Choosing the right trustee (or successor trustee if a trust’s creator or “grantor” is managing a trust while they’re alive) is one of the most important elements of trust creation. Some types of trusts require more time, work and skill than others. Trustee compensation should take that into consideration.
For example, a parent might place assets in a trust for their adult child to be able to access at various milestones (often based on age or accomplishment). If the assets are in stable instruments like money market accounts, they will likely continue to make conservative gains with little oversight required.
Other trusts are meant to provide income for the beneficiary, like a spouse or chronically ill family member, for the remainder of their lives. The grantor may intend for the value of the trust to grow significantly over time to provide this income for as long as needed. Managing this type of trust may require regular monitoring and changes to ensure that the assets are in high-performing instruments.
In addition to overseeing the assets, trustees have fiduciary duties to the trust and its beneficiary(ies). This typically includes things like filing taxes and other regulatory requirements as well as interacting with the beneficiary or their guardian.
Trustees, like executors and other estate administrators, are often entitled to compensation under the law. That compensation and the way it’s paid, should be included in the trust document. It could be a specific fee paid on a regular basis, a percentage of the trust’s value or based on the hours spent on trustee duties.
What does the law say?
If the grantor doesn’t address trustee compensation in their documents, trustees are paid according to Kentucky state law. It simply states that a trustee “is entitled to compensation that is reasonable under the circumstances….”
If the trustee believes they deserve more compensation than the grantor or the court designated initially, they can seek a modification. The law allows modification if one or both of the following is the case:
- “The duties of the trustee are substantially different from those contemplated when the trust was created.”
- “The compensation specified by the terms of the trust would be unreasonably low or high.”
If you’re creating a trust, it’s wise to establish the amount and payment details of the trustee’s compensation and include them in the document. Having experienced estate planning guidance can help you determine fair compensation arrangements accordingly.