Families often turn to a trusted relative to handle the responsibilities of a trustee. But what happens when that work takes more time and effort than anyone anticipated? And how much, if anything, should a family member be paid?
Elder law attorney Harry Margolis says there is no standard answer — and that the lack of clarity can create problems after a loved one dies. In a recent conversation, Margolis explained why trustee compensation is a gray area, what families should discuss upfront, and how to avoid disputes among beneficiaries.
Below is a transcript, edited for clarity and brevity, of the conversation.
Robert Powell: Have you ever thought about setting up a trust? If so, how much should a family trustee be paid? Here to talk with me about this is Harry Margolis, author of “Get Your Ducks in a Row.” Harry, welcome.
Harry Margolis: Good to see you again, Bob, as always.
Trustee compensation has no clear rules. Experts explain why families should set expectations early to avoid disputes.
Photo by Scott Graham on Unsplash
Is there a standard for paying a family trustee?
Harry Margolis: There is no hard-and-fast rule. As I mentioned in my written response, it is a big gray area. Most family member trustees are not paid — but maybe they should be. It really depends on how much work is involved. That is the main issue. Is it a big burden or a small burden?
If it is an ongoing trust, and someone will be acting as trustee long term, there should be a conversation. If a person is being appointed from the beginning, they should discuss with the grantor whether they expect to be paid, how much, and what is reasonable. If everyone agrees upfront, there is usually no problem.
Where problems arise: after-the-fact compensation
Harry Margolis: More often, however, the grantor has died. The family member acting as trustee spends a lot of time on the trust — selling a house, liquidating assets, managing a farm. Then, after the fact, they say, “I put in all this time and effort. I ought to be paid.”
That can be problematic. Other beneficiaries may not expect the trustee to be compensated. They may say, “If we are paying someone, why not hire a professional?” Or they may agree the trustee deserves compensation but question how much.
Should a family member be paid the same as a bank, a trust company, or a lawyer? It is not always clear. And while the family trustee may have put in a lot of sweat equity, a professional might have done the job more efficiently.
Usually, we try to help people reach a compromise: Some compensation may be appropriate, but likely not at full professional rates.
Tax considerations for trustee compensation
Harry Margolis: Another important point is taxes. If a trustee is paid, that is taxable income. Most trust distributions are not taxable to beneficiaries, or only a small portion is. But compensation for trustee services must be reported and taxed.
That may be a reason to take a somewhat smaller fee. Families should try to work out an arrangement that feels fair without creating unnecessary tax burdens or resentment.
Should the grantor set compensation in advance?
Robert Powell: Do you see cases where the grantor actually establishes what the trustee should be paid?
Harry Margolis: Sometimes, but it is rare. People often do not think to address it. It is better if they do.
Why attorneys should raise the issue early
Robert Powell: Is that something estate planning attorneys should bring up with the grantor?
Harry Margolis: Yes, I think so. The attorney should ask the question, and anyone being invited to serve as trustee should raise it as well.
When someone settles an estate as executor, often they do not get paid, or if they do, it is for a finite period — perhaps a year — during which they put in a lot of work. Problems tend to arise when matters extend beyond that.
If the administration lasts longer than a year, beneficiaries may ask why things are not resolved. If the trustee then brings up compensation, it only adds to the tension.
When one person serves as both executor and trustee
Robert Powell: Is it common that the trustee is also the executor? That sounds like double duty.
Harry Margolis: In some ways it is, but often the same tasks overlap. You are handling non-probate assets through the trust, probate assets through the estate, and taxes — the final income tax return, perhaps an estate tax return. It can be more efficient to have one person do it, but it is also a lot of work.
The importance of transparency
Robert Powell: Harry, I think I have exhausted my questions. Anything we missed?
Harry Margolis: I think that is it. Transparency is the best rule of thumb. If the trust administration will take a long time and you expect to be paid, do not raise it at the very end. Raise it early so you can discuss it with family members and avoid surprises.
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