Trustee fees can be a litigious issue and lead families to court. But with proper planning this can be avoided. Let’s look at what the California Probate Code and says about Trustee Fees.
In California, the Probate Code Section 15681 states, “if the trust instrument provides for the trustee’s compensation, the trustee is entitled to be compensated in accordance with the trust instrument.”
However, most trusts do not specify the compensation. In a majority of trusts, either: the compensation provision is left out or it states the trustee shall receive “reasonable compensation” as stated in Probate code Section 15681, “[i]f the trust instrument does not specify the trustee’s compensation, the trustee is entitled to reasonable compensation under the circumstances.”
Now you are thinking, what the heck is “reasonable compensation”? Let’s look a the following factors that the court could consider (See California Rules of Court 7.776):
- The gross income of the trust estate;
- The success or failure of the trustee’s administration;
- Any unusual skill, expertise, or experience brought to the trustee’s work;
- The fidelity or disloyalty shown by the trustee;
- The amount of risk and responsibility assumed by the trustee;
- The time spent in the performance of the trustee’s duties;
- The custom in the community where the court is located regarding compensation authorized by the creators of the trust, compensation allowed by the court, or charges of corporate trustees for trusts of similar size and complexity; and
- Whether the work performed was routine, or required more than ordinary skill or judgment.
Generally, there are two methods that a trustee will use to plead reasonable compensation/fees, either they will take a percentage of the estate or use line items to describe each task for an hourly rate.
Corporate Trustees – Corporate trustees usually adhere to their own published fee schedules, which can be obtained from them, but those schedules are not to be relied upon as unquestioned. For a further discussion see the Estate of Nazro (1971) 15 CA3d 218.
Professional Fiduciaries – Fees charged by professional fiduciaries are normally less than corporate trustees. The idea is that corporate trustees often have accountants and other professional on staff, while professional fiduciaries do not and have to hire outside parties to complete tasks that are charged to the trust. Thus, the fees of the professional fiduciaries could be lower to reflect the fees of the third parties.
Non Professional Trustee, i.e. – your son – Nonprofessional trustees often use the fees charged by corporate trustees and private professional trustees as an upper limit on their own fees due to possible lack of experience and contracting third parties to administer the trust.
While there are no black and white answers, banks fees and their published schedules in California tend to be around 0.7-1.2 percent of the trust annually or taken at different periods for professionals. Additionally, trustee’s can look to what would be given to an executor of a probate estate for what the upper limits of reasonable compensation could be for a trust administration. See California Probate Code Section 10810 for a further discussion of probate statutory fees.
One thing is clear, the trustee should keep detailed records in case the trustee must justify the reasonableness of compensation that they requested. A beneficiary can question the trustee but it is common for them to hire an attorney to review it and the beneficiary can file a petition to as the court to review compensation.
Additionally, when addressing the issue of trustee compensation it is a good idea to think about taxes. Is the Successor Trustee a beneficiary as well? Then it might be a good idea to not give a Trustee fee but instead leave it as inheritance. Trustee fees are generally taxable as income and inheritance from a trust generally will not be.
Coastal Pacific Law attorneys are experienced in estate and business planning, and can help with your trust administration, probate administration or estate plan. To schedule a complimentary consultation, call (619)786-6563, or fill out a Contact Request Form.
This is not intended to be relied upon as legal advice and does not form the attorney-client privilege.