Q: My longtime friend (and attorney) has agreed to become my Trust Trustee.
However, when I inquire how much she should be paid or otherwise compensated, she merely shrugs and says, "Whatever you think is fair," which, of course, doesn't answer my question or help me to stipulate any amount in the Trust that I am now completing. Are there "standard rates" you can inform me of? I'd like to pay her a lump sum per year for each year there are funds remaining in the Trust. My Trust is small (less than $90,000), of which $70,000 will be immediately spent on my charitable beneficiaries listed. The remaining portion is to be my nephew's college fund, of which my friend is to oversee and manage and of course, issue any checks when appropriate. It is not any more complex or involved. I read somewhere that 1% per year of the remaining funds of a trust is fair compensation. Is it?
A: Given the small size of your trust, you are wise to discuss this issue with your proposed trustee so that there are no misunderstandings later. The 1% per year figure is generally the amount charged by corporate trustees for large trusts. However, such trustees have experience in managing trusts and the 1% figure can be significant if the market value of the trust assets is high. When the trust is small, however, using the 1% figure can result in unreasonably low compensation. For example, in your trust, the fee would start at $200 per year (assuming the $20,000 remaining for your nephew's college fund) and decrease thereafter. If the trustee expended $10,000 during the first year, the fee would be $100 the following year.
Most trustees charge at an hourly rate. A reasonable rate for a non-professional trustee would be $25 to $40 per hour. Most professional (non-corporate) trustees charge $65 to $125 per hour and higher. You and your friend might agree on an hourly rate, or you could agree on an annual rate, regardless of the value of the funds in the trust. Since the trust would not be of a long duration - assuming your plan is to contribute to your nephew's undergraduate education - an annual fee, on an agreed upon amount, might be an appropriate method of compensation for your small trust.