Navigating Trustee Fees in Ohio

A critical aspect of trust administration is determining trustee fees, which compensate the trustee, whether a family member or a corporate entity like a bank, for the time and affort expended in managing and distributing assets. Trustee fees must align with the trust’s terms, often requiring “reasonable” or “reasonable and customary” compensation.  Misunderstandings and disagreements regarding trustee compensation can deplete funds or spark disputes. This article provides essential guidance on trustee fees in Ohio, addressing statutory rules, local probate court guidelines, expense reimbursement, tax implications, and the importance of early planning. By mastering these elements, a trustee  can help ensure the trust administration is without controversy or dispute.

Understanding Trustee Fees in OhioTrustees manage trust assets, such as investments, real estate, or annuities, to fulfill the trust purposes.  A trustee can serve during the life of a trust grantor ("you," if you settled and funded a trust that provides for your lifetime support and care) or can can serve at the death of the grantor to settle the trust estate.  The tasks a trustee might perform are many and varied, dependent upon the circumstances, but include funding in-home care, selecting and paying nursing homes, running small family businesses, and selling assets to distribute to beneficiaries when appropriate.  
Fees compensate for a trustee's time, effort, expertise, and liability, but they reduce funds available for care or inheritance. Ohio Revised Code § 5807.08 governs trustee compensation, stating:

“[i]f the terms of the trust do not specify the trustee’s compensation, a trustee is entitled to compensation that is reasonable under the circumstances.” 

This flexible standard requires trustees to balance fairness with their duties, especially for private trusts not overseen by probate courts.Determining “Reasonable” FeesWhen a trust specifies a “reasonable” or “reasonable and customary” fee, the trustee must evaluate several factors to set compensation, because Ohio law provides no statutory definition of “reasonable.” Here’s how trustees determine appropriate fees:

1. Trust Document as the Foundation: The trust’s terms are paramount. If it specifies a fee, the trustee must follow it unless it’s unconscionable.  If the Trustee fee is too low, or in the case the trust demands the trustee perform services without compensation, the trustee and beneficiairies can either resolve the matter by agreement or seek court or abitrator resolution. Terms like “reasonable” or “reasonable and customary” require interpretation based on duties and context.
2. Factors for Reasonableness:
   • Time and Effort: Hours spent on tasks like investment management, tax filings, or coordinating dementia care support a claim for fees.
   • Complexity: Managing diverse assets (e.g., income-producing real estate, annuities, or insurance) or navigating Medicaid eligibility might justify higher fees.
   • Expertise: Professional trustees (attorneys, CPAs) command higher fees than laypersons (e.g., a family member like your son) because they offer a higher level a skill and attention.
   • Risk and Liability: Exposure to legal risks, such as mismanagement claims of the estate against third parties, and against the estate by third parties, as well as claims beneficiaries may have against the estate or each other might justify higher fees. Family discord often requires management whether these ultimately result in actual claims or legal disputes. 
   • Trust Size: Larger trusts justify higher fees due to increased responsibility and risk.
   • Benefit to Beneficiaries: Value provided, such as preserving funds for aging-in-place care, or preserving assets for inheritance that might otherwise have been lost (e.g., to long-term care spend down), support a claim for fees. 
3. Local Probate Court Guidelines (Limited Applicability):  Few Ohio probate courts provide guidance for determining trustee compensation:
   • Cuyahoga County: Cuyahoga County’s Probate Court Form (last revised 2006) per Rule 74, allows 1.2% annually of the gross principal (up to $1 million)  as a trustee fee. For a $1 million trust, this equals $12,000/year.   
   • Summit County: Rule 74.1 of the Summit County Probate Court Rules provides that the trustee fee for an "individual" (i.e., a person that is not a corporate trustee) provides that the fee of the bank where the trust maintains its primary account is reasonable: "[e]xcept where the instrument creating the trust makes provisions for compensation, the trustee may charge fees on the same basis as is currently being charged by the banking institution with which the trust is doing business." However, many banks lack trust departments or published fee schedules, limiting this rule’s applicability.
   • Key Limitation: These rules arguably apply only to trusts under probate court supervision (e.g., testamentary trusts). Private trusts, common in aging-in-place, probate avoidance, and guardianship planning are arguably not bound by these guidelines, as their scope and asset classes often differ.  Additionally, court administration entails additional burdens, but offers, arguably, greater safety to a trustee.    
   • Important Consideration: Nonetheless, these guidelines might be applied or considered by the Judge in any court in which there is a dispute regarding trustee compensation.
4. Corporate Trustee Fees: Illustrative but Not Definitive:
   • Corporate trustees (e.g., KeyBank, Huntington, Chase) typically charge 0.5–2% of trust assets annually ($5,000–$20,000 for a $1 million trust). However, these fees are not inherently dispositive of what is reasonable for private trustees due to significant differences:
     • Restricted Asset Management: Corporate trustees often refuse to manage time-consuming, low-value assets like tangible personal property (e.g., family heirlooms), which private trustees typically must manage.
     • Commissions and Profits: Banks earn underlying commissions and otherwise benefit from managing financial assets, allowing lower trustee fees. Private trustees, like family members, lack these revenue streams and benefits, justifying higher fees for complex tasks.
     • Reliance on Professionals:  Corporate trustees are likely to rely more heavily on outside professionals, such as lawyers, accountants, appraisers, brokers, and the like, in making decisions and performing tasks, which costs are paid out of the trust.  These additional costs and expenses are not paid out of the trustee's fees, but are paid from the the trust.
     • Variability: Corporate fees vary widely based on the institution and trust size, making them illustrative but not determinative for private trusts.
   • Example: A private trustee managing a $500,000 trust with real estate and dementia care coordination might reasonably charge $7,500/year (1.5%), even if above a bank’s 1% rate, due to hands-on responsibilities.
5. Practical Steps for Private Trustees:
   • Research Ohio Practices: Consult local trust companies or the Ohio State Bar Association for fee benchmarks, but adjust for the trust’s unique needs.
   • Document Duties: Log time, tasks, and complexity to justify fees.
   • Seek Guidance: Consult an Ohio elder law attorney to ensure fees align with Ohio Rev. Code § 5807.08 and avoid disputes.  
   • Communicate Expectations:  Communicate with the beneficiaries in advance setting reasonable expectations regarding the circumstances to avoid misunderstanding or disputes.

