Trusts are incredibly versatile estate planning tools, but they can still fall flat without the right preparation. Even if you have a rock-solid charter, you can only exert control over your trust for the duration of your lifetime. After you pass away, you’ll need somebody else to run the trust on your behalf. This person, termed the “trustee,” doesn’t always have to be an attorney or other legal professional—but no matter who it is, you’ll still have to factor their compensation into your long-term plan.
Here, learn more about trustee compensation in New York, or contact Landskind & Ricaforte Law Group P.C. to speak to a Brooklyn estate planning lawyer.
Trustees and Trust Administration
A trust is a legal contract that allows you to transfer your assets, before or after death, to an account to be managed by yourself (if you are still living) or by someone else. It's a way to manage assets during your lifetime or after your death and is often used for estate planning and tax purposes. When you create a trust, there are usually multiple parties involved, including the following.
- The trustor. The trustor, sometimes termed the “grantor” or “settlor,” is the person who establishes a trust. This is often the same individual who funds the trust and sets conditions on the use and distribution of trust assets.
- The beneficiary. The beneficiary of a trust is a person, organization, or entity that receives distributions or other benefits from a trust. Beneficiaries aren’t usually involved in trust administration, but they can assert certain rights if they believe that the trust is being mismanaged or its assets misused.
- The trustee. The trustee is a person or group of people who manages the trust assets on behalf of the trust beneficiaries. Some trusts allow the grantor to serve as trustee for the duration of their lifetime, while others, like irrevocable living trusts, ordinarily do not.
Almost anyone can serve as a trustee: your surviving spouse, a close relative, a friend, or your estate planning attorney. However, your trustee—no matter who it is—must abide by strict requirements. For example, trustees are bound by a legal concept termed “fiduciary duty.” This means trustees are responsible for acting in the best interest of the trust and its beneficiaries. If they violate their fiduciary duty, they could be held financially or criminally liable.
In terms of day-to-day trust administration, trustees may have many duties. Depending on the trust’s size, structure, and assets, the trustee may be responsible for making investments, filing taxes, and ironing out disputes between beneficiaries. These duties can be time-consuming, such that most trustees are entitled to compensation for their time and effort.
Compensation for Trustees in New York City
You may wonder if a trustee gets paid, even if they’re your friend or a relative. Trustees aren’t absolutely required to accept compensation for their duties, but state law ensures that they have the right to receive pay for their time and hard work. Many rules related to trust administration and trustee compensation can be found in New York’s legal code.
According to Section 2309 of the New York Surrogate Court Procedure Act, trustees are typically entitled to a flat commission of 1% on any property disbursed by the trust. Additionally, trustees may be entitled to collect commissions in the following amounts:
- $10.50 per $1,000 disbursed on the first $400,000 of the principal.
- $4.50 per $1,000 disbursed on the next $600,000 of the principal.
- $3.00 per $1,000 disbursed on any further amount.
You don’t always have to abide by these exact rules, provided that compensation paid to your trustee is fair, reasonable, and in line with the requirements set by SCPA § 2309. However, while these rules serve as a general guideline for trustee compensation, you may be able to set an alternate pay rate or compensation schedule. Certain types of trusts and trustees are afforded more flexibility in New York than others. For example:
Compensation for Individual and Lay Trustees
Most smaller trusts, as well as many larger ones, are administered by individual trustees.
An individual trustee could be any of the following:
- Your surviving spouse
- A close family member
- A trusted family friend
- Your New York City estate planning lawyer
As a general rule, trustors have a right to set fair and reasonable compensation schedules for successor trustees. Under most circumstances, this structure should be detailed in your trust document. You could, for instance, offer a single fixed fee, an hourly pay rate, or the type of graduated commission set by SCPA § 2309.
However, no matter what you choose, you should ensure that your offered compensation meets state requirements. If it doesn’t, your trustee may have to liquidate trust assets, potentially impacting your beneficiaries’ distributions and inheritances.
Compensation for Multiple Trustees
If you appoint multiple trustees, you may have to revise your compensation schedule. Multiple trustees could be entitled to larger commissions unless you make other arrangements. The size or percentage of these commissions is typically dependent on the overall value of the trust. For example:
- If the value of your trust’s principal is less than $100,000 and you have multiple trustees, your trustees may receive a commission equivalent to that of an individual trustee. This amount must be split between the trustees, either equitably or on the basis of services rendered.
- If the value of your trust’s principal is between $100,000 and $399,999, and there are two trustees, each of the two trustees is entitled to the same rates of compensation as an individual trustee. If there are two or more trustees, pay must be apportioned in such a way that the trustees do not receive compensation that exceeds the equivalent of two individual commissions.
- If the value of your trust’s principal is $400,000 or more, each appointed trustee is entitled to the same rate of compensation as an individual trustee, provided that there are no more than three trustees in total. If there are more than three trustees, commissions must be allocated on the basis of services rendered. In some cases, the trustees themselves may propose a separate agreement before the trust is executed.
Compensation for Other Professional Trustees
If you have a corporate or other professional trustee, they may have a right to request additional or flat fees. Some professional trustee fees are based on the requirements set by SCPA § 2309, while others may be set or negotiated using an alternate compensation schedule with the grantor. Most professional trustees base their fees on factors such as the size, value, and complexity of the trust and its assets.