Trust Attorney Fees

Trust Attorney Fees – Trustees have the power to employ attorneys, accountants and other professionals for a variety of reasons related to the trustee’s duties in administering the trust.  Let us examine the issue of paying attorney fees in various contexts.

The general rule in California is that,” [t]he trustee has the power to pay … reasonable compensation of the trustee and of employees and agents of the trust, …. .”  This includes attorney fees.

If a trust is not one subject to court supervision, for example the administration of a living trust upon the incapacity or death of the settlor(s), the trustee should see whether the trust document itself speaks to the payment of attorney fees by the trustee.  Otherwise, under California law, the trustee’s attorney is entitled to reasonable compensation for services rendered; what trusts typically provide.

However, if the trust is subject to court supervision, for example a first party special needs trust established by a conservator pursuant to a court order, then the trustee must both follow any local court guidelines regarding the payment of attorney fees and obtain court approval to pay attorney fees.  A petition with supporting details regarding the legal services is needed.

In a breach of trust situation, i.e., where a beneficiary charges that the trustee has violated his duties to the trust, the trustee usually hires an attorney to defend the trustee personally.  In that case, the trustee is best advised to hire his or her own attorney to represent the trustee personally.  Doing so means that the trustee will pay out of his or her own pocket.

Otherwise, if the trustee pays an attorney using the trust’s assets and the trustee loses the case then the trustee will both have to repay the trust the monies spent on attorney fees and the successor trustee will become entitled to all attorney client confidences between the prior trustee and his or her attorney; the attorney-client privilege would then remain with the office of the trustee and not follow the person who once occupied the office.

Next consider a trustee who opposes a contest brought by a beneficiary to overturn the trust or one of its amendments.  That very situation was the subject of the recent Appellate Court decision in Doolittle v. Exchange Bank (2015), 241 CA4th 529.  In Doolittle, the daughters of the deceased settlor objected to the Trustee administering an express directive, contained in the same paragraph as the trust amendment’s “No Contest” clause, to pay attorney fees from trust assets to pay attorneys to defend the very same trust amendment that the daughters said was invalid.

In Doolittle, the Appellate court ruled that the trustee could follow the trust amendment’s express directive to pay attorney fees (as they were incurred) prior to any determination by the court on the ultimate issue of whether the same amendment was valid.  The Court did not agree with the daughters’ argument that the attorney fee provision should be treated as a part of the amendment’s “No Contest” Clause; this would have prevented the trustee from paying attorney fees unless and until the trustee prevailed in the underlying dispute over the validity of the amendment itself.

The Appellate Court reasoned that, (1) unlike a “No Contest” clause the payment of attorney fees did not specifically reduce or eliminate what the daughters were to receive under the terms of the amendment; (2) that to not allow the trustee to pay attorney fees as they were incurred would prevent the trustee from carrying out his present duty to defend the settlor’s directive; and (3) that the trust amendment expressly authorized the payment of attorney fees to defend the amendment.

When a trustee is uncertain about how to pay Lake County trust attorney fees, the trustee can petition the court for instructions.