Trustee Compensation, Reimbursement, and Costs of Administration

1. Trustee compensation is payment for the faithful performance of fiduciary duty, not a reward for possession of trust property. UTC § 708; Restatement (Third) of Trusts § 38.
2. In the absence of a controlling term in the trust instrument, a trustee is entitled to compensation that is reasonable under the circumstances. UTC § 708(a).
3. Reasonableness of compensation is measured against the character of the trust, the scope of the office, the responsibility assumed, and the quality of the services rendered.
4. A trustee is entitled to reimbursement, out of trust property, for expenses properly incurred in the administration of the trust. UTC § 709; Restatement (Third) § 38 cmt. b.
5. Expenses incurred for the trustee's personal benefit, or for administrative acts that were not authorized or that constituted a breach of trust, are not chargeable to the trust.
6. Compensation and reimbursement are subject to modification, reduction, or denial where the trustee has committed a breach of trust; the court retains equitable power to adjust the trustee's charges to reflect the injury caused.
7. Corporate and professional trustees may charge according to a published fee schedule, but the schedule is not conclusive; a court may reduce fees that are unreasonable under the circumstances of the particular trust.
8. Where more than one trustee serves, the compensation payable to each is determined by reference to the total compensation reasonable for the office and by the allocation appropriate to the services each rendered. UTC § 708 cmt.
9. Administrative expenses — attorney's fees, accountant fees, investment management fees, and court costs — are chargeable to the trust when reasonably incurred in the proper administration of the trust and allocated between principal and income according to the applicable principal-and-income act.
10. Compensation and reimbursement are subject to fiduciary accounting; beneficiaries are entitled to notice, disclosure, and an opportunity to object; and the court retains supervisory authority over the trustee's charges.

Upon completing this chapter, the reader should be able to:

1. State the doctrinal content of the trustee's right to compensation and reimbursement under UTC §§ 708–709 and Restatement (Third) § 38.
2. Distinguish compensation from reimbursement, and both from the improper charging of personal expenses to the trust.
3. Apply the reasonable-compensation standard to individual trustees, corporate trustees, and co-trustees.
4. Evaluate a corporate trustee's published fee schedule against the trust's circumstances.
5. Identify services that qualify as extraordinary and warrant additional compensation.
6. Analyze the doctrinal grounds for reduction, denial, or forfeiture of compensation following breach of trust.
7. Determine whether an expense is properly chargeable to the trust and allocate it between principal and income.
8. Prepare and evaluate the compensation and expense components of a fiduciary accounting.
9. Advise beneficiaries and trustees on objections to compensation and the standard of judicial review.
10. Diagnose common misconceptions concerning trustee compensation, including the conflation of compensation with entitlement to trust property.

• Uniform Trust Code § 708 (compensation of trustee); § 709 (reimbursement of expenses); § 105 (default and mandatory rules); § 706 (removal); §§ 813–814 (duty to inform and account); §§ 1001–1002 (remedies; damages); § 1004 (attorney's fees and costs).
• Restatement (Third) of Trusts §§ 38 (compensation and indemnity), 88 (compensation), 100 (liability for breach), 82–83 (duty to inform and account).
• Restatement (Second) of Trusts §§ 242 (compensation), 243 (reduction and denial), 244 (indemnity for expenses), 245 (improper expenses).
• Uniform Principal and Income Act (1997, revised 2018) §§ 501–506 (allocation of expenses between principal and income).
• Uniform Prudent Investor Act § 9 (delegation and compensation of agents).
• Leading state trust statutes implementing UTC §§ 708–709: Cal. Prob. Code §§ 15680–15688; Fla. Stat. §§ 736.0708–.0709; N.Y. Surr. Ct. Proc. Act §§ 2307–2309; Tex. Prop. Code §§ 114.061–.063; Ohio Rev. Code § 5808.08; Va. Code § 64.2-761.
• Landmark decisions: In re Estate of Painter, 567 P.2d 820 (Colo. 1977); Estate of Nicholas, 177 Cal. App. 3d 1071 (1986); In re Estate of Rothko, 43 N.Y.2d 305 (1977); In re Trusteeship of Williams, 591 N.W.2d 743 (Minn. Ct. App. 1999); Matter of Schaefer, 91 A.D.2d 1078 (N.Y. App. Div. 1983); In re Marshall, 265 A.D.2d 253 (N.Y. App. Div. 1999).

