Trustee fee models: how trustees are paid, and what each model rewards

Trustee fee models are the different ways a professional trustee charges for running a trust: a fixed sum, time spent, a share of the assets, or a combination. The model matters less for the headline cost than for the behaviour it encourages. A trustee is paid for something, and the structure of the charging tells you what that something is.

This guide explains the four common models in plain terms, what each one tends to reward, and what to watch for in practice. It stays on the trustee only. It does not quote any amount, because the figures depend on the structure, the assets and the work involved, and they are set out after a confidential assessment rather than in a general guide.

Why the charging model matters more than the amount

Most people compare trustees by looking for the lowest number. That is a natural reflex, but it hides the more useful question: what does this trustee earn more of when things go well, and what do they earn more of when things go badly?

A trust is a long relationship. Under the Hague Convention on trusts, the trustee holds the assets as a separate fund, in their own name but in the interest of the beneficiaries or for a stated purpose, and must manage them and account for them. That duty does not change with the charging model. What changes is the commercial pressure around the duty.

Consider three simple pressures:

• A trustee paid only for time has no commercial reason to rush, but also no reason to simplify your structure.
• A trustee paid only on asset value has a reason to keep assets under their care and to avoid decisions that shrink the base, even when a distribution is the right answer.
• A trustee paid a fixed sum has a reason to keep the workload predictable, which can mean fewer meetings and slower responses on unusual requests.

None of these pressures makes a model wrong. They make it worth understanding before you sign. The sections below take each in turn, and the guide on how trustees are paid beyond the models places them side by side.

The four models at a glance

The table below gives the short version. Each row is developed further down.

The fixed model: certainty in exchange for a defined scope

Under a fixed model, the trustee agrees a sum for a defined bundle of work, usually for a year. The bundle is listed: preparing accounts, holding the required meetings, keeping the records, dealing with the bank, answering ordinary beneficiary queries, and the annual review.

What it rewards is delivery of the routine. For a stable trust with few moving parts, that is a sensible thing to pay for. You know what the year will cost, and the trustee knows what the year will involve.

What to watch is the edge of the scope. The practical question is always: what happens when something falls outside the list? A new asset is added, a beneficiary moves country, a dispute arises, a bank asks for fresh documentation. In a poorly drafted fixed arrangement, each of these becomes a separate charge, often on a time basis. The fixed sum then covers only the quiet part of the year.

Ask for the scope to be written as a list, and ask what the letter says about work not on the list. A good clause names the common extras and says how they will be charged. A weak clause says "additional services may be charged" and stops there.

When a fixed model fits

It suits a trust with a small number of assets held in simple form, beneficiaries who are stable and well known, and a settlor who wants to budget. It fits less well a structure with an operating business, several jurisdictions or active property, where unusual events are frequent. The details of what the trustee does day to day are covered in day-to-day trust administration, and they help you judge whether a fixed scope is realistic.

The time-based model: you pay for effort, so watch the effort

Under a time-based model the trustee records time and charges it at agreed hourly levels, which often differ by seniority. Work is billed as it is done, usually at intervals.

What it rewards is effort and complexity. If your trust involves an unusual decision, a negotiation, a restructuring or a dispute, time-based charging pays the trustee for the extra work without forcing anyone to argue about scope. For irregular or contentious work, it is often the fairest model.

What to watch is the absence of a ceiling and the absence of a feedback loop. Time-based charging gives the trustee no commercial reason to be quick and, at its worst, a mild reason to be thorough in ways you did not ask for. It also makes your budget a matter of trust in the other side's judgement.

Useful safeguards include:

• an estimate before any significant piece of work, in writing;
• a threshold above which the trustee must consult you before continuing;
• time records available on request, with a short description of each task;
• a clear statement of who within the firm may record time at which level.

Time-based charging is rarely the best choice for routine administration, where it can drift. It is more useful as the basis for exceptional work added to another model.

The asset-based model: a share of the value under care

Under an asset-based model the charge is linked to the value of the trust assets, usually applied as a proportion at intervals through the year. The logic is that responsibility grows with value: a larger fund carries more risk, more reporting and more attention from banks and authorities.

What it rewards is keeping assets in the trust. It also rewards growth, which can appear to align the trustee with the family. That alignment is real in part, but incomplete. A trustee paid on asset value gains when markets rise, even if they did nothing to cause the rise, and loses when assets are distributed, even if the distribution is exactly what the trust deed intends.

What to watch:

• Valuation method. How are illiquid assets valued, such as private company shares, property or collectibles? Who decides, how often, and on what basis? A valuation that rises on paper increases the charge without producing any cash to pay it.
• Assets the trustee does not actively handle. If a company or a property is managed by others, an asset-based charge may seem high for the trustee's actual role. Ask whether such assets are treated differently.
• Distributions. If a distribution reduces the base, does the trustee see any change in the charging? A well-built clause keeps the trustee's incentive neutral on distribution decisions.
• Where the charge is taken from. A charge calculated on a company's value but paid from liquid assets can distort what the trustee recommends.

The asset-based model is common for large, passive portfolios held for the long term, where the work is steady and proportional to value. It is least comfortable for trusts holding a family business or property, where value and effort are only loosely connected. For those situations the page on a trustee for a trust holding a family business shows what the trustee's work actually involves.

The mixed model: most real trusts end up here

A mixed model combines elements. A typical shape is a base element for the routine scope, an asset-linked element above or alongside it, and time-based charging for work outside the routine. Some arrangements add a separate element for transactions, for example when assets are bought, sold or transferred.

What it rewards depends entirely on the blend. A mixed model can combine the best of the others: predictability for the routine, proportionality for scale, and fair payment for the exceptional. It can also combine their weaknesses, if the clauses overlap or the triggers are vague.

