Trustee-Attorney of a Trust Part II

Marin County Civic Center (the courthouse is in here, trust me)

An old adage goes that oil and water do not mix. The same could roughly be said of an attorney simultaneously acting as the trustee. While the situation is not expressly prohibited by California law, it invariably involves a precarious position. A recent unpublished California Court of Appeal opinion is an example of this.

Amster v. Mulberg, Marin County Superior Court, Case # PRO 1400334

Client was the beneficiary of a large irrevocable trust. According to the opinion, it was a multi-million dollar trust. Client removed the original trustee, a bank, and replaced them with her personal counsel, Trustee-Attorney. According to the opinion, the Client required considerable attention: 

"She was often unreasonable and even volatile, sending [Mulberg] between 8,000 [and] 10,000 emails during the period he served the Trust as trustee. Ms. Amster expected him to return telephone calls on weekends and after regular business hours."

The appeal revolved around the compensation Trustee-Attorney had paid himself for his work. The relevant part of the trust read:

"Any Trustee serving hereunder shall be entitled to be paid reasonable fees for services rendered in such capacity . . . and to charge such fees to income and principal of any trust created hereunder in such proportions, or entirely to income or principal. . . . If any Trustee is an attorney or an accountant who regularly charges clients based upon customary hourly rate, he or she may charge such rate as his or her Trustee's fee provided that the total fees paid for an annual period do not exceed that a Qualified Corporate Trustee would charge for the same services." 

The trial court found that a corporate trustee would charge a fee of 1% per annum. It then included a multiplier of 1.75% for the trustee fee because the Client was difficult to put it diplomatically. Consequently, the trial court found that under such a scenario a corporate trustee would've charged $227,897.59 for its services.

The problem for Trustee-Attorney is that he received $495,119.75 in trustee fees from the trust. The trial court then surcharged Trustee-Attorney $267,222.16, the difference between the permissible corporate trustee fee and the fee Trustee-Attorney charged. This decision was upheld on appeal. 

The opinion also noted multiples instances in which Trustee-Attorney breached his fiduciary duties. For example, he paid himself as both an attorney and trustee without Client's consent, a violation of Prob C § 15687(a). Furthermore, Trustee-Attorney hired his son, an associate at his law office, to perform legal work for the trust. Since Client did not consent to this arrangement, this violated Prob C § 15687(a).

In Re Conservatorship of Person and Estate of Moore

When an attorney becomes the trustee of a client's trust, trouble usually ensues. The following published decision is representative of this. 

In Re Conservatorship of Person and Estate of Moore, __ Cal.App.4th __ (2015) 

Attorney William Salzwedel was retained by Lester Moore to assist with amending his estate plan and filing an elder abuse action against his daughter. The elder abuse action stemmed from Mr. Moore's daughter, Poppy Helgren, questioning Mr. Moore about large monetary gifts Mr. Moore was providing his girlfriend. In fact, according to the appellate opinion, Ms. Helgren did nothing wrong. Ms. Helgren became concerned about this after being notified from Mr. Moore's doctors that he "suffered from dementia and lacked the capacity to handle his affairs."

In October 2010, Mr. Salzwedel had Mr. Moore "sign the following documents: (1) a partial revocation and modification of the Trust, naming appellant as temporary successor trustee of the Trust; (2) Moore's resignation as trustee; and (3) a Durable Power of Attorney appointing appellant as Moore's attorney-in-fact."

In December 2010, Ms. Helgren "filed a petition for conservatorship. A few months later, she filed a second petition to determine Moore's capacity to execute the estate planning documents."

Mr. Moore, through Mr. Salzwedel, to put it mildly, vigorously objected to the conservatorship petition. The resulting fees and charges was reflective of that. Later Mr. Salzwedel was removed as trustee in May 2012 by the probate court and it ordered him to account for his expenses. 

The details of the accounting were eye-opening.........

"The probate court noted that the accounting listed $474,348.01 in opening inventory and cash receipts and that appellant paid himself $148,105.11 in fees, or 31.22% of the conservatee's reported trust estate, . . . plus another $32,288.21, or another 6.81% of the conservatee's reported trust estate, in related professional and litigation fees."

