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Introduction: Trustees Perform Vital Services for Trusts
When someone creates a trust, that person (the grantor or settlor) nearly always selects a separate individual to manage the trust. This trust manager – the “trustee” -- takes care of a wide range of tasks: ensuring that trust assets are properly distributed to beneficiaries, managing trust assets (i.e. real estate sales, rentals, investments, etc.), hiring outside professionals (i.e. CPAs, appraisers, etc.), and so forth. In some cases, trust settlors choose a family member to act as trustee, but in many (if not most) cases a “professional” trustee is selected. Naturally, because trustees perform such vital services for trusts, trustees receive reasonable compensation for their time and energy. In this article, we will briefly sketch out how trustees are compensated for trustee services in Maryland.
Maryland Law Has Its Own Default Commission Schedule
Maryland has its own complex commission schedule which outlines precisely how trustees shall be compensated for various services performed for the trust. The schedule is outlined in ET § 14.5-708 of the Maryland Trust Act. This commission schedule is a tiered system based on the principal of the trust, the amount of rental income generated by the trust, the amount of sales income generated by the trust, and so forth. In addition to the commission rates, this section also includes other pertinent information, such as information on petitioning the court for rate increases, how costs may offset trustee compensation, and so forth.
Trustees Can Submit a Compensation / Commission Schedule
Although Maryland has its own default schedule when it comes to trustee compensation, trustees can also submit their own compensation schedule on behalf of a given trust. Trustees might submit their own increased rate schedule for any number of reasons, including a higher level of task complexity, more sophisticated investment expertise, and so forth. When trustees submit their own rate schedule, this submission is subject to certain notice requirements which are spelled out by the same section of the code. Trustees need to read the subsections which govern these notice requirements carefully, as the rules are strictly enforced.
A Note on Compensation for Non-Trustee Services
In one of our recent posts (In re: Trust Under Item Ten (2024) & Trustee Fees), we discussed the issue of compensation for non-trustee services performed by trustees. This issue is covered by ET § 14.5-802 of the Maryland Trust Act. This issue is too complex to discuss in its entirety in this article, but basically whenever trustees perform non-trustee services and expect compensation from trust funds a legal question becomes presented. If, for instance, the trustee contracts with an outside organization in which the trustee has a clear financial interest, this type of business dealing will nearly always be barred. The reason is because there is a clear conflict of interest (or “divided loyalty”) when the trustee conducts business on behalf of the trust with an entity in which he or she has a financial stake. However, if the trustee performs additional, non-trustee services directly for the trust, and then requests compensation from the trust for those services, this compensation may be acceptable but must be fair and reasonable to the beneficiaries.
Contact the Murphy Law Firm for More Resources
To learn more about compensation of trustees, compensation for non-trustee services rendered by trustees for trusts, trustee appointment, appointment of successor trustees, or any other related estate planning matter, contact one of the estate planning attorneys at the Murphy Law Firm today by calling 240-219-1187.
