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SQE – Equity and Trust – Trustee Remuneration and Reimbursement of Expenses
Introduction
Traditionally, trustees were expected to act gratuitously and were generally prohibited from profiting from their position. This principle reflects the fiduciary nature of trusteeship and the fundamental rule that trustees must not place themselves in situations where personal interests conflict with their duties to beneficiaries. However, modern trust administration often requires specialist legal, financial, accounting, and investment expertise. Consequently, the law has evolved to recognise that professional trustees should ordinarily be entitled to remuneration for services properly provided to a trust.
Today, trustee remuneration may arise through express provisions contained in the trust instrument, through agreement of the beneficiaries, through court authorisation, or under statutory powers contained in the Trustee Act 2000.
Remuneration Through the Trust Instrument
The most common method of authorising payment is through a charging clause contained in the trust deed or will.
A charging clause expressly permits a trustee to receive remuneration from trust funds for services performed in administering the trust. Such clauses are particularly common where professional trustees, such as solicitors, accountants, trust corporations, or financial advisers, are appointed.
In practice, many professional trustees would be unwilling to accept appointment without an appropriate charging clause because trust administration can involve significant responsibilities, risks, and potential litigation.
Where a valid charging clause exists, its terms govern the trustee’s entitlement to payment.
Beneficiary Authorisation
Even where the trust instrument contains no charging clause, the beneficiaries may collectively authorise remuneration.
For such consent to be effective, all beneficiaries must:
- possess full legal capacity;
- be at least 18 years of age;
- have full knowledge of the relevant facts;
- freely consent to the proposed payment.
This reflects the principle that beneficiaries, as the equitable owners of the trust property, may collectively determine how trust assets should be administered.
Court Authorisation of Remuneration
The courts possess a limited equitable jurisdiction to award remuneration in exceptional circumstances.
The leading authority is Boardman v Phipps [1967] 2 AC 46.
Although the defendant fiduciaries technically breached their fiduciary duties by obtaining information through their position and using it for personal gain, they had acted honestly and generated substantial benefits for the trust.
Recognising the value of the services provided, the House of Lords awarded generous remuneration despite the breach of fiduciary duty.
The case demonstrates that equity may award compensation for skill, effort, and expertise where it would otherwise be unjust for beneficiaries to retain the benefit of those services without payment.
Statutory Remuneration Under the Trustee Act 2000
Prior to the Trustee Act 2000, there was no general statutory right for trustees to be paid.
Following recommendations by the Law Commission, Parliament recognised that modern trust administration often requires professional expertise and that remuneration may be necessary to attract suitably qualified trustees.
Consequently, section 29 of the Trustee Act 2000 introduced a statutory right to remuneration for professional trustees.
Under section 29, a trustee acting in a professional capacity may receive reasonable remuneration from the trust fund, provided that the other trustees agree in writing to the payment.
This provision reflects the practical realities of contemporary trust management.
Professional Capacity
Section 28(5) of the Trustee Act 2000 defines acting in a professional capacity.
A trustee acts professionally where they provide services in the course of a profession or business involving the management or administration of trusts.
Examples include:
- solicitors;
- accountants;
- trust corporations;
- financial advisers;
- professional wealth managers.
The Requirement of Reasonable Remuneration
The statutory right is limited to “reasonable remuneration.”
Section 29(3) provides that remuneration must be reasonable in the circumstances for the particular services supplied.
Determining reasonableness requires consideration of factors such as:
- the complexity of the trust;
- the size of the trust fund;
- the nature of the services performed;
- the trustee’s qualifications and expertise;
- the amount of time spent on administration.
Guidance from the Explanatory Notes
The Explanatory Notes to the Trustee Act 2000 provide additional guidance regarding reasonableness.
Paragraph 105 states that courts should have regard to:
- the nature of the trust;
- the trustee’s experience;
- the complexity of the work undertaken;
- the overall circumstances of administration.
Administrative Tasks and Section 29(4)
Interestingly, section 29(4) permits remuneration for work that could have been performed by a lay person.
Examples include:
- photocopying;
- filing;
- record keeping;
- administrative correspondence.
Pullan v Wilson [2014] EWHC 126 (Ch)
An important modern authority concerning trustee remuneration is Pullan v Wilson.
The court emphasised that professional trustees are not automatically entitled to charge their standard commercial rates merely because they are professionals.
Instead, the court must retain effective supervision over trustee remuneration.
The court stated that regard must be had to:
- the value of the services provided;
- whether the work was necessary;
- the proportionality of the charges;
- whether the level of fee earner used was appropriate.
Effect of a Charging Clause
Where a trust instrument already contains a charging clause, section 29 generally does not apply.
Instead, remuneration is governed by the specific wording of the trust deed.
Trustees must therefore carefully examine the terms of the trust instrument before relying on statutory provisions.
This reflects the broader principle that the settlor’s intentions, as expressed in the trust deed, remain paramount.
Reimbursement of Expenses
Trustee remuneration must be distinguished from reimbursement of expenses.
Section 31 of the Trustee Act 2000 provides trustees with a statutory right to recover expenses properly incurred in administering the trust.
Examples include:
- travel expenses;
- postage costs;
- court fees;
- valuation fees;
- professional advice obtained for the benefit of the trust.
Professional Practice and Charging Clauses
Modern professional practice strongly favours the inclusion of comprehensive charging clauses.
Both the Law Society and STEP (Society of Trust and Estate Practitioners) require practitioners to explain likely costs to clients who appoint them as executors or trustees.
Consequently, professionally drafted trust instruments frequently contain wide charging provisions covering:
- trustee remuneration;
- administrative services;
- delegation costs;
- agent fees;
- professional advice.
Practical Considerations for Settlors
When creating a trust, settlors should carefully consider the financial implications of appointing professional trustees.
Professional expertise may significantly improve trust administration and reduce the risk of costly mistakes.
However, remuneration and expenses may substantially reduce the value of the trust fund available for distribution to beneficiaries.
The likely costs should therefore be balanced against:
- the size of the trust fund;
- the complexity of the trust;
- the nature of the trust assets;
- the needs of the beneficiaries.
Case Study
Facts
A trust worth £8 million appoints a solicitor as sole professional trustee.
The trust instrument contains no charging clause.
The solicitor spends three years managing investments, dealing with tax matters, preparing trust accounts, and administering distributions.
The beneficiaries subsequently challenge the solicitor’s fees.
Analysis
The solicitor is acting in a professional capacity within the meaning of section 28(5) of the Trustee Act 2000.
Provided the statutory requirements are satisfied and the remuneration is reasonable, section 29 permits payment from the trust fund.
The court would assess whether the fees charged were proportionate to the services provided, applying principles discussed in Pullan v Wilson.
Outcome
The solicitor would likely be entitled to reasonable remuneration and reimbursement of properly incurred expenses, but excessive or disproportionate fees could be reduced by the court.
Conclusion
The law governing trustee remuneration reflects a balance between traditional fiduciary principles and modern practical realities. While trustees were historically expected to act gratuitously, contemporary trust administration often requires professional expertise that justifies payment. Remuneration may be authorised by the trust instrument, by beneficiary consent, by the courts, or under section 29 of the Trustee Act 2000. However, trustees are entitled only to reasonable remuneration, and the courts retain supervisory jurisdiction to prevent excessive charges. Alongside remuneration, trustees may recover expenses properly incurred under section 31. Together, these rules ensure that trustees are fairly compensated while safeguarding the interests of beneficiaries.
References
Boardman v Phipps [1967] 2 AC 46.
Pullan v Wilson [2014] EWHC 126 (Ch).
Trustee Act 2000, ss 28–31.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
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