"The expert witness expenses ($27,515.13) were also excessive. Appellant retained Edward Hyman, Ph.D., a psychologist, from Northern California who billed at the rate of $495 an hour. Doctor Hyman charged $6,000 for travel time and billed 23.25 hours ($11,508.75) on January 6, 2012 for "report writing" and a psychological assessment. The trial court found that appellant could have hired an medical expert from UCLA to make the psychological evaluation for $2,500. Appellant also paid a "celebrity psychiatrist," Dr. Carole Lieberman, $7,500 to evaluate Moore but the doctor never wrote a report or testified. In an e-mail, appellant admitted that Doctor Lieberman's fees were shocking and that Doctor Hyman's travel fees were an embarrassment. Appellant paid another attorney-doctor, Alan Abrams, $3,000 to review some medical records. The trial court found that $2,500 was a reasonable fee for Moore's psychological evaluation and that "everything else was wasted money and wasted time."

Predictably, the appellate court upheld the "$96,077.14 judgment surcharging him for excessive attorney's/trustee's fees ($70,044.99), medical expert fees ($25,015.13), and costs ($1,017.02)."

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.

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.

Trustee of a Living Trust

Central Trust Company
Altoona, PA

The term "trustee" is used in many different legal fields. For example, in bankruptcy a trustee is appointed for administering the bankruptcy estate, in the case of a foreclosure the trustee is responsible for handling the property's foreclosure and in the case of a trust, a trustee is required in order to administer the trust. The following are some questions that delve into the topic of a trustee of a trust, whether irrevocable or revocable. 

1. What is a trustee?

A trustee is the legal owner of trust property who administers the trust estate in accordance with the trust's directions. Prob C § 16000. For example, if a trust owns a home and the trustee is John Smith, title to the property would be held, loosely stated, as "John Smith, trustee of the Smith Trust."

2. Who can be a trustee?

A trustee can be a person or natural person. 

In regards to a natural person, such an individual needs to be an adult because minors cannot enter into contracts to sell property.  Wallace v Riley (1937) 23 CA2d 654. 

In terms of a person, a corporation can serve as trustee. Prob C § 300. However, before you list some large financial institution as the trustee, please be aware that corporate trustees require large estates, typically in the millions of dollars, before it undertakes representation as trustee.

  

3. Can I pick myself as trustee?

Yes and this is quite common. Many couples appoint themselves as trustees and name their children as successor trustees.

4. What duties does a trustee?

To list all the duties of a trustee would be a bit much for this post. Please click on this link for a full explanation. Suffice to say there are plenty. 

5. How is a trustee compensated?

Trustee compensation is not a matter of right for the trustee. Thus, the trustee may be entitled to no compensation if so provided by the trust document.

However, a trustee is almost always compensated in reality. Few people are willing to assume a position with all the risks without a reward. The following are various methods used to calculate a trustee's compensation if allowed:

• The trustee is compensated in accordance with a set formula. For example, it is common for a trustee to be compensated 1% of the value of the trust estate annually;
• In the case of a corporate trustee, it has a published fee schedule;
• The trustee is paid a fixed amount per year;
• The trustee is entitled to "reasonable compensation." Probate Code §15681

6. Is trustee compensation considered taxable income?

Yes, income received from acting as a trustee is considered taxable income. Pay your taxes!

7. Can a person refuse the selection as trustee?

Yes, and a person has the right to decline trusteeship even after assuming the position. Prob C § 15640.

8. Can a trustee be removed?

Yes, a trustee can be removed (1) in accordance with the trust instrument (2) by the court on its own motion, or  (3) on petition of a settlor, cotrustee, or beneficiary under Probate Code Section 17200.  Prob C § 15642(a).

9.  Can there be more than one trustee?

Yes, California law permits a trust to have more than one trustee administer it.

10. Does a trustee have to be bonded (see insured)?

No, a trustee need not be bonded unless the trust document requires a bond or a court orders a bond on a finding that the beneficiaries' interests must be protected. Prob C §15602(a)(2). 

11. What are some examples of what not to do as a trustee?

As taken from a prior post:

The trust drafter instructed the trustee, Bank of America, to not allow the trust bank account to exceed the maximum Federal Deposit Insurance Corporation amount. For whatever reason, Bank of America permitted the account to exceed the threshold amount. In particular, the FDIC amount was $10,000 (think 1960s) but the account balance at one time was $49,000. Consequently, Bank of America was held to have breached its fiduciary duty to follow the terms of the trust. Prob C §16000; Estate of Gilmaker (1962) 57 C2d 627.

The trustee was engaged in a real estate dispute with one of the beneficiaries. Since the beneficiary had a combative litigation style, the costs were substantial. In order to cushion the blow of litigation, the trustee decided to sue the beneficiary for elder abuse (the trustee represented an elderly couple), which permitted the recovery of attorney fees. Ultimately, the trustee obtained a judgment against the beneficiary for roughly $700,000 in civil court. The problem was that the trustee incurred fees totaling roughly $1.3 million in the process of obtaining that judgment. Furthermore, the beneficiary filed for bankruptcy subsequent to the judgment. Whoops. The court held that the trustee breached his duty to prudently enforce claims against the trust, since no prudent person would spend $1.3 million to try to collect $700,000. Prob C § 16010; Schwartz v. Labow (2008) 164 CA4th 417.     