• Austin Wakeman Scott, William Franklin Fratcher & Mark L. Ascher, Scott and Ascher on Trusts (5th ed.) §§ 22.1–22.4 (compensation and reimbursement).
• George Gleason Bogert, George Taylor Bogert & Amy Morris Hess, The Law of Trusts and Trustees (3d ed. & Supp.) §§ 975–984 (trustee compensation and expenses).
• Charles E. Rounds Jr. & Charles E. Rounds III, Loring and Rounds: A Trustee's Handbook (current ed.), ch. 7 (compensation and indemnification).
• Robert H. Sitkoff & Jesse Dukeminier, Wills, Trusts, and Estates (11th ed.), chapter on trustee compensation.
• John H. Langbein, The Contractarian Basis of the Law of Trusts, 105 Yale L.J. 625 (1995).
• Ronald Chester, Trustee Compensation: Reasonable in Fact, Reasonable in Law, 42 Real Prop. Prob. & Tr. J. 415 (2007).
• Restatement (Third) of Trusts, Reporter's Notes to §§ 38 and 88.
• ACTEC Commentaries on Trustee Compensation and Reimbursement (current edition).

Trustee compensation is payment for the faithful performance of the fiduciary office. It is not, and has never been under modern American law, a reward for possession of trust property, a share in the trust corpus, or an incident of the trustee's status as legal titleholder. The trustee's compensation is earned by the discharge of duty; it is measured by the character and scope of the office; and it is subject at every stage to the equitable oversight of the beneficiaries and the court. UTC § 708; Restatement (Third) of Trusts § 38.

This principle has consequences that recur throughout the doctrine. Because compensation is payment for performance, it may be reduced or denied when performance is defective. Because it is payment for duty, it must be reasonable in relation to the duty owed and the services in fact rendered. And because it is drawn from property held for the beneficiaries, it must be justified on the record — disclosed, accounted for, and subject to objection.

The chapter accordingly treats compensation not as a species of property right but as a species of fiduciary charge. The trustee is entitled to be paid; but the entitlement is conditional, measured, and reviewable.

Compensation and reimbursement are distinct rights of the trustee, though they are often addressed together. Compensation is payment for the trustee's services in administering the trust. Reimbursement is repayment, out of trust property, for expenses the trustee has properly incurred in that administration. UTC §§ 708–709; Restatement (Third) § 38 cmts. a–b.

The distinction matters. Compensation is measured by the value of the services rendered; reimbursement is measured by the amount actually and properly expended. A trustee may be entitled to reimbursement for advances made from personal funds even where compensation is denied for breach; conversely, a trustee may be entitled to compensation for services rendered even where a particular expense is disallowed as improper. The two rights are separately analyzed, separately proved, and separately reviewed.

Neither compensation nor reimbursement authorizes the trustee to draw from trust property for the trustee's personal benefit. Expenses incurred for personal purposes — even if paid in the course of administration — are not chargeable to the trust and must be borne by the trustee.

The English rule from which American trust law inherits its doctrinal vocabulary treated trustees as unpaid officers. A trustee could not, absent express authorization in the trust instrument or an order of the Court of Chancery, claim compensation for his services. The rule rested on the same rationale that generated the strict prohibition on self-dealing: the trustee's compensation was itself a form of dealing with the trust, and any such dealing carried an intolerable risk of conflict.

The rule was ill-suited to the administration of large or complex trusts, and it was gradually softened by the practice of inserting compensation clauses in trust instruments and by statutory authorization in particular contexts. But the underlying doctrinal frame — that compensation was exceptional, and that its measure and payment required justification — carried forward into American law and continues to influence the modern reasonable-compensation standard.

American courts and legislatures rejected the English rule against payment from an early date. By the middle of the nineteenth century, most American jurisdictions permitted trustees to receive reasonable compensation for their services, either by statute or by a general judicial gloss on the office. The Restatement (First) of Trusts § 242 (1935) and the Restatement (Second) § 242 (1959) codified the American rule: a trustee is entitled to reasonable compensation.

The move from the English rule to the American rule reflected the practical reality that trust administration is work — often skilled, often demanding, often extending over decades — and that a categorical prohibition on compensation would either eliminate the office in commercial contexts or drive it entirely into the hands of institutional trustees paid under contract. The American compromise preserved the office's fiduciary character while permitting reasonable payment for its exercise.

