Determining whether to compensate family members acting as trustees – or accept compensation as a trustee family member – is a personal decision without a right or wrong answer. Although most family member trustees serve with no compensation and reimbursement of reasonable expenses only, that strategy might not be best for your particular situation.
To make the decision that’s right for you, consider these arguments for and against compensating family member trustees.
Reasons to Compensate Family Member Trustees or Accept Compensation as a Family Member Trustee
- Time Recognition. Serving as a trustee can be a lot of work. Depending on a range of factors including how the trust is structured, the beneficiaries, and the services that the trustee is providing, the family member trustee might have significant, time-intensive responsibilities. These responsibilities may exist both during the lifetime of the Trustmaker and multiple years or even decades following the Trustmaker's death
- Cost Effectiveness. Compensating a family member trustee, particularly a family member who is experienced in trust administration, can be more cost-effective than engaging a third-party corporate trustee of the same caliber
- Professionalism. Offering compensation to your family member trustee can help set the tone and remind both the trustee and other family members that the family member trustee has serious obligations to uphold in their role
- Fairness. As a family member trustee and beneficiary (if applicable), you may be dissatisfied with the value of gifts to which you are beneficiary in the trust, and/or stand to inherit more by accepting compensation
Reasons Not to Compensate Family Member Trustees, or Why Not to Accept Compensation as a Family Member Trustee)
- Light Workload Expected. The family member trustee may not be doing most of the work directly. Most trusts and trust statutes empower the trustee to engage third-party advisors such as attorneys, accountants, and consultants to assist with trust administration. If the family member trustee is acting on a limited basis to coordinate these third parties, the trustee's direct work may be considerably less
- Family Dynamics. Trustee compensation is an estate administration expense that lowers the trust remainder balance that pays out to beneficiaries. Even where the duties and performance of the family member trustee may otherwise merit compensation, not all other family members may see things the same way. In interest of keeping the peace, the family member trustee might decide to forgo compensation to reduce potential family squabbles over inheritances
- Tax Considerations. If the family member trustee is also primary beneficiary, the trustee might be better off forgoing compensation. Trustee compensation is taxed at ordinary income, whereas (in most all states) inheritance is not subject to tax. Depending on the family member trustee’s personal income situation and share of the trust remainder, the family member trustee might therefore receive more take-home money by forgoing compensation
The Bottom Line
Most family member trustees do not receive compensation for serving as a trustee outside of reimbursement of reasonable expenses.
Depending on your personal situation and how you weigh these arguments for and against family member trustee compensation, however, you might consider breaking from that norm and compensating your family member trustee.