12. Can a trustee seek judicial guidance when administering the trust?

Yes, a trustee can petition to appropriate court to seek assistance for the following. Prob C §17200.

• Determining questions of construction of a trust instrument;
• Determining the existence or nonexistence of any immunity, power, privilege, duty, or right;
• Determining the validity of a trust provision;
• Ascertaining beneficiaries and determining to whom property shall pass on termination of the trust, to the extent not specified in the instrument;
• Settling accounts and passing on the trustee's acts, including the exercise of discretionary powers;
• Instructing the trustee;
• Compelling the trustee to submit a report or account to the beneficiary under specified circumstances;
• Granting powers to the trustee;
• Fixing or allowing payment of the trustee's compensation or reviewing its reasonableness;
• Appointing or removing a trustee;
• Accepting the resignation of a trustee;
• Compelling redress of a breach of the trust;
• Modifying or terminating the trust;
• Combining or dividing trusts;
• Amending the trust to qualify a decedent's estate for the federal estate tax charitable deduction;
• Transferring a trust or trust property between jurisdictions;
• Transferring a supervised testamentary trust between counties;
• Removing a testamentary trust from court supervision;

13. Can a trustee terminate a trust?

Yes, a trustee can terminate a trust in certain instances. For example, if the trust's principal dips below $40,000, the trustee has the power to terminate the trust. Prob C § 15408(b).

14. Can a trustee be sued?

Yes. 

Just like any other entity, the trustee can be sued. Moreover, the trustee is the appropriate party to sue, rather than the trust itself. Prob C §16249(a).

15. Can the trustee act as the trust's attorney?

No, a trustee may not represent the trust in court, or propria persona for those Latin-inclined. Ziegler v Nickel (1998) 64 CA4th 545. This means that a trustee would need to hire an attorney to represent the trust in a court case. 

Trust and Probate Litigation

A trust or will, like any legal document, is subject to disputes among interested parties for an assortment of reasons. The following are some common reasons why parties might litigate the contents of a trust or will or its administration. 

1. Interpretation 

Even though the person, or their attorney, writing the will or trust knows, or at least should know, what they are writing it does not necessarily mean that a third-party understands the document. The following example is case which required judicial resolution due to an obvious ambiguity.

On May 2, 1957 Coral Williams of Los Gatos, California wrote a holographic will with the following clause:

"To The University of Southern California known as The U.C.L.A. My entire Estate for Educational purposes.” Estate of Black (1962) 211 Cal.App.2d 75. 

Indisputably, the University of Southern California is known by the acronym “U.S.C.” whereas the acronym “U.C.L.A.” stands for the University of California, Los Angeles. Naturally, litigation ensued because each school believed that it was the rightful beneficiary to Ms. Williams’ estate as directed by her will. 

2. Undue influence 

When somebody writes a will or trust that does not comport with their personality, habits or lifestyle, the common refrain is that the will or trust was the result of undue influence. The following is an example of such. 

James Gunderson, an erstwhile California attorney, routinely wrote wills and trusts which were clearly the result of undue influence. Gunderson would draft wills in which he would name himself as the exclusive or primary beneficiary at the exclusion of the decedent’s heirs. He wrote trusts in which he named himself trustee of large trusts. In turn, while serving as trustee of these trusts, he would hire his own law firm to handle legal services for the trust, classic double-dipping. As trustee, he would invest large sums of money in business entities in which he had an ownership or managerial interest. Naturally, Mr. Gunderson’s outrageous conduct ultimately led to his resignation from the State Bar of California, with subsequent disbarment all but certain should he not have resigned, and also a new law.  

The law, which is still valid, basically disqualifies certain individuals from receiving a bequest from a will or trust, if they assisted in the preparation of it, unless there was consultation and approval by an independent outside attorney. Prob C §§21350-21356.

A rule of thumb for undue influence is that if a will or trust looks suspicious, there is probably a valid reason behind that suspicion. Every client I have had has left their estate to their spouse or their kids, a charity or some logical beneficiary. So if a person suggests that they want to write a will and name some random person in a distant place as the sole beneficiary, you probably have undue influence on your hands. 

3. Breach of a fiduciary duty 

Breach of a fiduciary duty is a common reason why individuals litigate in the trust and will context. A fiduciary duty is basically the legal duty on an individual, when acting on behalf of another, to serve the best interests of individual being assisted. If an individual breaches a fiduciary duty they owed to somebody, there can be serious legal liability.