The Uniform Trust Code, adopted in 2000, states the modern doctrine in two adjacent sections. Section 708 addresses compensation: in the absence of a controlling term in the trust instrument, a trustee is entitled to compensation that is reasonable under the circumstances, and the court may allow more or less than the compensation specified in the instrument where the duties of the trustee are substantially different from those contemplated when the trust was created, or where the specified compensation would be unreasonably low or high. Section 709 addresses reimbursement: a trustee is entitled to be reimbursed out of trust property, with interest as appropriate, for expenses properly incurred in the administration of the trust, and, to the extent necessary to prevent unjust enrichment of the trust, for expenses not properly incurred in the administration of the trust.

These provisions are default rules; the trust instrument may modify or displace them, subject to the mandatory floor of good-faith administration and the court's residual equitable authority. UTC § 105. Almost every American jurisdiction that has enacted the UTC, and most that have not, follow the statutory pattern of separate provisions for compensation and reimbursement built on the reasonable-under-the-circumstances standard.

The starting point for every compensation analysis is the trust instrument. A settlor may specify the compensation payable to the trustee — a fixed sum, a percentage of principal, an annual retainer, a fee tied to a published schedule — and the specification will ordinarily govern. UTC § 708(a); Restatement (Third) § 38 cmt. c.

The instrument's specification is not absolute. UTC § 708(b) authorizes the court to depart from a specified fee where the trustee's duties are substantially different from those contemplated when the trust was created, or where the specified compensation would be unreasonably low or high. The provision preserves the settlor's autonomy in the ordinary case while preventing the specified fee from becoming an instrument of injustice when circumstances change or the initial specification proves inapt.

A specification that ties compensation to a published fee schedule — common for corporate trustees — is enforceable, but the schedule itself remains subject to the reasonable-under-the-circumstances test. A schedule calibrated to portfolio management may be unreasonable applied to a trust whose principal task is real property management or business operation; a court may adjust the fee accordingly.

In the absence of a controlling instrument, the applicable state statute supplies the framework for compensation. Some jurisdictions specify a percentage-based schedule for certain kinds of trusts; others simply codify the reasonable-under-the-circumstances standard and leave the calculation to the court. See, e.g., Cal. Prob. Code §§ 15680–15688 (reasonable compensation and standards); N.Y. Surr. Ct. Proc. Act § 2309 (statutory commission rates for testamentary trustees). The variation among jurisdictions is significant, and counsel must consult the governing statute.

Statutory schedules, where they exist, ordinarily set a presumptive fee subject to judicial adjustment. They are not floors and ceilings in an absolute sense; the court retains authority to allow more or less where the circumstances warrant. The reasonable-under-the-circumstances test, articulated in UTC § 708 and Restatement (Third) § 38, remains the doctrinal touchstone even where a statutory schedule is in force.

Where neither the instrument nor a controlling statute fixes the compensation, the amount is determined by the court on the reasonable-under-the-circumstances standard. Reasonableness is measured against a familiar set of considerations, summarized in Restatement (Third) of Trusts § 38 cmt. c and reflected in the leading cases: the character of the trust (size, complexity, and duration); the responsibilities assumed by the trustee (custody of assets, discretionary distributions, litigation, business operation); the skill and expertise required and in fact deployed; the time reasonably devoted to the office; the results achieved; and the customary compensation charged for similar services in the community.

No single factor is dispositive. A court's task is not to reduce the analysis to a formula but to arrive at a figure that fairly compensates the trustee for the office in fact discharged. The task is inherently fact-specific, and appellate courts accord broad deference to the trial court's determination. See, e.g., In re Estate of Painter, 567 P.2d 820 (Colo. 1977) (multi-factor analysis); Estate of Nicholas, 177 Cal. App. 3d 1071 (1986) (reasonableness measured by services rendered).

Individual trustees — family members, close associates, professionals serving as trustee for a single trust — are entitled to reasonable compensation for their services under the general standard. The absence of a published fee schedule requires the court to make a first-principles determination, weighing the factors set out above against the record made by the trustee and the objections raised by the beneficiaries.

