A trust provision that typically grabs a client’s attention is the one that entitles trustees to be compensated for their service. Often, the reader will imagine the trust being drained by trustee fees, leaving nothing for the beneficiaries. However, removing the provision or disallowing trustee fees can cause additional issues in trust administration. By understanding the typical process of charging and collecting fees as well as what is considered to be a reasonable fee, the client can rest assured that allowing trustee fees is typically in the best interest of the trust and its beneficiaries.
Defining Reasonableness
Since Illinois does not have a statute which fixes trustee fees, a trustee is entitled to reasonable compensation for his, her or its services. In the absence of a statute, reasonableness is determined by the courts, which will take into account the specific circumstances of the trust at hand as well as compensation for similar services that has been deemed to be reasonable in the past. There are many factors which must be considered in determining whether a fee is reasonable. While financial institutions often have fixed fee schedules, the grantor of a Revocable Living Trust will usually name one or more individuals as trustee. Determining a reasonable fee for such individuals is more difficult.
Of course, the administration of some trusts is far more complex than others. This complexity, along with the time required, the risk taken by the trustee and the expertise required in the administration of the trust are all factors that a court will consider in determining reasonableness. Additionally, the nature of the trust assets and the difficulty of managing those assets will also be considered. For example, if the trust owns a business that must be managed by the trustee, that is likely to require more time and effort than managing a trust which owns only cash and stock accounts.
Determining a Fee
The grantor of a trust may fix or eliminate fees in the trust instrument itself. A fixed fee may be a monetary amount or percentage of the estate, but if such amount is considered to be inadequate, a court may increase the fee amount. Eliminating fees for an individual trustee can be risky because a named trustee may be unwilling to serve if he or she will not be compensated. Although a trustee who is a beneficiary of the trust will often waive any trustee fees, this cannot be assumed for trusts which require significant time or effort to administer. Of course, no institution will accept the position of trustee without compensation, so if an institution is to be named trustee, then its fees should be reviewed by the grantor to ensure that the fees are acceptable.
Rather than fixing or eliminating trustee fees, it is far more common for a trust to provide for reasonable compensation. In such cases, a trustee may be compensated for his, her or its services. By allowing a trustee to be compensated for the time spent administering a trust, the grantor can ensure that the named individual or institution will be more likely to accept the role of trustee. However, it is the responsibility of the beneficiaries to oversee the trustee’s fees and ensure that such fees are reasonable.