Because of numerous questions we get on Trustee fees, I have decided to offer some guidance based on California Law.

Historically, Trustee fees are referred to as “reasonable” in most Trusts. What does that mean realistically? California Probate Code Section 15681 indicates that if the Trust doesn’t specify fees, the Trustee is entitled to “reasonable compensation under the circumstances”. This is not helpful. Currently, our Trusts indicate that a Trustee is entitled to one-half (½) percent of the value of the Trust should an individual beneficiary be acting as Trustee. In most cases, a child of the Trustor is acting as the Successor Trustee for the family and is also a beneficiary of the Trust. Thus, we avoid the implementation of “reasonable” fees. At least, it gives the Trustee and the beneficiaries some idea and insight as to what the fees will be. For example, in a $3 million Trust estate, the Trustee fees would be $15,000.

In reaching an agreement on “reasonable” between the Trustee and the beneficiaries, other factors that may be considered are as follows:

(Continued from Establishing Trust Together)

1. Any skill, experience or expertise exhibited by the Trustee;

2. Time spent in the performance of the Trustee’s duties;

3. The amount of risk and responsibility assumed by the Trustee;

4. Whether the Trustee services required more than routine or ordinary skills;

5. The number of sources of Trust income and Trust assets;

6. The success or failure of the Trustee services;

7. The loyalty and accountability to the beneficiaries demonstrated by the Trustee;

8. The reasonableness of expenses incurred in the Trustee’s work.

All eight (8) factors considered together should have a bearing on the reasonableness of proposed Trustee fees and may be used as a guide in that determination.

For example, for a Trustee to deposit a monthly check from one source of the Trust income with little accountability to the beneficiaries would hardly justify a $5,000 monthly Trustee fee. There would be very little skill, time spent, risk and responsibility and accountability required. On the other hand, collecting and accounting for income from numerous sources such as a business, stock investment accounts, commercial property, oil and gas leases, retirement plans would involve much more skill, time and responsibility. This may easily justify $5,000, or more, in Trustee fees. Each situation must be determined individually. I would recommend having the Trust Protector named in the Trust to make this decision if there was a dispute between the Trustee and beneficiaries to avoid extended court litigation.

Over the years, this has been a major issue in sibling rivalry when a child is named as the Successor Trustee. The rifts have become so serious as to create permanent discord in the family, especially when Court action was involved.

Recommendation:

1. Give serious thought to the choice of your Successor Trustee. If it is a child, his/her relationship to the siblings;

2. Include a determinative Trustee fee in the Trust with flexibility in incorporating these eight (8) factors;

3. Provide for the Trust Protector to make the ultimate decision if there is conflict between the beneficiaries and the Trustee over the fees.

This type of planning can avoid serious discord among your family members AND very serious litigation fees in your Trust estate. If you wish to incorporate this planning, please call our Office Manager Hannah at (858)-792-0909 or email me at jes@jackstephens.com.