Trustee compensation can be a tricky issue. Most Trust documents do not specify an amount for Trustee compensation. And even the California Probate Code states that Trustee compensation must be “reasonable” (see Section 15681), but what is reasonable?
First, let’s consider situations where a Trustee is not entitled to compensation at all because that may be the easier question. Under the California Probate Code section 16420(a)(7), the court can reduce or deny compensation of the Trustee if the Trustee commits a breach of Trust. If the Trustee causes a loss of $10,000, and the Trustee is requesting Trustee’s fees of $10,000, the court can deny that fee request to make up for the harm caused to the Trust.
Court Must Find Breach of Trust
There are many situations where a court may choose to reduce or deny Trustee’s fees. But in those cases, the court must first find that there was a breach of Trust. When a Trustee fails to follow the Trust terms, fails to make Trust distributions, or steals money or other assets from the Trust, then a breach has occurred. The court has a number of different punishments it can impose for breach of Trust, and disallowing Trustee’s fees is one of them.
Types of Trustees
Second, let’s consider situations where a Trustee is entitled to compensation. You must understand that not all Trustees are created equal. There are family members or friends who are named to act as Trustee, but they are not professionals. There are professional Trustees who are licensed by the state of California, but do not work for a larger company. And then there are corporate Trustees, these are banks and corporate Trust companies that act as Trustees. We will refer to these three groups of Trustees as private Trustees, professional Trustees, and corporate Trustees.
Corporate Trustees are at the top of the group, and they usually are paid a percentage of the Trust assets as Trustee’s fees. Most corporate Trustees will receive between 1% to 2%of the Trust assets. For example, a Trust that is valued at $10 million, will pay $100,000 to $200,000 annually as Trustee fees. This is routine in the industry and accepted practice in the view of most California courts.
Private Trustees are at the bottom of the group, and they rarely receive a percentage of the Trust assets as compensation. Private Trustees do not have the expertise or resources of corporate Trustees. As such, a percentage compensation would be inappropriate. In most cases, a private Trustee will be paid an hourly rate that is multiplied by the amount of work provided to the Trust. If a private Trustee works 100 hours on a Trust administration, then they may receive $25 to $35 per hour for their work.
Professional Trustees are in the middle. Professional Trustees will usually receive an hourly rate of over $100 per hour, but they also can receive a percentage of Trust assets in some cases. It all depends on the facts of the case, the terms of the Trust, and the amount of work required of the professional Trustee.
Trustee Fee Caveats
There are two big caveats to all Trustee’s fees: (1) if the Trust document specifies a compensation amount, then that controls (unless the court orders otherwise), and (2) all fees must be earned. By earned, we mean that all fees must be paid after the Trustee properly, and reasonably, manages the Trust administration. If a Trustee does not work, then the Trustee will receive no pay no matter what the circumstances.