An individual trustee is not disqualified from compensation by lack of professional credentials, but the absence of specialized expertise may be relevant to the reasonableness inquiry in two respects. First, an individual trustee is not entitled to be paid at professional rates for services that do not require professional skill. Second, an individual trustee who lacks the expertise required for a task is expected to obtain qualified assistance rather than to attempt the task and later claim compensation for the effort. See UTC § 807 (delegation); Restatement (Third) § 80.

An individual trustee's time records, contemporaneous notes, and administrative correspondence are the ordinary evidentiary basis for a compensation award. Absence of records is not fatal, but it substantially weakens the trustee's position on objection.

Corporate and professional trustees ordinarily charge according to a published fee schedule — commonly a percentage of assets under management, sometimes supplemented by transaction fees, custody charges, and hourly rates for extraordinary services. A published schedule communicated to the settlor before the trust was created is generally treated as the compensation specified by the trust for purposes of UTC § 708(a), and it will ordinarily be enforced.

The published schedule is not conclusive. A court reviewing the fees charged by a corporate trustee will consider whether the schedule as applied to the trust in question yields a reasonable result, taking into account the character of the trust and the services in fact required. Where the schedule produces a fee that is disproportionate to the work performed — for example, on a trust whose principal is very large but whose administration requires little institutional attention — the court retains authority under UTC § 708(b) to adjust the fee. The corporate trustee is also held to the elevated standard applicable to a trustee holding itself out as having special skills. UTC § 806; Restatement (Third) § 77(3).

Where more than one trustee serves, compensation is ordinarily determined by reference to the total compensation reasonable for the office and by an allocation appropriate to the services rendered by each co-trustee. UTC § 708 cmt. The total is not automatically multiplied by the number of trustees; a trust of ordinary character does not become more expensive merely because it has three trustees rather than one. Nor is the total automatically capped at what a single trustee would receive; where each co-trustee contributes distinct value, the aggregate may reasonably exceed the single-trustee figure.

The doctrinal touchstone remains reasonableness under the circumstances. Where co-trustees have divided responsibilities — one handling investments, another handling distributions, another handling family relations — allocation follows the division. Where responsibilities are held jointly, allocation reflects the actual time and effort each contributed. Chapter 4 of this volume addresses the substantive law of co-trustee administration; this section addresses only its compensation consequences.

A successor trustee is entitled to compensation for services rendered during her tenure on the same terms as any other trustee. UTC § 708; Restatement (Third) § 38. The predecessor's fees are separately determined for the period of the predecessor's service. Compensation is not transferable between trustees; each trustee is compensated for her own services.

Where the trust instrument specifies a fixed annual fee or a percentage of principal, the fee is ordinarily apportioned between predecessor and successor by reference to the time each served, unless the instrument or the court directs otherwise. See Chapter 5 (successor trustees and continuity of administration).

A trustee who renders extraordinary services — services outside the ordinary course of administration for which the base compensation does not adequately account — may be entitled to additional compensation on application to the court. Restatement (Third) § 38 cmt. e; UTC § 708 cmt.

Services routinely treated as extraordinary include: extended litigation in which the trustee is an active participant; sale or purchase of significant illiquid assets requiring specialized effort; operation of a going business that is part of the trust corpus; complex tax controversies; contested distribution decisions requiring evidentiary proceedings; and administration of a trust that has been placed under continuing court supervision. In each instance the extraordinary services are those that lie outside the ordinary administrative burden the trustee was compensated to bear.

Extraordinary compensation is not automatic. The trustee must show that the services were in fact extraordinary, that they were reasonably required for the administration of the trust, and that the amount claimed is reasonable in relation to the effort expended and results obtained.

Institutional trustees ordinarily maintain a published fee schedule, updated periodically, that sets base fees, custody charges, transaction fees, and hourly rates for extraordinary services. The schedule is a communicative document — a proposal to the market — as well as an operational document by which the institution measures its own charges.

For purposes of judicial review, a published schedule serves two functions. It is evidence of the customary compensation charged for similar services in the community, which is one factor in the reasonableness analysis. And, where the schedule was communicated to the settlor before the trust was created, it functions as an implied specification of compensation under UTC § 708(a). But it remains the schedule's application to the particular trust, not the schedule in the abstract, that the court reviews.

A trustee may waive compensation, either in whole or in part, by an express and unambiguous act. Waiver is not lightly inferred: mere failure to charge compensation for a period does not, standing alone, effect a waiver, and a trustee who has not charged may claim compensation on a later accounting subject to any statute of limitations or laches defense. Restatement (Third) § 38 cmt. d.

