By: James Filippi
The answer is not as easy as yes or no (of course, it involves attorneys right!). As you may know, the trustee of a trust serves in a fiduciary position in which they manage the trust. The role is different than a beneficiary who receives the benefit of the assets held in the trust (for more details, visit our previous article: CAN A TRUSTEE ALSO BE A BENEFICIARY IN A CALIFORNIA TRUST?).
The first question you must ask is who the trustee is currently. If the trustee is the trustor/settlor/grantor (all terms used to identify the person who established the trust), the trust is likely written to not allow compensation for the trustee in that case. This is because the trustee is usually also the beneficiary. Meaning, the trustee, as a beneficiary can make a withdrawal for whatever purpose the trust agreement allows. So authorizing compensation for a situation like this would be unnecessary.
The next question you should ask is whether the trustee is also a beneficiary. If that is the case, many trust agreements also do not allow for compensation in this situation as well, for some of the same reasons as above. The trust assets the trustee/beneficiary is to receive should be enough to compensate them for their services. But this is not always the case, especially since being a trustee is not always easy and thus requires a lot of work. So in the interest of fairness, some trusts allow for compensation for those beneficiaries who are also serving as trustees since it would only be fair that they receive a little more from the trust than the other beneficiaries who aren’t helping with the management of the trust.
That all being said, if the trustee is not barred from receiving compensation in the trust agreement, the next step is to look at the terms of the trust. Typically, the trust agreement will indicate the compensation authorized for the trustee’s services. The options available when creating a trust in this regard are open. Meaning, someone can select to leave it open to whatever compensation is reasonable under the circumstances, or they can specify a specific amount of compensation.
When drafting a trust agreement, it is sometimes better to select the open option. This is because we do not always know who will ultimately serve as trustee. When creating the trust, you typically establish a trustee succession plan whereby you name several potential trustees who would serve in succession of each other in the event the next potential trustee is unavailable, or unwilling to serve. If when the time comes for a trustee to take over and this list is exhausted, the courts can appoint a trustee. Often a professional fiduciary is the best selection when this happens so that the best interests of the beneficiaries are properly protected. However, a professional fiduciary is not going to serve in this role for free and thus would expect to be compensated for their services, and for the liability they will expose themselves to by accepting this appointment.
If the level of compensation is limited in the trust agreement, it may become exceedingly difficult to find someone willing to step into this role, and thus make it difficult for the trust to operate as designed. Thus, if the compensation allowed for in the trust is open to whatever is reasonable under the circumstances, the flexibility in this language allows for a professional to step into this role and accept the appointment.
The next question is what does “reasonable” mean when it comes to a trustee’s compensation. This is an age-old question for anyone studying the law. The courts have purposely used this word in many of their judicial precedents so that discretion can ultimately be used when later deciding. Ask any law student, they have likely pulled their hair out trying to figure out what this word means.
But any attorney will tell you that the definition of “reasonable” is quite simple; it depends. Another term the courts love to use is “totality of circumstances” which basically means that when making a decision, all factors should be considered. In this case, when determining if a trustee should be compensated $30 per hour, or $200 per hour, is going to be based on the totality of circumstances. If the person is someone who has never served in such a role, they are going to be on the lower end, while a professional is going to be on the higher end.
It also depends on how complex the job of serving as trustee will be and that often is determined by the trust. Will the trust live on for an extend period of time? Are there significant trust assets? Is there a possibility for a contest to dispute the trust? These are just some factors that could go to the complexity of the trust.
Another significant issue is location. Are you in Rocklin, California, or in another less expensive state? The cost of living in Rocklin is far more than other parts of our nation and may call for a higher level of compensation for a trustee.
The best advice when determining how much to compensate a trustee is to seek the advice of an estate planning attorney who can help judge these factors for you. The Filippi Law Firm can help with this, along with establishing an estate plan, probating an estate, or administering a trust. We make it so you do not have to worry about the details.
Give us a call today to schedule a no-hassle consultation!
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
