SCPA 2309: Trustee Commissions — Rates, Calculation, and Examples

A trustee of a New York trust is paid commissions fixed by SCPA 2309. The statute applies to lifetime trusts and to trusts under the wills of persons who died after August 31, 1956; older testamentary trusts are governed by SCPA 2308, which has a different rate structure. Unlike an executor, who is paid once when the estate is settled, a trustee serves for years and is paid two ways: an annual commission on the principal held, and a paying-out commission when principal is distributed. Both are computed and disclosed on the trust accounting, and both are examined there by the beneficiaries. This page explains the rates, the allocation between income and principal, the rules for more than one trustee and for corporate trustees, how commissions appear on the account, and how objections to them arise. It is part of our section on trust and estate accountings.

Annual Principal Commissions

Each year the trustee is entitled to a commission computed on the value of the trust principal, at these rates:

The rates are marginal: each applies only to the band of principal within it. The commission is computed on the value of the principal at the end of the annual period, so the trustee must value the trust every year. For marketable securities that is a matter of reading the statement; for real property and closely held business interests the trustee should be able to justify the figure used, because an inflated value inflates the commission and is an objection waiting to happen.

Example. A trust holds $600,000. The annual commission is $4,200 on the first $400,000 plus $900 on the next $200,000, a total of $5,100. A trust holding $1,500,000 earns $4,200 plus $2,700 on the next $600,000 plus $1,500 on the last $500,000, a total of $8,400 a year, which is an effective rate of about 0.56%.

The Paying-Out Commission

When principal is paid out, the trustee is entitled to a commission of 1% of the principal distributed. It applies to the final distribution when the trust ends and to principal distributions made during the trust’s life, such as an invasion of principal for a beneficiary’s support. It is allowed on the settlement of the trustee’s account. On the $1,500,000 trust above, a trustee who distributes the whole principal at termination after fifteen years takes $15,000 in paying-out commissions in addition to the annual commissions for each year served.

Allocation Between Income and Principal

Annual commissions are paid one-third from income and two-thirds from principal unless the will or trust agreement provides otherwise. The allocation matters because the income beneficiary and the remainder beneficiaries are usually different people: the income beneficiary bears a third of the annual commission through reduced income, and the remainder beneficiaries bear two-thirds through reduced principal. On the $5,100 commission above, $1,700 comes from income and $3,400 from principal. A trustee who charges the whole commission to income, or the whole to principal, has shifted cost from one class of beneficiaries to the other and can be surcharged for the difference. The paying-out commission is charged to principal.

The Annual Statement

A trustee may retain annual commissions each year without a court order, but only on a condition: the trustee must send an annual statement showing the principal on hand and how the commission was computed. The statement goes to the creator of a lifetime trust if living, and otherwise to the beneficiaries currently entitled to income. This is the price of taking commissions without court approval, and skipping it is the most common trustee-commission error we see. A trustee who has taken annual commissions for years without sending the statements faces objections, disallowance, and surcharge with interest when the account is settled. A trustee who does not take a year’s commission does not lose it, but commissions taken later are computed on the principal’s value when they are actually taken, not on an earlier year’s higher value.

More Than One Trustee

The statute limits how many full commissions a trust bears. Where the principal is $400,000 or more, each of up to three trustees is entitled to a full commission; if there are more than three, three full commissions are apportioned among them according to the services rendered, or as they agree in writing. Where the principal is under $400,000, the trustees share one full commission. The $1,500,000 trust above with two individual trustees pays two annual commissions of $8,400, or $16,800 a year. That is a cost the person creating the trust should weigh when naming co-trustees, and one the beneficiaries should verify on the accounting: two trustees of a $350,000 trust share one commission; they do not each take one.

Corporate Trustees

Banks and trust companies are compensated under SCPA 2312, which allows a corporate trustee reasonable compensation under its published fee schedule rather than the SCPA 2309 rates. Corporate fee schedules are usually higher than the statutory rates, especially on larger trusts, and they change; the schedule in force for each year should be produced with the account. Where an individual and a corporate trustee serve together, each is paid under its own rule. A corporate trustee is also held to a higher standard of investment skill under the Prudent Investor Act, and its fees are one of the things beneficiaries weigh against its performance when objections are considered.

Additional Commission on Rents

Where the trustee collects rents and manages real property held in the trust, the statute allows an additional commission on the gross rents collected, on top of the annual and paying-out commissions. It applies only where the trustee actually does the work; a trustee who hires a managing agent paid from the trust should not also take a full rent commission for services the agent performed.

When the Instrument Overrides the Statute

SCPA 2309 supplies the rule where the trust instrument is silent. A will or trust agreement can fix the trustee’s compensation, direct that the trustee serve without commissions, or change the allocation between income and principal. A trustee who accepts appointment under such an instrument is bound by it and cannot take the statutory rates in addition. Read the compensation clause before computing anything.

How Commissions Appear on the Trust Accounting

A trust accounting uses the same schedules as an estate accounting, described on our page on preparing a New York estate accounting, with the income schedules carrying as much weight as the principal schedules. Commissions appear in three places. The annual commissions already taken appear as expenses, two-thirds on Schedule C (charged to principal) and one-third on Schedule C-2 (charged to income), year by year, with the annual statements as backup. The commissions claimed but not yet taken, including the paying-out commission on the proposed distribution, appear on Schedule C-1 as unpaid administration expenses. And Schedule I shows the computation: the principal value at the end of each year, the rate applied to each band, the allocation, and, for the paying-out commission, the principal being distributed.

A beneficiary reading the account checks that the values used for each year match the statements, that the arithmetic is right, that the allocation is one-third and two-thirds, that the number of commissions matches the number of trustees the trust’s size supports, and that the annual statements were sent. See when a trust accounting is required and beneficiaries’ rights to trust information.

Waiver

A trustee may waive commissions. Family trustees often do, especially where the trustee is also a beneficiary, because commissions are taxable income to the trustee and an inheritance or a trust distribution is not. A trustee who is the income beneficiary of the trust and takes an annual commission is, in effect, paying income tax to move one-third of the commission from one pocket to the other; whether the other two-thirds, which come from principal, are worth the tax is a question for a tax adviser. A waiver should be in writing and should be made before the commission is taken, because a commission received is income whether or not it is later returned. A waiver of past commissions does not bind the trustee for future years unless it says so.

Objections to Trustee Commissions

Commissions are examined when the trustee accounts, whether voluntarily under SCPA 2206, on a beneficiary’s petition to compel under SCPA 2205, or at the trust’s termination.

An objection that is sustained results in the excess being disallowed and returned, with interest for the period the trust was without the money. See objecting to an accounting, surcharge and, for trustees defending their account, contested accountings. Executors are paid on a different scale; see executor commissions under SCPA 2307.

Pitfalls

The mistakes that produce objections are the same ones every year. A trustee takes annual commissions without sending the annual statement. A trustee skips the annual valuation and later computes several years of commissions on a single convenient value. A trustee applies the statutory rates without reading the compensation clause in the instrument, which may say something else. A trustee who is also a beneficiary takes the commission, pays tax on it, and then wishes they had waived it, which has to be done before payment. And the account shows the commission as a lump sum without Schedule I, which draws an objection whether or not the number is right.

If you are a trustee who wants to take commissions correctly or has been asked to account, or a beneficiary who thinks the commissions on a trust accounting are wrong, call 212-233-1233 or email [email protected]. We prepare and review trust accountings in the Surrogate’s Courts of New York City, Long Island and Westchester.