What is Reasonable Trustee Compensation

Do Trustees of a Trust Get Paid

Do Trustees of a Trust Get Paid

What is a Reasonable Trustee Compensation to Settle an Estate in California?

A Trustor and Trustee(s) will try to figure out what is a reasonable trustee compensation. If the Trust document explicitly states the Trustee compensation, then it stands to reason it’s based on current probate code, yet the court can still override. If there is a lack of documentation within the Trust documents, the trustee fees follow article 5 of the legislature, which discusses compensation and indemnification of Trustees, which states a “reasonable” compensation.  

What is a Reasonable Trustee Compensation to Settle an Estate in California?

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What is a Reasonable Trustee Compensation to Settle an Estate in California?

A Trustor and Trustee(s) will try to figure out what is a reasonable trustee compensation. If the Trust document explicitly states the Trustee compensation, then it stands to reason it’s based on current probate code, yet the court can still override. If there is a lack of documentation within the Trust documents, the trustee fees follow article 5 of the legislature, which discusses compensation and indemnification of Trustees, which states a “reasonable” compensation.  

First, Hess-Verdon is here to answer your call. For 30+ years, we have served our clients throughout the Southern California basin with Trust related questions. We also help litigate throughout California and understand the pitfalls a Trustee may have in determining reasonable compensation. As a Trustee, the courts can reduce or even deny compensation. If the courts find a breach of fiduciary duty, causing irreparable harm to the Trust through misappropriation of funds, for example, the Trustee will need to pay it back. Documenting everything is vital!

 

With that said, let’s continue and base your answer on understanding.

Probate Code
PROBATE CODE – PROB

DIVISION 9. TRUST LAW [15000 – 19530]  ( Division 9 enacted by Stats. 1990, Ch. 79. )

PART 3. TRUSTEES AND BENEFICIARIES [15600 – 15805]  ( Part 3 enacted by Stats. 1990, Ch. 79. )

CHAPTER 1. Trustees [15600 – 15688]  ( Chapter 1 enacted by Stats. 1990, Ch. 79. )

ARTICLE 5. Compensation and Indemnification of Trustees [15680 – 15688]  ( Article 5 enacted by Stats. 1990, Ch. 79. )

California Probate code Section 15681

Can a Trustee receive compensation

Yes, the Trustee is entitled to compensation if they so desire. There are times where the Trustee elects to forgo their compensation because they feel its best for their family members, i.e., the beneficiaries. Another reason they waive a fee is that unlike trust distributions, the compensation fees are subject to income tax.

The Trustor will review what the courts state and its the following:

PROBATE CODE – PROB

DIVISION 9. TRUST LAW [15000 – 19530]  ( Division 9 enacted by Stats. 1990, Ch. 79. )

PART 3. TRUSTEES AND BENEFICIARIES [15600 – 15805]  ( Part 3 enacted by Stats. 1990, Ch. 79. )

CHAPTER 1. Trustees [15600 – 15688]  ( Chapter 1 enacted by Stats. 1990, Ch. 79. )

ARTICLE 5. Compensation and Indemnification of Trustees [15680 – 15688]  ( Article 5 enacted by Stats. 1990, Ch. 79. )

California Probate Code Section 15681

Again, If the trust document does not specify a trustee’s compensation, then the Trustee is entitled to “reasonable” compensation for the work and time provided. You will hear numbers between 1% to 2% for a Trust estate that is settled within one year based on the assets under management. Still, this amount is typically for professional Trust companies. Most courts will accept 1% as a default but consult an estate planning attorney.

And in this document, we’ll uncover 3 Trustee types, i.e., family members (private trustees), a private company (professional Trustee), and banks and corporate trustee companies (corporate trustees) and how each is paid according to their trustee type.  

In a quick snapshot, the hierarchy is similar to the following: ( Court has the final say, however)

1.) Private Trustee: Between 30.00 to 45.00 per hour for their work.

2.) Professional Trustees: Ranges around 100.00/hour

3.) Corporate Trustees: How much does corporate trustees charge: 1% to 2% of Trust estate.

Family Member as the Trustee

You know you are the Successor Trustee, and you want to stay fully transparent and stay within your fiduciary duty as a Trustee. So you ask, “what is the normal fee for a trustee”? It’s a great question because it can be the sticking point when you are finally looking to collect your compensation. To be clear. The judge will make the final determination, and if you have been transparent in your dealings, taking copious notes, maintaining books, you can feel confident you are on the right side of the courts.  

So, what are some factors that will determine the reasonableness of compensation? Let’s review the basis on California Rules of Court 7.776

  1. Level of Difficulty: If there are properties to sell, businesses to sell, etc., is a level of difficultness that requires time and due diligence not to breach any fiduciary duty. Therefore, higher compensation may be specified.
  2. The amount of Responsibility: If you are taking care of properties that a particular beneficiary lives in, for example, you have to manage the estate according to the Grantor’s wishes. The wishes of the Grantor can increase the responsibilities of the Trustee.
  3. The Asset Types and the Amount: If the amount is several million dollars, for example, and has complications and with many nuances, the compensation may increase.
  4. The amount of experience, skills, and knowledge of the Trustee:  A factor for compensation is the level of experience and skills the Trustee has to complete the trust administration process successfully. 
  5. Performance: Bookkeeping, Journaling, Tax handling, etc.
  6. Time: This is where a journal helps the judge if so needed to understand your time spent.
  7. Amount of time spent on managing 3rd party groups:  Appraisers, Real Estate Brokers, other agents. Again, document all time allotted to 3rd party groups.
  8. Balanced Compensation:  Should there a Trustee and Co-Trustee
  9. Location:  Are you in downtown New York or a small town in Mississippi, for example.

What is fair compensation for a Trustee

How are Trustee fees calculated

If the creator of the Trust (known as Trustor, Grantor, Settlor), predetermined a Trustee fee schedule, that is ideal and based off of California probate code 15680. It settles a lot of family disputes, especially since trustee compensation disputes are on the rise. Therefore as a private Trustee, you may bill per hour, so detailing each task performed is paramount, including the hours per job (broken into fractional increments) and journaling the task and the steps. Keep an electronic log or a spiral notebook. Note: Some of the tasks can fall into “skills and knowledge” and can assist in arguing the fact.

Key takeaway: Reconstructing time record logs after the fact can be difficult, and most likely, you’ll forget steps during the process. Therefore it’s to your best interest to keep highly transparent and document your steps!

What fees can a Trustee charge?

To understand how to answer the question, “what fees can a trustee charge,” it’s essential the Trustee acts prudently and in the interest of the beneficiaries. It may be difficult to justify any fee. It even may be reduced or also eliminated if the courts feel unreasonable delays were wrapping up the Trust or have engaged in self-dealing. California probate code section 16420 permits the court to reduce or deny trustee compensation where the Trustee has threatened or committed a breach of trust.

Key takeaway:  A Trustee should never charge unreasonable trust fees simply because they feel obligated and not based on actual time and actions completed. A Trustee wants to receive the same payment as the buyer’s agent of the property by selling a property. In other words, there are factors a court judge will consider should the Trust get contested.

Key takeaway: If you are a Trustee, keep a “journal” of all your steps! For example: You have an apartment building to sell. You have to hire a real estate broker, set up appraisals, etc., and meet them at the property. Document all these steps! Show the judge you are not only transparent but understand that “time and actions” are the needed components to a successful trust closing and finally distribution to beneficiaries.

 

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