Minnesota Sets No Trustee Fee Percentage — and the Fee Clause in Your Trust Does Not Settle It Either

Two questions, and the statute is short about both

A family member named as trustee wants to know whether taking a fee is greedy. A beneficiary wants to know whether the fee being taken is too much. Minn. Stat. § 501C.0708 answers both in four lines.

(a) If the terms of a trust do not specify the trustee’s compensation, a trustee is entitled to compensation that is reasonable under the circumstances.

(b) If the terms of a trust specify the trustee’s compensation, the trustee is entitled to be compensated as specified, but the court may allow more or less compensation if:

(1) the duties of the trustee are substantially different from those contemplated when the trust was created; or

(2) the compensation specified by the terms of the trust would be unreasonably low or high.

Start with paragraph (a), because the most common misconception is upstream of the whole discussion.

A trustee is entitled to be paid

The point is reinforced from an unexpected direction. Section 501C.0802 is the duty of loyalty statute, and paragraph (d) lists transactions the loyalty rule “does not preclude . . . if fair to the beneficiaries.” Item (2) is “payment of reasonable compensation to the trustee.” The loyalty section does not preclude a trustee being paid, subject to the same fairness qualifier as the rest of that list. Being paid unreasonably is a different matter, and it is measured under this section.

A trustee may of course decline the fee, and many family trustees do. Nothing in Minnesota law requires that choice. Two federal provisions bear on how the money is treated, and neither settles the other. 26 U.S.C. § 61(a) defines gross income as “all income from whatever source derived,” and item (1) on its list is “Compensation for services, including fees, commissions, fringe benefits, and similar items.” 26 U.S.C. § 102(a) runs the other way:

Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.

Section 102(b) then puts back the income from such property. Which of the two reaches a trustee who takes a bequest in place of a fee is not answered on the face of either section. That is a tax question for a tax adviser, and not one this page answers.

What “reasonable under the circumstances” means

The honest answer is that § 501C.0708 does not say. There is no percentage in it. No fee schedule. No list of factors — nothing on the order of “the size of the trust, the time expended, the skill required.” The section supplies a standard and stops.

That absence has consequences. A Minnesota trustee cannot open the statute and compute a number, and neither can a beneficiary trying to decide whether to object. What fills the gap in practice is comparison: what corporate trustees in this market charge for a trust of this size and complexity, what the work actually involved, what a professional would have charged for the same tasks, and whether the trustee kept records showing any of it.

That last item is the one family trustees skip. A trustee who reconstructs three years of work from memory is in a much worse position than one with contemporaneous time records, whatever the number turns out to be.

The fee clause is a starting point, not the end

Paragraph (b) is where a lot of expectations get corrected. Where the trust specifies compensation, the trustee “is entitled to be compensated as specified” — and then a court may allow more or less, on either of two grounds.

(b)(1) — the duties are substantially different from those contemplated. This is the clause for a trust drafted to hold a brokerage account that ends up operating a farm, running litigation, or managing a beneficiary’s long-term care. The work is not what anyone was pricing.

(b)(2) — the specified compensation would be unreasonably low or high. Note the direction runs both ways. A trust that fixed a professional trustee’s fee in 1994 dollars can be adjusted upward. A trust that authorizes a fee nobody would pay today can be adjusted downward.

And the document cannot foreclose this. Minn. Stat. § 501C.0105(b) lists what the terms of a trust do not override, and item (7) is

the power of the court under section 501C.0708, paragraph (b), to adjust a trustee’s compensation specified in the terms of the trust which is unreasonably low or high;

So “the trust says my fee is 1.5% and that is the end of it” is wrong as a matter of Minnesota law, no matter how the clause is written.

Expenses are separate, and reimbursed differently

Compensation is pay for services. Expenses are money the trustee laid out, and they run through § 501C.0709(a):

(a) A trustee is entitled to be reimbursed out of the trust property, with interest as appropriate, for:

(1) expenses that were properly incurred in the administration of the trust; and

(2) expenses that were not properly incurred in the administration of the trust, to the extent necessary to prevent unjust enrichment of the trust.

Clause (2) is the interesting one. Even an improperly incurred expense is reimbursable to the extent the trust would otherwise be unjustly enriched — a trustee who pays a roof bill without authority does not simply forfeit the money if the trust owns a building with a new roof.

Paragraph (b) adds security for the trustee who advances funds: “An advance by the trustee of money for the protection of the trust gives rise to a lien against trust property to secure reimbursement with reasonable interest.” Section 501C.0802(d)(5) confirms that such an advance is not a loyalty violation, subject to the same fairness qualifier as the rest of that list.

Two guardrails on setting the fee

A trustee cannot decant into a better deal. Under § 502.851, subd. 16, unless a court directs otherwise, an authorized trustee may not use the decanting power “to change the provisions regarding the determination of the compensation of any trustee.” Compensation payable to the trustees of the invaded trust may continue in the appointed trust, “determined in the same manner as in the invaded trust.”

An agreement with a beneficiary about the fee is a fairness question. Section 501C.0802(d)(1) permits “an agreement between a trustee and a beneficiary relating to the appointment or compensation of the trustee” — if fair to the beneficiaries. A fee arrangement negotiated with one beneficiary is measured against that standard — and the standard the statute writes is fairness “to the beneficiaries,” not to the beneficiary who signed.

Where a challenge to a fee actually starts

A fee cannot be questioned until it is visible, which routes the subject back through the reporting duty. Section 501C.0813(a) enumerates nothing and prescribes no statement of fees. What it sets is a standard — keeping the qualified beneficiaries of an irrevocable trust reasonably informed about the administration and of the material facts necessary to protect their interests — and the compensation taken, the period it covers, and the basis for it are the kind of facts a beneficiary would need in order to know whether anything is wrong.

From there the section splits the same way it did at the top. Where the trust is silent, the fee is measured against paragraph (a)’s “reasonable under the circumstances.” Where the trust specifies a number, the trustee is entitled to it, and changing it means persuading a court under paragraph (b)(1) or (b)(2) — the two grounds on which a court may allow more or less. The starting position is the document’s own figure.

Whether any particular fee is too high turns on the trust, the assets, and the work, none of which a web page can see. What the statute settles is narrower: the fee clause is not the last word, and § 501C.0105(b)(7) means the document cannot make it one.