There are several ways that trustees fees are determined in California.
Probate Code Section 15680 states that if the trust instruments sets the compensation or fees for the trustee, then the trustee is entitled to the compensation rate that is set in the trust. Most trusts in California state that the trustee is entitled to reasonable compensation. What is reasonable trustee’s compensation? Reasonable compensation has been historically the amount of compensation that local or bank trustees have charged. In most places in California, that range has been 1 to 1.5% of the gross size of the trust per year.
Can the Court give a greater or lesser amount of fee to the trustee?
Yes. The trustee must show the court a number of things to get a higher compensation than what is customary in the local community. Here what the trustee or the challenger has to show the court:
A. The tasks and duties in the trust are very different that what was expected when the trust was created by the settlor.
B. Where the rate that is set in the trust instrument would result in inequity. For example, if the trust says that the trustee gets 20% of the gross value of the trust, this may result in inequity, as being too high, and the court can then change that fee. By the same token, if the trust for example says that the trustee is not allowed to get fees, or that he gets $20 as the annual trustee’s fees, the court can change that compensation to make it a higher rate, because it was inequitable the way it was drafted.
The important thing is to note that the order setting the trustee’s fee or compensation is prospective, for tasks to be done in the future after the order is issued.
What happens if the trust does not say anything about trustee’s fees? If the trust is silent about the trustee’s rates, then the standard is “reasonable trustee’s fees under the circumstances.” The circumstances then have to be described and explained to the court.
What happens if there are two co-trustees and one does more work than the other?
If there are two successor co-trustees, California law provides that if the trust does not have guidance on this, and there is a disagreement between the co-trustees, that the trustees fees or compensation is split or apportioned in the amount of service each co-trustee has provided. Therefore, it becomes absolutely necessary that co-trustees keep a time log of their services on a daily basis.
If you have a situation in the trust where you are seeking the court to address tasks which where done in the past, that requires a different procedure than the above. Can you challenge trustee’s fees sought by the trustee or successor trustee? Yes. If a trustee tells you that he will be asking for a sum that appears unreasonable to you, you must act fast and ask the court to set the trustee’s compensation at a different rate because the order is prospective, and not retrospective. You can also challenge a trustee’s rates, or totality of the request at the time of the accounting.
If you wish to consult with California trust attorney about trustee’s fees or rates, Mina Sirkin, contact us at 818.340.4479 or email: Info@sirkinlaw.com.