Trustee Commissions in Maryland: Factors, Challenges, and Taxes

Trustee commissions in Maryland are set by a reasonableness standard, not a fixed percentage. Under Md. Code, Estates and Trusts § 14.5-708, a trustee is entitled to compensation that is reasonable under the circumstances, measured against eight statutory factors, unless the trust document itself specifies something different.¹ That means two trustees managing trusts of the same size can legitimately charge different amounts if the work, risk, and skill involved are different.

The Eight Factors Courts Weigh

When a court reviews whether a trustee’s fee is reasonable, § 14.5-708 directs it to consider:¹

The value and character of the trust property.
The risk and responsibility involved.
The time spent and the quality of the services.
The cost of comparable services in the area.
The trustee’s skill and experience.
The results obtained.
The terms of the trust.
Any other relevant factor.

A trust holding a single brokerage account is simpler to administer than one that holds rental property, a family business, and hard-to-value collectibles, and the fees should reflect that difference. A CPA or attorney trustee can reasonably charge more than a family member with no financial background doing the same job. Strong investment results and effective asset preservation cut in the trustee’s favor; sloppy administration cuts against it.

Because “reasonable” is inherently subjective, trustees who expect their fees to be questioned should keep detailed time records from day one, even when no one is asking.

When the Trust Document Controls

If the trust document itself addresses compensation, that language generally governs. A grantor can set a flat dollar amount, a percentage of assets, an hourly rate, or specify that the trustee serves without pay. Under the statutory factors, the terms of the trust carry significant weight.¹

The reasonableness test does most of its work when the document is silent or ambiguous. That is also where most fee disputes originate, so the first place to look before arguing about a Maryland trustee’s compensation is the trust instrument.

Corporate Trustees and Filed Rate Schedules

Maryland treats institutional trustees differently from individuals. Financial institutions supervised by state or federal regulators and members of the Maryland Bar may file a schedule of increased rates with the appropriate regulatory body. Banks file with the Commissioner of Financial Regulation, savings and loan associations file with the Division of Savings and Loan Associations, and trustees administering estates under court jurisdiction also file with the trust clerk of the court.¹

A corporate trustee filing a new rate schedule must notify every qualified beneficiary of each affected trust. Notice must be delivered in person or sent by certified mail and must clearly explain the beneficiary’s right to object. A beneficiary who thinks the new rates are unreasonable can petition the circuit court to review them. If the court agrees, the trustee’s compensation for that fiscal year is capped at whatever was charged the prior year.¹

Individual trustees who are not eligible to file rate schedules are limited to what the court considers reasonable under the statutory factors. An individual trustee who wants to charge more must petition the circuit court in the county where the trustee is located, with notice to all qualified beneficiaries.¹

Court Adjustments and Special Commissions

A court with jurisdiction over the trust can increase or decrease commissions for sufficient cause and can allow special commissions for services of an unusual nature.¹ That is the route for trustees who take on work well beyond ordinary administration.

Situations that typically justify a special commission include managing litigation on behalf of the trust, running an active business held in trust, handling complicated tax audits, selling real property, and tracking down hard-to-locate trust assets. The common feature is work that goes beyond routine investment management and distributions.

A trustee asking for an adjustment should come prepared with time logs, task descriptions, and financial records showing the complexity involved. Vague requests for more money get denied. The burden of proof sits with the trustee, and beneficiaries have the right to contest any increase.

Co-Trustees

When a trust has more than one trustee, the fees should reflect what each of them actually did. Where multiple trustees could each file a rate schedule, the controlling schedule belongs to the trustee who has custody of the assets and maintains the records.¹ Where one co-trustee does all the administrative work and the other plays a ceremonial role, a court can allocate fees to match that imbalance.

What Beneficiaries Are Entitled to See

Beneficiaries do not have to guess at what the trustee is charging. Under § 14.5-813, a trustee must send an annual report to any qualified beneficiary who requests one, and must also provide a report when the trust terminates. The report has to cover trust property, liabilities, receipts, and disbursements, along with the source and amount of the trustee’s compensation and a listing of trust assets with market values where feasible.²

The compensation disclosure is the part to read closely. A trustee cannot bury fees in vague line items; the report must identify how much the trustee was paid and where the money came from. When a former trustee leaves office and no co-trustee remains, the departing trustee must also provide a final report to any qualified beneficiary who asks for one.² If you are a beneficiary and have not been getting annual reports, request one in writing. That report is often the first place an out-of-line fee shows itself.

Challenging a Trustee’s Compensation

A beneficiary who believes a trustee has taken excessive commissions can petition the circuit court to review and reduce them. Courts have clear authority to diminish commissions under § 14.5-708 when the fees are not justified by the services rendered.¹

If the conduct goes beyond overcharging into a serious breach of trust, beneficiaries or co-trustees can petition to remove the trustee under § 14.5-706. A court may remove a trustee who has committed a serious breach, who persistently fails to administer the trust effectively, or whose unfitness or unwillingness to serve harms beneficiaries’ interests.³

The One-Year Deadline You Can Miss by Accident

Maryland has a specific limitations rule for breach-of-trust claims. If a trustee sends a report that adequately discloses a potential claim and tells the beneficiary how long they have to sue, the beneficiary has one year from receiving that report to file. A report “adequately discloses” a claim when it gives the beneficiary enough information that they knew or should have known about the potential problem.

If the trustee never sends an adequate disclosure, the shortened one-year window does not apply and the claim falls under Maryland’s general three-year statute of limitations for breach of fiduciary duty. The one-year shortcut also does not apply if the trustee acted in bad faith or with reckless indifference to the trust’s purposes or the beneficiaries’ interests.

Read the annual reports when they arrive. Ignoring a report that discloses a fee you disagree with can cost you the right to challenge it once a year has passed.

Tax Treatment of the Commissions

Commissions paid by a non-grantor trust are generally deductible as administrative expenses on the trust’s federal income tax return (Form 1041). The IRS treats fiduciary fees as costs that would not exist if the property were not held in trust, which makes them deductible under IRC § 67(e).⁴

Corporate trustees that charge a single bundled fee covering both administration and investment management have to allocate it. The portion attributable to investment advice is not deductible; the portion covering administration is. If the bundled fee is not calculated on an hourly basis, only the investment-advice portion is carved out as non-deductible, and the rest may be deducted.⁴

For the trustee, commissions received are taxable income. Non-professional individual trustees report the commissions as other income. Professional trustees, or individuals who serve as trustee as part of a trade or business, may also owe self-employment tax on the commissions. Whether serving as trustee is part of the person’s regular business activity is what decides the point.

1
Maryland General Assembly. Maryland Estates and Trusts Code 14.5-708 – Commissions or Compensation
2
Maryland General Assembly. Maryland Estates and Trusts Code 14.5-813
3
Maryland General Assembly. Maryland Estates and Trusts Code 14.5-706 – Removal of Trustee
4
Internal Revenue Service. Instructions for Form 1041 and Schedules A, B, G, J, and K-1