Most trust agreements state that the trustee is entitled to a “reasonable fee” — without further explanation. The Oregon Uniform Trust Code [ORS 130.635(1)] is no better: “If the terms of a trust do not specify the trustee’s compensation, a trustee is entitled to compensation that is reasonable under the circumstances.”
What is reasonable? One benchmark is the fee charged by professional trustees. Most banks will charge about 1% per year to administer a trust. (The percentage is usually a sliding scale that decreases as the value of the trust increases.) But the bank’s 1% fee usually covers both trustee duties and investment management services, which are bundled together. This complicates comparing a bank’s 1% fee with a “trustee only” fee. In the latter case, there will be two fees; an investment management fee of roughly 1%, and a trustee fee of roughly .5% to 1%. So the aggregate fee is usually higher if trustee and investment services are purchased separately.
It gets more complicated, depending on the services the trustee actually provides.
Trust Holding Liquid Assets for Cooperative Beneficiary. On one end of the spectrum, a trustee might manage a $1M portfolio for a minor child and issue an equal payment each month. In this scenario, a 1% fee is a reasonably good deal for the trustee.
Trust Holding Liquid Assets for High Maintenance Beneficiary. Another alternative is an adult beneficiary (undoubtedly angry that his inheritance is locked up in trust) who constantly badgers the trustee about extraordinary distributions (cars, wedding rings, spending money, etc.), excessive fees, inadequate investment performance, improper asset allocation, etc. In these cases, a reasonable fee might be 1% plus an hourly rate for telephone calls in excess of perhaps two hours per month.
Post-Death Administration of Revocable Trust. Finally, there is the trustee of a revocable trust engaged in post-death administration. The assets of the decedent must be inventoried and liquidated; the house must be cleaned up and sold; scores of bills must be paid; tax returns must be filed; and there will be a steady dialog with numerous beneficiaries. The post-death administration process will usually last a year or longer. During this period, a reasonable trustee fee might be the same as the 2% fee allowed to court appointed executor, as discussed below.
Under Oregon law, specifically ORS 116.173, a court appointed executor is automatically entitled to a fee of roughly 2% of the probate estate. An additional fee of 1% is allowed for non-probate assets, such as IRAs, life insurance, and joint bank or brokerage accounts. If the probate estate is a $1M brokerage account and there are only a couple of beneficiaries, a 2% fee may be a windfall to the executor. On the other hand, a 2% fee may be inadequate if the executor must maintain and sell real property, liquidate multiple assets, settle creditor claims, file multiple years of tax returns, deal with contentious beneficiaries, wind down a closely-held business, etc. In these cases, an executor can apply for fees in excess of the 2% statutory fee. A court is likely to approve an additional fee if none of the beneficiaries object.
It is common for lawyers to state that trustee fees and executor fees are roughly 1% and 2%, respectively. However, as described above, the services to be provided must be evaluated on a case-by-case basis, and the fee should be adjusted commensurately. About the only generalization that can be made is that the 1% and 2% thresholds are usually the “floor” when determining the reasonableness of the fee.