In terms of a trust, the trustee of a trust owes a fiduciary duty to the beneficiary. This fiduciary duty is manifested by requiring the trustee to be loyal to the beneficiary’s interest rather than themselves, act prudent, disclose material facts to the beneficiary, keep the beneficiary informed of important matters, etc. Each of these aforementioned duties imposes separate responsibilities on the trustee. Thus, even though a trustee may comply with certain duties this does not excuse them from complying with all their duties. This previous post details cases in which the trustee did not comply with their fiduciary duties. 

California Professional Fiduciary

When selecting a successor trustee, many clients are often unsure whether or not their friends or family members have the requisite skills to be a competent trustee. The list of duties that are imposed on a trustee are lengthy and challenging. For example, a trustee owes a beneficiary a duty of loyalty, accounting, impartiality, etc. If the trustee, makes a mistake there are severe consequences, including removal. In light of this, many clients ask if there are professionals who handle being a trustee. The answer is yes.

In California, a professional fiduciary is a licensed individual who has been trained to execute the duties of a trustee. A professional fiduciary can also serve as a conservator, guardian or agent under durable power of attorney for healthcare or finances. In order to become licensed, a professional fiduciary basically needs to take an educational course, and then pass an exam and background check. http://www.fiduciary.ca.gov/licensees/faq.shtml.

A listing of professional fiduciaries can be found on the Professional Fiduciary Association of California’s (PFAC) website at http://www.pfac-pro.org.

The compensation rates for a professional fiduciary are much lower than a corporate trustee but higher than a family member trustee. A range from $100 - $150 per hour for the services of a professional fiduciary would be reasonable. 

Breach of Fiduciary Duty

If you are the trustee of a trust in California, the California Probate Code spells out various duties which you must follow. Here are some examples in which the trustee failed to comply with their fiduciary duties.

1. The trust drafter instructed the trustee, Bank of America, to not allow the trust bank account to exceed the maximum Federal Deposit Insurance Corporation amount. For whatever reason, Bank of America permitted the account to exceed the threshold amount. In particular, the FDIC amount was $10,000 (think 1960s) but the account balance at one time was $49,000. Consequently, Bank of America was held to have breached its fiduciary duty to follow the terms of the trust. Prob C §16000; Estate of Gilmaker (1962) 57 C2d 627.

2. The beneficiaries of a large trust objected to the accounting done by the trustee, Wells Fargo bank. In response, the trustee threatened to deduct the cost of the audit from the objecting beneficiaries share of the trust in order to deter them. Consequently, the trustee was held to have breached the fiduciary duty of loyalty it owed to the beneficiaries because such action benefited the trustee at the beneficiaries' expense. Prob C § 16002; Estate of Gump (1991) 1 CA4th 582.     

3. The owner of a San Francisco restaurant left half of the family restaurant to be held in trust for his wife. The husband decided to appoint his attorney as trustee. Hence the attorney as trustee was responsible for the restaurant's operations. However, the attorney failed to perform his required trustee duties, as he did not keep a separate bank account, books or records for the trust, even though he had been the trustee for a number of years. Thus, the attorney breached his duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration. Prob C § 16060; Di Grazia v. Anderlini (1994) 22 CA4th 1337.    

4. The trustee was engaged in a real estate dispute with one of the beneficiaries. Since the beneficiary had a combative litigation style, the costs were substantial. In order to cushion the blow of litigation, the trustee decided to sue the beneficiary for elder abuse (the trustee represented an elderly couple), which permitted the recovery of attorney fees. Ultimately, the trustee obtained a judgment against the beneficiary for roughly $700,000 in civil court. The problem was that the trustee incurred trustee fees totaling roughly $1.3 million in the process of obtaining that judgment. Furthermore, the beneficiary filed for bankruptcy subsequent to the judgment. Whoops. The court held that the trustee breached his duty to prudently enforce claims against the trust, since no prudent person would spend $1.3 million to try to collect $700,000. Prob C § 16010; Schwartz v. Labow (2008) 164 CA4th 417.     

5. The trustee decided to invest trust money in junior deeds of trusts, namely a second or junior mortgage. Instead of ascertaining the property's value through reasonable steps to make sure the property was worth the combined amount of both the first and second mortgage, the trustee solely relied on a real estate broker's guess as to the property's value. Naturally, the borrowers on the first loan defaulted, the property was foreclosed on and the trust lost $60,000 ($400,000 today) because the property was worth far less than what the real estate broker had guessed. Prob C §16047(d); Estate of Collins (1977) 72 CA3d 663. 

