Jacksonville, 100 So.2d 807 (Fla. 1958).
How Do Multiple Trustees Divide the Fees?
Generally, the multiple trustees must agree on how the fee will be divided among them, otherwise, the court will do so.
Several factors are taken into consideration:
- With regard to the allocation of a trustee’s fee, the first question involves whether the fee should be taken from principal or income.
- The second issue becomes whether a particular beneficiary should pay more than other beneficiaries.
- With regard to the principal and income question the trust controls and absent language in the trust addressing this issue then Florida Statute §738.701 and §738.702 govern. Based upon these statutes, one-half of the ordinary compensation is to be paid out of trust income, the other from the principal.
Despite the Florida Legislature’s failure to provide uniform measures for the reasonableness of trustee fees, it is clear that a trustee is entitled to reasonable compensation for his or her services rendered in administering the trust.
What Are the Duties & Obligations of a Trustee?
Despite the absence of a statutory fee schedule, certain factors are applicable despite factual differences in each case.
- First and foremost, in seeking compensation for their services, the controlling duty of a trustee is the faithful and efficient conservation of the trust assets.
- It is also clear that in seeking compensation for their services, the burden of proof is on the trustee to show that money expended was a proper disbursement and reasonable.
- If the trustee fails to keep clear, distinct, and accurate accounts, all presumptions are against him and all insecurities and doubts are to be taken adversely to him.
- If he loses his accounts, he must bear any resulting damage. See Troub v. Troub, 135 So.2d 243 (Fla. 2nd DCA 1961).
Therefore, any compensation to be paid to a trustee must be contained within trust accountings, unless waived by all interested parties.
What Makes a Trustee so Valuable that 1% to 3% is Justified?
Whether you’re already in the process of establishing a trust to control and protect your assets, or you’re considering adding a trust to your overall estate plan, there’s a vital question you should factor in: Who can you rely on to oversee and administer your trust and protect your financial legacy?
Here’s what you need to consider when making this important decision.
The trustee you select will be legally bound to manage the trust as it’s outlined and to always act in your beneficiaries’ best interests.
Selecting an Individual Trustee
Choosing a friend or family member to administer your trust has one definite benefit: That person is likely to have immediate appreciation of your financial philosophies and wishes. They’ll know you and your beneficiaries. They’ll come to the table with a lot of personal background, which can be helpful in understanding the needs of the beneficiaries and insight into your wishes and intent.
However, naming a family member as your trustee isn’t always as simple as it sounds. What may seem like an honor to you might be perceived as a burden to the person you’re hoping will administer your trust. Furthermore, choosing an individual who is truly well-suited for being a trustee requires thorough and objective vetting on your part. Just because your daughter is a CPA or your best friend has known you for 50 years does not mean that either one of them is the wisest choice.
Supposed something happens to them, who steps into that role? Their spouse? Their kids?
Selecting a Corporate Trustee
Serving as a trustee is a serious responsibility — which is why it’s smart to consider taking advantage of professional expertise in the form of a corporate trustee. They’ll have significant expertise and resources, including a deep understanding of fiduciary requirements and extensive investment management experience.
Perhaps equally important, a corporate trustee lends an unbiased and objective approach to the process. They have a fiduciary duty to carry out the terms of the trust in an objective manner. Family members may have a tougher time being objective when it comes to the more difficult decisions involved in administering a trust; a corporate trustee is detached from those personal conflicts.
A corporate trustee will still listen closely to your needs and desires and keep your goals paramount throughout the process.
Selecting Co-Trustees
In some cases, the best approach of all might be to name co-trustees — one individual and one corporate entity. This can be the best of both worlds, as both parties have a fiduciary responsibility to the person establishing the trust as well as the beneficiaries named in the trust. In this scenario, you can include provisions that give one party or the other preferential decision-making powers. Consider consulting a financial professional to help you explore this option and how it might benefit your specific situation.
Whatever option you choose, make sure you take enough time to think through your options and explore different scenarios. When it comes to managing your wealth, choosing the right trustee is a crucial aspect of proper estate planning.
Frequently Asked Questions
Can a Trustee Be a Beneficiary of a Trust?
Yes, an individual trustee can also be a trust beneficiary. This often happens with a family trust, in which the surviving spouse is named as both a trustee and beneficiary.
There can be a potential conflict of interest when a trustee is also a beneficiary, as the trustee’s fiduciary duty is to act in the best interests of the grantor and beneficiaries when carrying out the terms of the trust. Appointing a co-trustee can help to help avoid this situation.
What Is the Difference Between a Trust Beneficiary and a Trustee?
A trustee is in charge of the trust and manages the trust assets on behalf of the grantor and according to the trust agreement. A trust beneficiary receives the assets of the trust.
Who is the “Right” Trustee?
One drawback of choosing among family members or friends is that, even with the best of intentions, they simply may not have the time or ability to do the job well. Serving as your trustee may be a major burden and an obligation they simply cannot fulfill due to other personal or professional demands, or their own health or age. Another drawback is that their existing relationships with certain beneficiaries may cause them to appear or actually be partial, and therefore unable to administer the trust impartially. Individual trustees may also be prohibited by tax laws from having the broadest possible standard for distributing trust assets among the beneficiaries of the trust.
Finally, although friends and family may choose not to charge a fee for trustee services, it is unlikely any one individual will have the full range of skills needed to administer a trust. As a result, a family member or friend may need to hire a custodian or trust administrator, an investment manager, an accountant, and/or an attorney, and oversee these service providers in the course of serving as the trustee. Your trust would bear all of the associated costs.
For these reasons, many families decide to name a professional trustee of their trusts. Professional trustees may be individuals such as attorneys or accountants who routinely serve in a trustee capacity for their clients, or entities such as banks or trust companies.
Most professional trustees, either individually or using their firm’s or company’s resources, should have the technical capabilities needed for trust administration, although you will want to assess them carefully and determine whether their services are appropriate for your needs. Importantly, because your own relationship with a professional trustee may not be as close as a family member or friend, you will need to assess their personal attributes and understand how decisions regarding distributions and communications with beneficiaries will be made.
Most professionals will be impartial and objective in dealing with your beneficiaries. Most will be able to demonstrate a history of sound judgment, integrity, and confidentiality. However, it may be difficult for you to gauge impartiality, empathy, communication, and fairness.
The best way to gain confidence is for you to have a working relationship with the professional trustee during your lifetime. You can then experience firsthand the professional trustee’s personal attributes, including the practicality of their advice and decision-making, and their empathy and fairness. You will see if the professional devotes enough time to your relationship to learn your philosophies, as well as your hopes for — and any concerns about — your beneficiaries.
Even after you become confident in a professional trustee, you will want to consider the longevity of the relationship. If the professional trustee is an individual, who will succeed that person down the road? If the trustee is a bank or a trust company, who will be in charge of the relationship with your beneficiaries, and how will decisions be made by the entity? Since a corporate trustee is more likely than an individual to serve for multiple generations, you should consider whether it has a long and lasting commitment to serving as a trustee, or if it views trusteeship as a tangential or even secondary service to one of its many other business lines.
