December 19, 2012

Trustee Compensation

6th Circuit Court of Appeal, San Jose, CA

A trustee is entitled to reasonable compensation under the circumstances unless the trust provides otherwise. Prob C § 15681. A recent 6th Circuit California Court of Appeal case emphasized the extent of specifying trustee compensation.

Thorpe v. Reed, No. H037330 (Cal. Ct. App. Dec. 13, 2012).
Danny Reed was the beneficiary of a special needs trust. Mr. Reed had unfortunately been injured in multiple accidents which resulted in the creation of a first-party special needs trusts to hold his recovery proceeds.  His mother, Jolaine Allen, was the original trustee. Then Thomas Thorpe of Dragomir Fiduciary Services Inc. became the successor trustee for approximately 4 1/2 months. Then Jenivee Reed, Mr. Reed's sister, became successor trustee. 

The issue in the case was whether or not Mr. Thorpe and his associated parties, lawyers Diane Brown and Michael Desmarais, were entitled to compensation for their services during Mr. Thorpe's time as trustee. The reason that this was an issue in the case was because the trust specified that a successor trustee was not entitled to compensation.      

In Mr. Thorpe's petition, he asked for $65,844.08, $31,047.85 for Ms. Brown and $11,879.14 for Mr. Desmarais as trustee and trustee attorney fees. The trial court judge reduced the fee for all 3 parties whereby Mr. Thorpe received $27,006, Ms. Brown $19,540.61 and Mr. Desmarais $4,739.02.

Ms. Reed appealed this decision and the appellate court reversed, holding that the trial court improperly re-wrote the trust to provide for Mr. Thorpe and his attorneys' compensation. The appellate court reasoned that since Mr. Thorpe accepted trusteeship without it being predicated upon modification to provide for compensation, he was entitled to no compensation as provided for in the trust. The opinion's final footnote summarizes it nicely "Before the appointment order, plaintiff (Mr. Thorpe) wrote the Supervising Court Investigator that he was willing to accept the trusteeship and conservatorship "subject to my attached fee schedule." But the probate court's order was unconditional, plaintiff began performing duties, and the trust was never amended to eliminate the no-compensation provision." The ultimate result was that Mr. Thorpe and his attorneys were entitled to $0.00 as compensation for their services.

Going forward, this case presents an interesting precedent. Presumably, a successor trustee of a special needs trust is entitled to $0.00 compensation if (1) the trust provides for such and (2) the successor trustee does not condition acceptance upon modification of the compensation clause.