Waiver is common where the trustee is a family member serving without expectation of payment, or where the trustee has other reasons — tax planning, family relations, institutional identity — to serve without charge. A waiver, once effective, is ordinarily irrevocable as to services already rendered.

The court may reduce the trustee's compensation below the amount otherwise payable where the trustee has failed to discharge the office at the standard required, but where the failure does not rise to the level warranting complete denial. Restatement (Third) § 38 cmt. f; UTC § 708 cmt. Reduction is a graduated remedy calibrated to the seriousness of the shortcoming.

Grounds for reduction include: neglect of administrative duties that did not cause identifiable loss; failure to provide timely accountings; failure to communicate with beneficiaries in the manner required by UTC § 813; and administrative inefficiency that increased the burden on the beneficiaries. Reduction is not surcharge — the trustee is not held liable for a distinct sum — but it withholds the trustee's compensation to the extent the office was not fully discharged.

Where the trustee has committed a breach of trust, the court may deny compensation altogether for the period during which the breach occurred, or may order forfeiture of compensation already received. UTC § 1001 cmt.; Restatement (Third) § 38 cmt. f; Restatement (Third) § 100. Denial and forfeiture are distinct remedies from surcharge: the court may both deny compensation and surcharge the trustee for the loss the breach caused the trust.

Serious breaches — self-dealing, misappropriation of trust property, reckless disregard of the terms of the trust — warrant complete forfeiture. Less serious breaches — imprudent but not disloyal conduct, failures of process that did not injure the trust in fact — warrant partial denial or reduction. The court's determination is discretionary and reviewed for abuse.

The purpose of denial and forfeiture is not primarily to punish but to withhold payment for services that were not, in the eyes of equity, faithfully rendered. Compensation is payment for fiduciary performance; where the performance failed, the payment is withheld.

A trustee who has properly incurred expenses in the administration of the trust is entitled to reimbursement, with interest as appropriate, out of trust property. UTC § 709(a); Restatement (Third) § 38 cmt. b. The right is corollary to the office: the trustee, having no personal beneficial interest in the trust, is not required to bear its expenses out of personal funds.

Reimbursement is distinct from compensation. Compensation pays the trustee for services; reimbursement returns the trustee's own money advanced for the trust's benefit. A trustee may claim reimbursement even where compensation is denied, and vice versa.

Expenses are properly incurred, and therefore reimbursable, when they were reasonably necessary for the administration of the trust and were incurred in the discharge of the trustee's duties. Restatement (Third) § 38 cmt. b. Categories that recur across the doctrine include: attorney's fees for legal advice and representation reasonably obtained in the course of administration; accountant fees for tax preparation, fiduciary accountings, and consulting reasonably required; investment management fees paid to advisers or delegates on reasonable terms under UTC § 807 and UPIA § 9; court costs and filing fees for accountings and other proceedings; premiums for fiduciary bonds where required; and costs of maintenance, insurance, and taxes on trust property.

The reasonableness inquiry parallels that for compensation: expenses that were prudently incurred for legitimate purposes of administration are reimbursable, and expenses that were excessive, unnecessary, or incurred in breach of trust are not.

Expenses incurred for the trustee's personal benefit, or in service of interests other than the proper administration of the trust, are not chargeable to trust property. Restatement (Second) § 245; Restatement (Third) § 38 cmt. b. The trustee who has paid such expenses out of trust property must restore the amounts to the trust; the trustee who has paid such expenses out of personal funds has no reimbursement claim.

The line between proper and improper expenses is drawn by reference to the purposes of the expenditure. Legal fees incurred to defend the trust against a legitimate claim are proper; legal fees incurred to defend the trustee personally against a well-founded surcharge claim are not. Travel expenses to inspect trust property are proper; travel expenses on a personal itinerary loosely connected to trust business are not. The trustee bears the burden of establishing that a challenged expense was incurred for a proper trust purpose. See UTC § 1004 (attorney's fees and costs in judicial proceedings).

Three categories of expense recur so frequently that they merit particular treatment. Attorney's fees are reimbursable where the legal services were reasonably obtained for the benefit of the trust — advice on administration, representation in court proceedings brought by or against the trustee in a fiduciary capacity, litigation to enforce the terms of the trust. UTC § 1004; Restatement (Third) § 88 cmt. Fees for legal services obtained primarily for the trustee's personal benefit are not.