What to watch is the interaction between elements. Three questions help:

1. Is any piece of work charged twice, once in the base and again on time?
2. What exactly triggers a variable element, and who decides that the trigger has been met?
3. Does the clause say what is not covered by the base, in terms you could explain to someone else?

Because the mixed model is the most common in practice, the next two sections show how to read it. If you are choosing from scratch, the broader method in how to choose a trustee in Switzerland puts charging in context with the other criteria.

Start with the engagement letter clause

The most useful place to begin is not a brochure or a call, but the clause in the engagement letter that deals with remuneration. Trustees in Switzerland who carry on this activity professionally are subject to supervision under the financial institutions framework, and clients are entitled to expect clarity about how the relationship is paid for. Whatever the model, the clause is where it becomes binding.

Read it with these questions in mind.

What is the base, and what does it cover?

Look for a list. If the base covers "administration", ask what that word means. Does it include the annual review, the preparation of accounts, meetings with beneficiaries, correspondence with banks, and attendance at the protector's request?

What is charged on top, and how?

Variable elements should be named, with the basis stated: time, value, transaction or event. If the letter refers to a separate schedule, ask to see the schedule at the same time, not later.

How are changes made?

Many letters allow the trustee to revise the terms with notice. Check how much notice, whether you can object, and what happens if you do. A right to change charging without any route to leave is a weak point.

What happens on exit?

If you replace the trustee, are there charges for the handover, for preparing records, or for staying in place until a successor accepts? The practical side of leaving is covered in changing trustee step by step.

What does the clause say about third parties?

Banks, lawyers, valuers, auditors and tax advisers may be paid separately. The letter should say whether the trustee instructs them, whether you approve them in advance, and whether they are paid from the trust or by you.

Checklist for reading the clause

• The scope of the base element is a list, not a single word
• Every variable element names its basis and its trigger
• Out-of-scope work is described, with the way it is charged
• The valuation method for any asset-based element is stated
• Any right of the trustee to change terms has a notice period and an exit route
• Third-party costs are separated from the trustee's own remuneration
• Charges on handover to a successor are stated
• You can obtain records supporting any variable element on request

Example: reading a mixed model

This is a fictional illustration, with no figures, to show the exercise rather than any real arrangement.

A family in Lausanne has a discretionary trust holding a portfolio of listed investments, a minority stake in a family company and a holiday property. The engagement letter sets out remuneration in three parts: a base element for the annual routine, an element linked to the value of the portfolio, and time-based charging for anything described as "extraordinary".

Reading it clause by clause, the family finds the following.

The base element. It lists accounts, the annual review, two meetings with the family, and correspondence with the custodian bank. It does not mention the company stake or the property. A short question to the trustee clarifies that matters relating to both are treated as extraordinary.

The asset-linked element. It applies to the portfolio only, not to the company stake or the property. The valuation of the portfolio is taken from custodian statements at set dates. This is a good feature: the valuation is objective and the charge is easy to check. The family notes that if the trustee were to sell part of the portfolio to fund a distribution, the base for this element would shrink. They ask whether this affects the trustee's recommendations and receive an explanation of how distributions are decided under the trust deed, independently of charging.

The extraordinary work element. The letter lists examples: litigation, restructuring, regulatory enquiries and changes of trust law. It also says "and any other work requiring unusual attention". The family asks to replace the final phrase with a requirement that the trustee provide a written estimate and obtain approval before any piece of work that is not on the list.

The result. The family now knows what the base covers, what drives the variable parts, and where the grey area was. They have not negotiated an amount at all. They have made the model legible, which is what the assessment is for.

This is a deliberately modest exercise. It requires no specialist knowledge, only patience and a willingness to ask for plain statements. The same method works when a trustee proposes a different blend.

What a charging model does not tell you

A model describes how money moves, not whether the service is good. Several things sit outside it.

Quality of attention. A low-cost arrangement can deliver excellent work, and an expensive one can deliver poor work. The charging model does not measure responsiveness, record-keeping, or the willingness to say no to a request that does not fit the trust deed. Those are matters for due diligence on your trustee.

Information. Whatever the model, you should understand what you are being charged for. Your entitlement to records and explanations is a separate subject, treated in what information your trustee must give you. Who is entitled depends on the trust deed, the governing law and your position as settlor, protector or beneficiary.

Conflicts. Charging models can create conflicts that sit quietly in the background: a trustee who also sells related services, or whose group earns from placing assets, has interests beyond the stated remuneration. Ask for disclosure of any such arrangement, in writing.

Supervision. A professional trustee in Switzerland operates under a supervisory framework, and approval status tells you something about organisation and conduct. It does not tell you what the trustee will charge or whether the charging suits your structure. For what approval does and does not mean, see the guide on FINMA and SO-FIT approval.

Tax treatment. Whether remuneration is deductible, who bears value added tax and how charges are reported can depend on residence, the nature of the trust and the beneficiaries. Those answers are individual, and they belong to a personal analysis rather than a general guide.

When to question the model you have

A model that suited a trust ten years ago may not suit it now. Signs that a review is due:

• the trust has changed in character, for example from a simple portfolio to a mix of operating and property assets;
• charges have risen without any change in the work you see;
• the trustee cannot explain a line on the statement in plain terms;
• variable elements are triggered more often than the letter seems to anticipate;
• a new trustee has proposed a structure that you cannot compare with the old one.

Raising these points is not hostile. A professional trustee expects questions about charging, and a careful reply is part of what you are paying for. If the answers are evasive, the question becomes whether to repair the relationship or end it, which is the subject of switching trustee or staying and fixing the relationship.

For a ready-made list to take to a meeting, use the trustee due diligence questionnaire, which includes the charging questions in this guide.