November 19, 2014

Trustee compensation

When a successor trustee assumes office, one question that naturally arises is, how much can I be compensated? Or in common verbiage, how much can I be paid? A trustee, like most people, will want to be compensated for their time, especially if they are a non-beneficiary. People do not like to work for free. Moreover, given the liability of being trustee, this further compels a trustee to seek payment because liability will attach regardless if compensation is taken.

The trust instrument controls the rate of compensation. However, I have never seen or heard about a trust that provided for a specific compensation rate, e.g. $___ per hour. Rather, it is customary to state in the trust that the trustee is entitled to "reasonable compensation." Probate Code § 15681. Usually this entails an hourly rate. Consequently, this requires that the trustee keep time sheets for record keeping. A good rule of thumb is to list for each instance at least  (1) the date of services rendered, (2) the services rendered and (3) the amount of time expended. Also, it is good practice to keep all receipts and invoices.

The trustee is generally required to provide an annual accounting to each beneficiary. Probate Code § 16063. The accounting requires that the trustee list their "compensation for the last complete fiscal year of the trust or since the last account." Probate Code § 16063(a)(3). Naturally a beneficiary may want to see documentation that substantiates compensation for the trustee. Hence, the necessity of time sheets, receipts and invoices. The "I just guestimated my time and winged it from there" is not the way to go. I can assure you of that.

If the trustee does not adequately document their time, this may cause their compensation to be reduced or denied. Probate Code § 16420(a)(7). The reason being is that a trustee owes "a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration." Probate Code § 16060. It is reasonable to expect a trustee to document their time given that it takes minimal effort and they are being compensated for their time.

Another aspect of trustee compensation is to handle assignments in a reasonably efficient manner. In the words of the Disney character Scrooge McDuck, "work smarter not harder." (I watched the cartoon "Ducktales" as a child). For example, I read that an attorney-trustee charged $525 to pick up a will from another attorney's office. His hourly rate was $375 and the amount of time he expended was 1.75 hours. See Williams v. McCullough, Los Angeles County Superior Court Case # SP006932. Given the ubiquity of email, a prudent maneuver would have been to simply email the office and ask them to mail it to the attorney-trustee.