Accountant fees are reimbursable where the accounting services were reasonably required for the administration of the trust — preparation of fiduciary income tax returns, preparation of formal accountings, valuation of assets for distribution or tax purposes. Fees for accounting services obtained primarily to defend the trustee against well-founded objections are subject to scrutiny; the trustee may be required to bear such fees personally.

Investment management expenses are reimbursable where the services were obtained on reasonable terms under UTC § 807 and UPIA § 9 and were reasonably required for the prudent administration of the trust. A delegation on unreasonable terms — excessive fees, inadequate oversight — exposes the trustee both to disallowance of the fees and to liability for imprudent delegation.

Court costs — filing fees, service fees, transcript costs, expert witness fees — incurred in judicial proceedings brought by or against the trustee in a fiduciary capacity are ordinarily reimbursable where the proceedings were reasonably required for the administration of the trust. UTC § 1004; Restatement (Third) § 88 cmt.

Litigation expenses are subject to particular scrutiny where the litigation was between the trustee and the beneficiaries. Where the trustee prevails, expenses reasonably incurred are ordinarily reimbursable. Where the trustee does not prevail — where the court finds a breach of trust or otherwise rules against the trustee — the court may deny reimbursement, order the trustee to bear the expenses personally, and require restoration of any expenses already paid. UTC § 1004; Restatement (Third) § 88 cmt. c.

Administrative expenses must be allocated between principal and income according to the applicable principal-and-income act. The Uniform Principal and Income Act (1997, revised 2018) supplies the modern default rules; individual jurisdictions vary in their adoption. UPIA §§ 501–506.

Under the modern framework, ordinary administrative expenses — trustee's regular compensation, routine attorney's and accountant fees, ordinary custody and management fees — are ordinarily allocated equally between principal and income. Extraordinary expenses — costs of unusual litigation, capital improvements to real property, expenses of asset sales — are ordinarily allocated to principal. The trust instrument may modify the default allocation; the settlor's expressed preferences are ordinarily honored. See Restatement (Third) § 232.

Allocation is not a matter of accounting convenience alone. It has substantive consequences for the beneficiaries: allocation to income reduces the current beneficiary's distribution; allocation to principal reduces the remainder beneficiary's ultimate share. The duty of impartiality — Chapter 8 of this volume — informs the trustee's allocation decisions where the applicable act leaves discretion.

Compensation and expenses must be disclosed in the trustee's fiduciary accounting. UTC § 813; Restatement (Third) § 83. The accounting ordinarily shows compensation charged for the accounting period, expenses paid, the allocation between principal and income, and, where applicable, the specific services or transactions to which extraordinary compensation or particular expenses relate.

The purpose of disclosure is to permit the beneficiaries — and, where the accounting is judicially reviewed, the court — to evaluate the reasonableness of the charges. General or conclusory statements are not sufficient. A trustee who has drawn compensation or paid expenses without adequate contemporaneous records will find the burden of justification on the accounting substantially heavier.

A beneficiary who believes that trustee compensation or expenses are unreasonable, improperly incurred, or improperly allocated may object. The objection is ordinarily made in response to a fiduciary accounting, but it may also be raised by a petition for construction or by a motion for surcharge, depending on the procedural framework of the jurisdiction.

The beneficiary's objection frames the issue for the court; the trustee bears the burden of establishing that the challenged charges were reasonable and properly incurred. Restatement (Third) § 38 cmt. c; UTC § 813 cmt. The trustee's evidentiary base is the contemporaneous record made during the period in question: time records, correspondence, memoranda, invoices, and the fiduciary accounting itself.

Judicial review of trustee compensation and expenses is de novo on the record made below, with appellate deference to the trial court's factual findings. The court is guided by the reasonable-under-the-circumstances standard, the multi-factor analysis described in Restatement (Third) § 38 cmt. c, and the leading cases in the jurisdiction. Excessive fees are reduced; improper expenses are disallowed; where the record establishes breach of trust, compensation may be denied or forfeited.

The court's authority is equitable and comprehensive. It extends to prospective as well as retrospective adjustment: a court may, on petition, fix a compensation schedule going forward, direct the manner in which fees are to be charged, or require the trustee to obtain court approval for extraordinary charges. UTC § 708(b).

