COMPENSATION FOR THE TRUSTEE OF A TRUST
A trustee in California has a broad discretion to determine their compensation if it is not stated directly in the trust instrument. Although the simple solution is to include a value in the trust, it is not easy as simply picking a number.
There is no exact value considered reasonable compensationThe court may consider the following factors (See Cal Rules of Ct 7.776):
The gross income of the trust;
The success or failure of the trustee's administration, as measured, e.g., by the growth in value of the investments or less tangible measures such as smooth administration (absence of disputes, distributions made promptly, no surcharges requested);
Any unusual skill, expertise, or experience that the trustee has brought to the position, e.g., investment management expertise;
The "fidelity" or "disloyalty" shown by the trustee;
The amount of risk and responsibility assumed by the trustee (personal liability), as measured, e.g., by negotiation of oil leases or management of a large office building;
The time that the trustee spent performing trust duties;
The custom in the community, including the compensation allowed to trustees by settlors or courts and the fees charged by corporate trustees; and
Whether the work was routine or required more than ordinary skill and judgment.
If Stated In The Trust DocumentBasically, Cal. Prob. Code Section 15680(a) states that the trustee's compensation is whatever is specified in the trust document. If that compensation is unreasonably high or low, a judge is allowed to modify that compensation accordingly (See Cal. Prob. Code Section 15680(b) below).
How To Determine Reasonable Compensation If Not Stated In The Trust DocumentThe compensation rate for a trustee in which the trust did not specify how much the trustee would be compensated is based on Cal. Prob. Code Section 15681. In such a situation, the trustee would be entitled to "reasonable compensation under the circumstances" In the following circumstances, the court is authorized to set as compensation an amount that is greater or less than the amount fixed in the trust document (See Cal. Prob. Code Section 15680(b)):
"(b) Upon proper showing, the court may fix or allow greater or lesser compensation than could be allowed under the terms of the trust in any of the following circumstances:
(1) Where the duties of the trustee are substantially different from those contemplated when the trust was created.
(2) Where the compensation in accordance with the terms of the trust would be inequitable or unreasonably low or high.
(3) In extraordinary circumstances calling for equitable relief."
The court may fix compensation only prospectively. (See Cal. Prob. Code Section 15680(c); See Cal. Prob. Code Section 15682 (order for prospective compensation may be of indefinite duration). Reimbursement of expenses is authorized (See Cal. Prob. Code Section 15684). Unless the trust document provides otherwise, compensation set by the document is apportioned among cotrustees according to the services performed by each (See Cal. Prob. Code Section 15683).
If an attorney acts as trustee, dual compensation for trustee and legal services is not allowed (See Cal. Prob. Code Section 15687(a)). This restriction does not apply if the trustee is related to, or is a cohabitant with, the settlor (See Cal. Prob. Code Section 15687(c)) or if approval is obtained by court order or by no objection on the part of persons entitled to notice (See Cal. Prob. Code Section 15687(d)). A restriction against dual compensation also applies if the attorney performing legal services for the trustee is related to or associated with the trustee (See Cal. Prob. Code Section 15687(b)). Any waiver of the statutory requirements is void as against public policy (See Cal. Prob. Code Section 15687(e)).
If a corporate trustee is appointed, the settlor or drafting attorney should provide either for compensation based on the corporate trustee's fee schedule, as it exists from time to time, or for a fixed percentage. During the drafting stage, the settlor or attorney should try to ascertain whether this provision is acceptable to the trustee.
For application of these factors, see In re McLaughlin's Estate (1954) 43 C2d 462, 467; Estate of Gump (1982) 128 CA3d 111; Estate of Nazro (1971) 15 CA3d 218. See also Cagnolatti v Guinn (1983) 140 CA3d 42, for the general proposition that the court may consider the trustee's management of the trust property in determining the appropriate compensation.
In re McLaughlin's Estate, 467-68, supra, gives a general answer and factors to consider. In this case, a beneficiary filed objections against the trustees based on the amount of their compensation. The court stated, "The question of what is a reasonable compensation depends largely upon the circumstances of each particular case.
Reasonable Compensation Based On An Hourly RateBased on the CALCPA Accounting Site, http://www.calcpa.org/Content/23483.aspx, a CPA will generally charge less than their hourly rate for accounting purposes. Additionally, a judge will determine the trustee's compensation based on an hourly rate.
Further, after researching various individuals and businesses throughout California who are in the profession of administering trust, conservatorship and guardianship estates, referred to as private professional fiduciaries, an average hourly rate will range between $80 to $140 per hour.