For decades, the default fee schedule for successor trustees was a simple percentage of assets. That changed recently as state legislatures revised their trust codes, and the new rules are more complex, more transparent, and less forgiving of passive administration. If you serve as a trustee or have named one in your estate plan, the old assumptions no longer hold. This article explains what the revised codes say, why they were rewritten, and what the changes mean for how trusts are administered.

The Quiet Rewrite of Successor Trustee Compensation

Successor trustees step in when the original trustee dies, becomes incapacitated, or resigns. Their job is to manage trust assets, pay bills, file taxes, and eventually distribute property to beneficiaries. For most of the twentieth century, state trust codes set a simple default: a trustee could charge an annual fee equal to a small percentage of the trust's value. That percentage often ranged from 1% to 2%, depending on the state and the size of the trust.

Beginning in the mid-2010s, a wave of trust code revisions swept through state legislatures, prompted by the Uniform Law Commission's updates to the Uniform Trust Code. The revisions were intended to modernize trust administration, but the changes to trustee compensation received less attention than other provisions. Many settlors and even some attorneys continued to operate under the old default rules, unaware that the statutory fee schedule had shifted.

The new default fee schedules are not a simple percentage. They are tiered, with lower percentage rates on larger asset values, and they include provisions for hourly fees on extraordinary services. Some states introduced minimum and maximum fees, while others left room for courts to adjust. The net effect is that a trustee's compensation now depends more on the work actually performed and less on the size of the trust.

For existing trusts that rely on the old statutory language, the change is significant. A trust instrument that says "the trustee shall receive reasonable compensation" will now be interpreted under the new default schedule, which may produce a different result than the settlor intended. Trusts with specific fee clauses are less affected, but even those may need review to ensure they align with the new expectations.

The quiet nature of these revisions means many stakeholders are only now discovering the impact. Beneficiaries who assumed a flat percentage fee may see itemized bills for services they did not anticipate. Trustees who expected a simple percentage must now track their time and justify their charges. The shift is not just a paperwork change; it alters the economic relationship between trustee and trust.

What the New Default Fee Schedule Actually Says

The revised trust codes typically replace the single percentage with a tiered structure. For example, a common pattern is an annual fee of 1% on the first $1 million of assets, 0.5% on the next $2 million, and 0.25% on amounts above that. These are illustrative figures; actual rates vary by state, and some states use different breakpoints. The key point is that the marginal rate declines as the trust grows, which rewards efficiency on larger portfolios.

In addition to the annual asset-based fee, the new codes allow for hourly fees on "extraordinary services." These include tasks like selling a business, handling a lawsuit, or managing a complex real estate portfolio. The hourly rate is typically capped at a level set by the state, often in the range of $200 to $400 per hour, but it must be disclosed to beneficiaries in advance. Some states require court approval for hourly fees that exceed a certain threshold.

The new schedules also introduce floors and caps. A floor ensures that a trustee is not undercompensated for a small trust that still requires substantial work. A cap prevents a trustee from earning an outsized fee on a very large trust. Both mechanisms aim to align compensation with the actual burden of administration, rather than letting the asset value alone determine the fee.

State variations remain significant. California's Probate Code, for instance, provides a detailed statutory fee schedule in Sections 1060 through 1064, which trustees must follow unless the trust instrument specifies otherwise. New York's Surrogate's Court Procedure Act similarly sets forth a schedule for trustee commissions, with rates that decrease as the principal grows. In contrast, Texas and Florida give trustees more discretion but require that fees be "reasonable" under the circumstances. The Uniform Trust Code provides a framework, but each state implements it differently, and the differences matter for trustees who operate across state lines.

One notable feature of the revised codes is the requirement for written fee notices. Before a trustee can charge a fee, they must provide beneficiaries with a statement explaining the basis for the fee, including the rate, the services covered, and any extraordinary charges. This transparency requirement is a departure from the old practice, where fees were often disclosed only in the annual accounting.

Why the Old Rules Created Conflicts

The old flat percentage fee was simple, but it created perverse incentives. A trustee earning 1% of assets had no financial reason to distribute assets to beneficiaries, because each distribution reduced the fee base. The longer assets stayed in trust, the more the trustee earned. This conflict often led to trusts that lingered for decades, with beneficiaries growing frustrated and trustees content to collect annual fees.

The flat fee also underpaid trustees who had to manage complex assets. A trust holding a family business, a rental property, or a collection of art requires far more work than a portfolio of index funds, yet the percentage fee was the same. Skilled trustees could decline such assignments, leaving inexperienced or unqualified individuals to handle complicated estates.

Beneficiaries bore the cost of this misalignment. They paid higher fees for passive management, and they often had to wait years for distributions that should have been made promptly. Litigation over trustee fees became routine, with beneficiaries challenging fees as excessive and trustees defending them as reasonable. Courts were left to sort out disputes that might have been avoided with a better compensation structure.

The old rules also discouraged innovation. A trustee who wanted to invest in illiquid assets or manage a business had no clear way to charge for the extra work. The percentage fee was a blunt instrument, and it did not account for the varying complexity of trust administration. As trusts became more diverse, the mismatch grew.

By the time the revisions were proposed, the problems were well documented. Estate planning attorneys had long advised clients to draft custom fee clauses to override the default, but many trusts lacked such clauses. The revised codes were an attempt to fix the default so that even without a custom clause, the compensation would be fairer and more aligned with the work done.

How the Revised Code Changes Trustee Incentives

The new fee schedules reward active management. Because the annual percentage declines with asset size, a trustee who distributes assets early and reduces the trust balance does not suffer a proportional loss of income. This reduces the incentive to retain assets longer than necessary. Beneficiaries may see more timely distributions, and trusts may wind down more quickly.