Trustee compensation raises ethical questions distinct from the doctrinal ones. A trustee who is also the settlor's attorney, accountant, or investment adviser must ensure that fees charged in one capacity are not duplicated in the other, that the several engagements were entered into with adequate disclosure and, where required, informed consent, and that the aggregate compensation is reasonable in relation to the aggregate services. See ACTEC Commentaries on Trustee Compensation and Reimbursement. Rules of professional conduct in most jurisdictions require particular care where a lawyer serves as trustee for a client's trust and charges both trustee compensation and legal fees.

The prohibition on personal benefit — a corollary of the duty of loyalty — extends to compensation. A trustee may not use the office to extract compensation greater than the office reasonably warrants, nor to obtain incidental benefits (favorable terms on personal loans, referral relationships, business opportunities) that would compromise the trustee's independence.

Four misconceptions recur in trustee compensation disputes and warrant explicit correction.

First, that trustee compensation is an incident of the trustee's legal title to trust property. It is not. Compensation is payment for services; it has no doctrinal connection to the trustee's title as such.

Second, that a published fee schedule is conclusive of reasonableness. It is not. A schedule is evidence of customary compensation and, where communicated to the settlor, may function as an implied specification, but its application to the particular trust remains subject to judicial review under UTC § 708(b).

Third, that reimbursement of expenses is automatic. It is not. Reimbursement requires that the expense have been properly incurred in the administration of the trust; expenses for the trustee's personal benefit or in breach of trust are not reimbursable.

Fourth, that compensation cannot be reduced or forfeited absent a formal surcharge. It can. Reduction, denial, and forfeiture of compensation are distinct equitable remedies available where the trustee's performance falls short of what the office required, and they may be imposed independently of, or in addition to, surcharge for identified loss.

For the practicing trustee, the doctrine of compensation and reimbursement translates into a small number of durable practices. Ascertain, at the outset of administration, the compensation authorized by the trust instrument or the applicable statute, and the fee schedule (if any) applicable to institutional trustees. Maintain contemporaneous records of time spent, services rendered, and expenses incurred, at a level of detail proportionate to the scale of the trust. Distinguish compensation from reimbursement in the trustee's own bookkeeping and on every fiduciary accounting. Allocate expenses between principal and income according to the applicable principal-and-income act. Disclose compensation and expenses fully and specifically in each accounting to the beneficiaries. Where extraordinary services are anticipated, notify the beneficiaries and, where appropriate, seek court approval in advance.

None of these practices is novel. Each is an ordinary implication of the duty to administer the trust in the interests of the beneficiaries and to inform them adequately of the trustee's actions. Their cumulative effect is what proper handling of trustee compensation looks like from the outside — the outside from which beneficiaries, courts, and successor trustees will ultimately judge the office.

Chapter 11 turns to the trustee's duty to keep the beneficiaries informed and to render regular accountings — the affirmative obligation of disclosure that transforms fiduciary administration from a private exercise of the office into an accountable, reviewable, and correctable one. The disclosures and accountings addressed in Chapter 11 are the institutional context within which the compensation and expense charges examined in this chapter are proved, tested, and, where appropriate, adjusted.

• Uniform Trust Code §§ 708, 709, 105, 706, 806, 807, 813, 1001–1002, 1004.
• Restatement (Third) of Trusts §§ 38, 88, 82–83, 100, 232.
• Restatement (Second) of Trusts §§ 242, 243, 244, 245.
• Uniform Principal and Income Act §§ 501–506 (1997, rev. 2018).
• Uniform Prudent Investor Act § 9 (1994).
• In re Estate of Painter, 567 P.2d 820 (Colo. 1977); Estate of Nicholas, 177 Cal. App. 3d 1071 (1986); In re Estate of Rothko, 43 N.Y.2d 305 (1977).
• Scott and Ascher on Trusts (5th ed.) §§ 22.1–22.4.
• Bogert, The Law of Trusts and Trustees §§ 975–984.
• Loring and Rounds: A Trustee's Handbook, ch. 7.
• Ronald Chester, Trustee Compensation: Reasonable in Fact, Reasonable in Law, 42 Real Prop. Prob. & Tr. J. 415 (2007).
• ACTEC Commentaries on Trustee Compensation and Reimbursement (current edition).