Being a Trustee of a trust carries serious responsibilities and trustees are compensated for their time. Section 2309 of the New York Surrogate’s Court Procedure Act (“SCPA”) sets forth the computation of commissions payable to trustees. Under the statute, Trustees receive commissions on the amount of property paid out and annually. However, keep in mind that the trust agreement can override the statute. The creator of the trust (Grantor) and Trustee may agree to a different amount or the Trustee can waive the right to commissions altogether.
The statute lays out that the Trustee is entitled to a commission of 1% of any trust principal paid out. In addition to the 1% commission on distributions of principal, the following fee schedule sets out the Trustee’s annual commissions:
(a) $10.50 per $1,000 on the first $400,000 of principal
(b) $4.50 per $1,000 on the next $600,000 of principal
(c) $3.00 per $1,000 on all additional principal
Take the simple example of a trust with $1 million dollars in assets that directs $200,000 be paid out to the beneficiaries upon the Grantor’s death. The Trustee is entitled to a $2,000 commission for the distribution and then $5,200 annually. The statute also provides for reimbursement for reasonable and necessary expenses.
Annual commissions are calculated either at the end of the year or at the beginning of the year. Whichever option the trustee chooses, it must be consistent throughout the continuance of the trust. Any successor or substitute Trustee must follow the same schedule. Any distributions made to beneficiaries reduce the commission. Additions to the trust increase the statutory commission.
How Trustee Fees are Paid
Pursuant to SCPA §2309(3), annual commissions must come one-third from the income of the trust and two-thirds from the principal of the trust. The only exception is for charitable remainder unitrusts or annuity trusts. In such cases, the commissions are paid out of principal, not out of the annuity or unitrust payments.
When deciding what the Trustee’s commission should be, it is important to keep SCPA 2309(3) in mind. This is especially true when the only asset in the trust is the Grantor’s home. Until the home is sold and the proceeds paid out, the Trustee is not entitled to the 1% commission. Likewise, if the home is not generating rental income, then the one-third of the trustee’s commission is not payable under 2309. This may not be important if the Trustee is a beneficiary, but there is no incentive for a non-beneficiary Trustee in this situation.
If a trust has multiple trustees, the SCPA sets forth how commissions are apportioned depending on the amount of trust principal. For example, if the trust contains less than $100,000, then any trustees must split one commission. If the trust principal is between $100,000 and $400,000 then up to two trustees can each get a full commission. When the trust principal is $400,000 or more, then up to three trustees can get full commissions. As you can see, the more trustees – the more expensive trust administration can get!
Determining how to calculate the correct commission owed a Trustee can be complicated. This is especially true where the Trustee failed to take any commission for several years. Just because a Trustee hasn’t taken commissions does not mean they waived their right to do so. Moreover, the trust document itself may contain specific language regarding trustee commissions. Accordingly, a Trustee should review the trust document before making a distribution. These discussions should be had upon creation of the trust as well as when the Trustee starts managing the trust. Consulting an experienced estate planning attorney can make the process much easier to navigate.