Performance-based components are now allowed in some states. A trust can specify that the trustee receives a bonus for achieving certain investment returns or for completing a complex project on time. While not universally permitted, this option gives settlors a way to align trustee pay with the trust's goals. It also encourages trustees to take on challenging work that might have been avoided under the old flat fee.

Itemized billing is another shift. Trustees must now track their time and document services, which creates a paper trail that beneficiaries can review. This transparency reduces the suspicion that often accompanied percentage fees, where the trustee's effort was invisible. It also makes it easier to challenge a fee if the work was not performed, but it adds administrative burden for the trustee.

Beneficiary approval is required for any deviation from the default schedule. If a trustee wants to charge more than the statutory amount, they must obtain consent from the beneficiaries, or in some cases, court approval. This check ensures that fees stay within reasonable bounds, but it also gives beneficiaries leverage in negotiations. A trustee who wants a higher fee must be prepared to justify it.

The net effect is that trustees now have an incentive to be more efficient and more communicative. They are paid for what they do, not for what they hold. This is a healthier arrangement for most trusts, but it requires trustees to be more disciplined about record-keeping and more proactive in communicating with beneficiaries.

Downstream Effects on Trust Administration

Corporate trustees, such as banks and trust companies, have had to adjust their pricing models. Many had built their fee structures around the old percentage, and they now offer tiered schedules that match the new statutory defaults. Some have introduced flat fees for routine administration, with hourly charges for special projects. The change has made fee comparison easier for consumers, but it has also led to more negotiation.

Individual fiduciaries, such as family members or friends who serve as trustees, face a different challenge. They may not have the time or inclination to track their hours and prepare itemized bills. The new rules require this documentation, which can be burdensome for a layperson. Some individual trustees are choosing to decline appointments or to specify a fixed fee in the trust instrument to avoid the hassle.

Smaller trusts are disproportionately affected by the new schedules. A trust with $100,000 in assets might require the same amount of work as one with $1 million, but the percentage fee on the smaller trust is much lower. The floors in the new schedules help, but they may not be enough to attract a professional trustee. Some experts worry that smaller trusts will become harder to administer, as fees do not cover the cost of professional services.

Billing disputes may shift from courtrooms to arbitration or mediation. The new transparency requirements make it easier to resolve disagreements without litigation, but they also create more opportunities for conflict over what constitutes an "extraordinary service." Courts may see fewer fee challenges, but the ones that remain may be more complex.

Software tools used by trustees must now track the new fee rates. Many trust administration platforms have updated their billing modules to handle tiered schedules and hourly charges. This is a welcome development for trustees who rely on automation, but it also means that older software may not comply with the new rules, forcing upgrades that add to the cost of administration.

Case Study: The Thornhill Family Trust

Consider the case of the Thornhill family trust, a $3 million revocable trust established in California in 2019. The trust instrument simply stated that the trustee would receive "reasonable compensation," relying on the statutory default. When the original trustee passed away in 2022, the successor trustee—a professional fiduciary—began administering the trust under the revised California rules.

Under the old schedule, the trustee would have earned a flat 1% of assets, or $30,000 per year. Under the new tiered schedule, the fee is calculated as 1% on the first $1 million ($10,000), 0.5% on the next $2 million ($10,000), and 0.25% on the remaining $0 (since the trust is exactly $3 million), totaling $20,000. That is a 33% reduction in annual fees.

However, the trust held a rental property that required significant management, including dealing with tenants, maintenance, and eventual sale. The trustee billed an additional $15,000 in hourly fees for these extraordinary services, bringing total compensation to $35,000—higher than the old flat fee. The beneficiaries, initially pleased with the lower asset-based fee, were surprised by the itemized bill. They challenged the hourly charges, arguing that property management was routine. The trustee countered that the complexity of the property, including environmental remediation, justified the extra work.

The dispute was resolved through mediation, with the parties agreeing to a reduced hourly rate and a cap on future extraordinary fees. The experience highlighted the new realities: trustees must document their time meticulously, and beneficiaries have more leverage to question fees. It also demonstrated that the new rules can lead to higher total fees when complex assets are involved, but with greater transparency and accountability.

Practical Steps for Settlors and Trustees

For settlors, the first step is to review existing trust documents for fee clauses. If the trust uses the statutory default, it may be time to amend the trust to specify a fee schedule that matches your intentions. This is especially important if you have a complex trust or a trustee who is likely to charge for extraordinary services.

Amending a trust to align with the new defaults is straightforward in most cases. You can specify a tiered percentage, an hourly rate for special work, and a cap on total fees. You can also include a provision for performance bonuses, if your state allows it. The key is to be explicit, so that the trustee and beneficiaries know what to expect.

Trustees should define their fee structure in writing before they begin work. This includes setting hourly rates, identifying what counts as extraordinary, and establishing a process for obtaining beneficiary approval. Having a clear fee agreement at the outset can prevent disputes later.

Documentation is critical. Keep detailed records of time spent, services performed, and expenses incurred. This will justify your fees if they are challenged, and it will also help you demonstrate that you are acting in the best interests of the beneficiaries. Many trustees now use time-tracking software to simplify this task.

Finally, consult counsel before your next accounting. An attorney who specializes in trust administration can review your fee arrangement and ensure it complies with the current code. This is a small cost compared to the potential expense of a fee dispute or a surcharge action. As with any legal matter, the information in this article is general and not a substitute for professional advice tailored to your situation.

This article is for informational purposes only and does not constitute legal, tax, or financial advice. Trust laws vary by state, and you should consult a qualified professional for guidance specific to your circumstances. The examples provided are illustrative and not intended to be prescriptive; always seek personalized advice before making decisions about your trust.