Not everyone who serves as a Trustee expects or wants to be paid.  But those who do want to get paid need to know up front whether or not they will be compensated for their work.  They should also know how their compensation is determined.

            Trusts may provide for no compensation, reasonable compensation, a fixed amount of compensation, or a formula to compute compensation.   Typically trusts allow “reasonable compensation”; if the trust is silent “reasonable compensation” is the statutory rule.  Of course, a trustee may waive compensation.

            What is reasonable compensation?  What is reasonable is a facts and circumstances analysis that involves a variety of factors such as the following: the trustee’s qualifications and experience as relevant to trust administration; the time spent by the trustee in discharging his or her duties; the value of the trust; the complexity of the trust administration; and the good or bad outcome of the trust administration. 

            In order to substantiate a claim for reasonable trustee compensation a trustee should keep a detailed trustee log together with any underlying source documents.  The trustee log should be a chronological narrative specifically describing the activities, decisions, events and circumstances involved with the trustee’s discharge of his duties.  The narrative needs to include particular facts to tangibly show how the trustee solved problems and performed duties.  The log must also include the amount of time spent each day in these activities.  All mileage and out-of-pocket expense reimbursement items need to recorded and proof of payment kept (e.g., travel receipts for meals, transportation, and lodging).

            Typically, in the case of settling a deceased person’s trust estate, the trustee is paid at the conclusion of the trust administration when assets are distributed to the beneficiaries.  At that time an accounting is usually provided by the trustee to the trust beneficiaries.   If the trust administration exceeds 12 months – such as with a protracted administration or with an on-going trust (e.g., a special needs trust or a support trust)  – the trustee may receive compensation on an annual basis. 

            If the trustee is concerned that the beneficiaries might dispute the reasonableness of his compensation, or his actions as trustee, the trustee may petition the court to confirm the amount of the compensation.  This typically is done within a petition seeking court approval of the trustee’s acts, accounting, and compensation.  

            Recently the Sixth District Court of Appeals in the Thorpe v. Reese case denied a claim for trustee compensation requested by a court appointed temporary trustee.  It did so because the trust expressly disallowed trustee compensation.  The appellate court ruled that the trust document controlled the issue of compensation.

            The appellate court reasoned that when the trustee unconditionally accepted his appointment by the probate court he unconditionally accepted the existing terms of the trust.  If he wanted compensation he should have petitioned the court to reform the trust to allow for trustee compensation, or otherwise not have accepted his appointment.  While reforming the trust might seem reasonable, as a practical matter reforming a trust is an unpredictable and costly endeavor.  The ruling means that court appointed trustees in the 6th Department, at least, will be discouraged from accepting appointment to any trust that expressly disallows trustee compensation.  Such trusts may have to be terminated for want of a trustee.

            Allowing for reasonable compensation is a good practice. A trustee assumes significant responsibility with respect to safeguarding and managing the trust assets, making trust assets productive, dealing with creditor and tax claims, and responding to the concerns of beneficiaries.   All of which takes time away from his family, personal time and regular work.   A trustee should not be expected to do this work without reasonable compensation.  

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”