Being asked to serve as the Trustee of a trust can be an honor, knowing that the appointment reflects considerable confidence in your judgment, integrity, and ability to manage financial matters on behalf of others. At the same time, serving as a Trustee can require a substantial commitment of time and effort. You may be responsible for managing investments, maintaining real estate, and communicating with beneficiaries as well as keeping detailed records, addressing tax matters, making distributions, and resolving disputes. Given the responsibilities associated with the position, you may be wondering if a Trustee is entitled to compensation. If you are creating a trust or have recently accepted an appointment as Trustee, understanding how Trustee compensation works in New Hampshire can help prevent disagreements and ensure that everyone has realistic expectations about the administration process. With that in mind, allow the attorneys at Legacy Care Law Firm to explain what you should know about Trustee compensation in New Hampshire.
Understanding the Role of a Trustee
Before considering compensation, it helps you to understand what you are being compensated for doing. When a trust is created, the person establishing the trust, commonly called the Grantor or Settlor, transfers assets to a Trustee to be managed for designated beneficiaries. The trust agreement establishes the rules governing how those assets should be managed and when income or principal may be distributed. The Grantor also appoints the Trustee who will be responsible for carrying out those instructions.
Serving as Trustee is a fiduciary position, meaning you are not simply managing property as you would manage your own assets. You must administer the trust in accordance with its terms and fulfill the fiduciary obligations imposed upon you. Depending on the trust, your responsibilities may include safeguarding trust property, investing assets prudently, and filing tax returns, along with making distributions according to the standards established by the trust. A relatively simple trust holding a few investment accounts may require modest ongoing administration while a multimillion-dollar trust containing commercial real estate, closely held business interests, numerous beneficiaries, and complex distribution provisions may require substantially more work.
Can a Trustee Be Paid in New Hampshire?
Trustees generally should not assume that serving in a fiduciary capacity requires them to work without compensation. After all, administering a trust can consume significant time and involve substantial responsibility.
When determining if and/or how Trustee compensation is calculated, the first place you should look is the trust agreement itself. A well-drafted trust may expressly address whether the Trustee will receive compensation and may establish how that compensation will be calculated. The document might provide for a specific amount, an hourly fee, an annual payment, a percentage-based fee, or another compensation arrangement. The Grantor may also specify that a particular Trustee is expected to serve without compensation.
When a trust contains valid provisions addressing Trustee compensation, those provisions are extremely important. This illustrates why compensation should be considered when the trust is created instead of leaving the issue unresolved for the Trustee and beneficiaries. If the trust does not adequately address compensation, applicable New Hampshire trust law becomes important in determining what compensation is appropriate.
What Is Reasonable Trustee Compensation?
The concept of “reasonable compensation” sounds straightforward until the Trustee and beneficiaries disagree about what is reasonable. A $5,000 fee could be excessive for a trust requiring only a few hours of work but inadequate compensation for a Trustee who spends hundreds of hours managing complicated assets and resolving beneficiary disputes. Determining reasonableness therefore requires looking at the circumstances surrounding the particular trust.
Relevant considerations can include the value and complexity of the trust, the amount of time required to administer it, the nature of the assets, the Trustee’s responsibilities, the degree of expertise required, and whether unusual circumstances required additional work. The duration of the trust can also be important because administering a trust for several months while assets are liquidated and distributed is fundamentally different from managing a continuing trust intended to provide for beneficiaries for several decades.
How Can Trustee Compensation Be Structured?
There is no single compensation arrangement that works for every trust. The appropriate structure frequently depends on the type of Trustee selected and the anticipated complexity of administration. Common Trustee compensation structures include:
- Hourly Compensation: An hourly arrangement can work well when the amount of work required is difficult to predict. Under this method, the Trustee records the time devoted to trust matters and receives compensation based on an appropriate hourly rate. The Trustee should maintain detailed records of the work performed. Good documentation helps beneficiaries understand how compensation was calculated and can become especially important if the amount is later challenged.
- Fixed or Annual Compensation: A trust agreement may instead establish a fixed payment. For example, the Trustee might receive a specified annual amount for routine administration. This arrangement provides predictability and can work effectively when the Trustee’s responsibilities remain relatively consistent from year to year. A flat fee may also be appropriate for a trust expected to terminate relatively quickly when the scope of the required work can be reasonably anticipated. The potential disadvantage is that circumstances can change and a trust that initially appears straightforward can become considerably more complicated if litigation develops, a beneficiary challenges a distribution, real estate becomes difficult to sell, or unexpected tax issues arise.
- Percentage-Based Compensation: Professional fiduciaries often use fee schedules based wholly or partially on the value of the assets they manage. Banks and trust companies, for example, may establish tiered annual fees under which the percentage charged changes according to the amount of trust property under management. Percentage-based compensation can provide a relatively predictable method for determining fees, particularly for continuing trusts with substantial investment portfolios.
Does a Family Member Serving as Trustee Get Paid?
Many people appoint a spouse, adult child, sibling, or close friend to serve as Trustee. These Trustees sometimes assume they should not accept compensation because helping the family is part of their responsibility, but administering even a relatively uncomplicated trust can require considerable work. A family Trustee may spend hours communicating with financial institutions, preparing records, meeting with attorneys and accountants, managing investments, dealing with beneficiaries, and arranging distributions. The Trustee also assumes fiduciary responsibilities and potential liability for improper administration. You may certainly choose to waive compensation if you are entitled to receive it, but you should not assume that being related to the Grantor or beneficiaries automatically means your services have no financial value.
Professional Trustees May Charge Differently
A Grantor may choose a bank, trust company, attorney, or other qualified professional rather than a family member. Professional Trustees typically expect to be compensated according to established fee arrangements. Their fees may be calculated according to asset value, time spent, the services performed, or some combination of these factors. Professional administration may initially appear more expensive than appointing a family member, but cost should not be evaluated in isolation given that a professional Trustee may offer experience managing investments, maintaining records, interpreting distribution provisions, communicating with beneficiaries, and navigating difficult administrative issues. Professional administration can also be useful when beneficiaries have strained relationships or when appointing one family member could create conflict.
Who Pays the Trustee?
Trustee compensation is ordinarily an expense associated with administering the trust and is generally paid from trust property rather than directly from the beneficiaries. This matters because administrative expenses ultimately reduce the remaining assets for beneficiaries. For that reason, beneficiaries have a legitimate interest in understanding the expenses charged to the trust. At the same time, the fact that Trustee compensation reduces the amount eventually distributed to beneficiaries does not mean a Trustee should be expected to provide substantial services without reasonable payment.
Do You Have Questions About Trustee Compensation in New Hampshire?
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about Trustee compensation in New Hampshire, contact our trust administration attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Salem and Nashua, New Hampshire office can be reached at (603) 894-4141.
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