Reimbursement of Legitimate Expenses
Trustees are entitled to reimbursement for legitimate expenses incurred in trust administration, such as legal fees, travel for property management, or out-of-pocket costs for dementia care coordination. However, meticulous record-keeping is essential:

• Document Everything: Maintain receipts, dates, and purposes for each and every expense. Undocumented expenses risk rejection by beneficiaries or probate courts.
• Examples of Reimbursable Expenses: Reimbursable expenses include necessary expenditures such as costs to keep and maintain property, taxes, commissions,  and  travel expenses necessary to oversee trust property (including appropriate mileage reimbursement), but excluding personal expenses.
• Examples of Personal Expenses: Costs such as rent, mortgage payments, utilities, groceries, or personal clothing for the trustee, expenses for vacations, dining out with friends, or attending personal events (e.g., a concert), even if loosely tied to a trust-related trip, and routine car maintenance, fuel, or insurance for a personal use automobile are typically personal expenses that may not be reimbursed from trust funds. 
• Transparency: Share expense records with beneficiaries to prevent disputes.

• Tip: Use a dedicated ledger or software to track expenses, ensuring that reimbursements are defensible and supported.

Tax Implications of Trustee Fees
Trustee fees are taxable income, unlike trust distributions, which may be non-taxable (e.g., from principal). This is critical for trustees who are also beneficiaries:

• Scenario: If you’re a 50/50 beneficiary of a $1 million trust (principal) and take a $20,000 fee, half ($10,000) comes from non-taxable trust funds, converting it to taxable income. This reduces your net distribution by $10,000 and increases your tax burden.
• Forgoing Fees: As a 50/50 beneficiary, consider forgoing the fee to preserve your non-taxable share. For smaller shares (e.g., 10%), a modest fee may be more practical.
• Tax Planning: Consult a CPA to balance taxable fees vs. non-taxable distributions given your specific tax situation.

Importance of Early Decision-MakingMaking the decision whether to accept or forego trustee fees early in the trust administration process may be critical to ensure transparency and support claims:

• Immediate Documentation: Log time, tasks, and expenses from the start using tools like spreadsheets or trust software. Delayed documentation (e.g., reconstructing hours months later) is less credible and may be challenged by beneficiaries or probate courts.
• Set Expectations: Agree on fees with beneficiaries or seek court approval early, especially for complex trusts.  A lack of clarity can lead to disputes, underscoring proactive planning.
• Court Oversight: If fees are disputed, Ohio probate courts can review reasonableness, relying on detailed records. Early planning avoids litigation that could drain trust funds.

Transparency: The Cornerstone of Trust Administration
Transparency prevents disputes and upholds fiduciary duties:

• Disclose Fees: Share proposed fees and expenses with beneficiaries early, avoiding conflicts.
• Provide Accountings: Submit annual reports detailing fees, expenses, and trust performance.
• Court Approval: For high or disputed fees, seek prior approval to ensure compliance.

Call to Action: Additional Considerations
Trustee fees can significantly impact your ability to age in place, especially for Ohio seniors with dementia relying on trusts for care costs. Take these steps to ensure your trust supports your goals:

1. Review Your Trust: Confirm fee provisions (“reasonable” or “reasonable and customary”) and align with Ohio law (Ohio Rev. Code § 5807.08).
2. Choose the Right Trustee: Select a family member for hands-on tasks setting fees based on duties, not bank rates.
3. Consider a Private Care Agreement: A Private Care Agreement is a legally binding contract between a care recipient (e.g., an aging individual) and a caregiver (often a family member or private professional) that outlines the terms of care services, including duties, payment, and duration. In aging-in-place planning, its purpose is to formalize compensation for care to protect the recipient’s assets while ensuring the caregiver is fairly compensated and the recipient receives needed support to remain at home.
4. Document Diligently: Document your wishes and expectations regarding types of care, preferences for non-institutional care, and expectations, in part to protect your decision-making, but also to protect those implementing your wishes. 
5. Assess Tax Impacts: Consulting a CPA for guidance regarding tax consiseiderations.
6. Act Early: Set fees at the trust’s outset and share with beneficiaries to avoid disputes and ease documentation.
7. Consult an Expert: Work with an Ohio elder law attorney to draft trusts, set fair fees, and integrate  planning, as well as to support what is reasonable under the circumstances.

ConclusionTrustee fees in Ohio, governed by Ohio Revised Code § 5807.08, require careful consideration to ensure they are “reasonable” or “reasonable and customary” in accordance with trust terms. Probate court rules regarding trustees fees generally apply to court-overseen trusts and are not dispositive for private trustees who face unique challenges without corporate commissions. Reimbursement for expenses demands meticulous records, and transparency prevents disputes.