Our Northeast Ohio Estate Planning Lawyer Explains How Trustees Can Be Compensated for Their Work
The ability of a trustee to receive compensation for serving as a trustee can often turn into a dispute between the trustee and the beneficiaries of a trust. To determine the amount of compensation (if any) a trustee is able to receive, you must look to the terms and conditions of the trust itself and to state law. In this article, our Northeast Ohio estate planning lawyer discusses trustee compensation under Ohio law.
Look at the Trust Document
The first step in determining whether or not a trustee can receive compensation is to look at the trust document itself. Generally, most trust documents will have a provision on trustee compensation, such as: “The Trustee shall be entitled to a reasonable compensation based upon the time of the trustee and the size and character of the trust”.
The above reference is a very general provision on the trustee fees, and in the absence of a more definitive provision in the trust document, it must be determined what is meant by the term “reasonable.”
Ohio Revised Code
The Ohio Revised Code does not have a definition of ‘reasonable' but merely states, “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” [1]
What Do the Local Court Rules State?
The majority of the Courts in Ohio have their own local rules in regard to the computation of trustee fees for a trust that is administered through the local Probate Court. For example, in the Probate Court of Cuyahoga County, Ohio; The Court permits a trustee fee of $12.00 per thousand on the first $1 million; $7.50 per thousand on the next $2 million, $5.50 per thousand on the next $2 million and $4.50 per thousand of the balance.
The Trustee Must Keep Track of Time
If you are a trustee of a trust, it is important that you document the time that you have spent in your role as the trustee. Being a trustee is often more time-consuming than many people realize especially if they have never served in that role beforehand. If a trustee has kept a detailed time log on the time that they have spent, it can help prevent any misunderstandings with the beneficiaries of a trust.
The Trustee Must Communicate With Beneficiary
As a trustee, it is also very important to maintain communications with the beneficiaries of the trust. Not only does a trustee have a legal obligation to provide the beneficiaries with an annual accounting (and a copy of the trust document) by communicating on a regular basis with the beneficiaries, they will appreciate how much work is actually involved on the part of the trustee.
The Trustee Must Pay Taxes on Their Fee
A trustee must pay federal, state, and local income taxes on the trustee fee that they receive from the trust. This is often an overlooked item when serving as a trustee.
Being a trustee can be a very time-consuming yet rewarding position for an individual. The creator(s) of the trust document had faith in the persons they named as a trustee to follow the terms and conditions of the trust. There can be a lot of work that is involved for a trustee and they have the ability to be compensated for their time and effort.
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[1] O.R.C. 5807.08 (A)