In the typical estate plan it is common for a child to become the successor trustee of his or her parent's trust provided they are over the age of 18 and of sufficient competency.
One of the biggest dilemmas facing the successor trustee is their compensation rate because even though the Probate Code states that a trust document may specify the compensation rate, such a clause is often omitted. Prob C § 15681. In which case, "the trustee is entitled to reasonable compensation under the circumstances." Prob C § 15681.
So you are the successor trustee of your parent's trust and have just read through the trust and found that the trust document states that the trustee is entitled to reasonable compensation. Knowing that the word "reasonable compensation under the circumstances" is an elastic phrase which lawyers love to litigate over, you begin to wonder what could constitute reasonable compensation? Would $50 an hour be considered reasonable given that the trust owns a home and a few bank accounts? Given the difficulty in ascertaining "reasonable compensation under the circumstances", a simple formula used by some is to compensate the trustee 1% per annum based off of the value of the entire trust estate.
For example, if the trust estate is worth $100,000 at the close of the year, the trustee would be entitled to $1,000 as compensation. Although, the trustee is not required to accept a fee, but if he or she does so, the fee must be reported as taxable income.