Reasonable Compensation for a Trustee

In a previous post I discussed the compensation rate for a trustee in which the trust did not specify how much the trustee would be compensated. In such a situation, the trustee would be entitled to "reasonable compensation under the circumstances." Prob C § 15681. As mentioned, a rule of thumb used by some estate planning attorneys is to annually compensate the trustee 1% based off of the trust's total value. For example, if the trust estate was worth $500,000, the trustee would be entitled to $5,000 as compensation.

Alternatively, if the compensation rate might be a bit higher than the trust beneficiaries like, 4 or 5% for instance. The trustee can petition the competent probate court for approval of their trustee fee. Prob C § 17200(b)(9). This ensures that the trustee's compensation is not grounds for the trustee's removal and surcharge (see monetary penalty) for breach of trust.

If the trustee decides to file a petition to approve their compensation rate, the probate court may consider the following factors in determining reasonable compensation (see Cal Rules of Ct 7.776): 

1. The gross income of the trust. 

Gross income is the total amount of revenue that the trust generates before taxes are imposed. For example, if the trust's only asset was a piece of rental property and collected $5,000 in rent a month. The gross income of the trust would be $60,000. The fact that gross income is the measure, and not net income, is worth mentioning. Net income is the amount of revenue generated after expenses have been accounted for, namely taxes, fees, permits, licenses, etc. In the example here, if net income was the measure, the revenue figure would be much lower because property taxes, maintenance costs and other expenses would be incorporated into the accounting equation. Consequently, this revenue reduction would in turn lessen the amount of compensation the trustee could claim since the trust estate was less profitable.   

2. The success or failure of the trustee's administration. 

For example, the trustee decided to invest in Google during its initial public offering. Good decision. Conversely, the trustee decided to invest entirely in Enron stock. Bad decision. 

3. Any unusual skill, expertise, or experience that the trustee has brought to the position. 

For example, the trust owns a large collection of Persian rugs. The trustee is a collector of Persian rugs and is keenly aware of the different types of Persian rugs. Hence, the trustee can accurately appraise the value of a Persian rug in case one is ever sold. 

4. The "fidelity" or "disloyalty" shown by the trustee. 

For example, the trust owns a beautiful beach home along an exclusive part of the coastline. The only other nearby tenant is a dining hall. Instead of renting the dining hall for dinner parties for his family and friends, the trustee hosts all the dinner parties at the beach home. This would be an example of "self-dealing", an act of infidelity. 

5. The amount of risk and responsibility assumed by the trustee. 

For example, the trust owns a large office building. The trustee is entrusted with leasing office space to hundreds of individual tenants who each have particular demands and concerns. 

6. The time that the trustee spent performing trust duties. 

For example, the sole trust asset is a block of Southern Company stock, a blue chip energy company whose stock has been historically stable. Clearly, the trustee would not be overly-worked in managing this trust.

Disclaimer: I own 1200 shares of its stock and am acutely aware of its molasses-like stock movements over the years. 

7. The custom in the community, including the compensation allowed to trustees by settlors or courts and the fees charged by corporate trustees. 

8. Whether the work was routine or required more than ordinary skill and judgment. 

For example, the trust owned numerous pieces of antique jewelry, furniture and paintings. Since a common person is ill-equipped to distinguish between authentic and fake in those fields, the trustee would either need to self-educate themselves on the topic or enlist the services of antiques expert in making a decision to sell the items. 

Trustee Appointment

In short, a trust is an instrument in which there is a settlor (or trustor), the person who creates the trust, a trustee, the person who manages the trust and a beneficiary, the person who enjoys the benefits of the trust. 

There is no requirement that there be a different person for each position. Rather it is quite common for the same person or persons to hold all three positions. For example, a husband and wife will commonly draft a trust and appoint themselves as trustee while simultaneously being the beneficiaries with the remainder of the trust going to their children after both of their deaths. Since husband and wife will eventually pass on, there is a need to appoint a successor trustee. 

The pool of sources usually encompasses family members, corporate trustees, private professional fiduciaries and other professionals. 

There are strengths and weaknesses to each group.

1. Family Members

In the case of family members, they will be sensitive to the needs of the beneficiary, children most likely, and thus can cater to the needs of those children. Moreover, a family member is unlikely to charge a large fee for serving as trustee. 

However, being the trustee entails a significant amount of legal liability, an aspect that many people have not undertaken or can appreciate. For instance, I have encountered a number of cases where a family member inexperienced in trust administration and without the assistance of a lawyer, squandered the trust estate through foolish and wasteful spending. This is not necessarily surprising given that there is a common misperception that trust administration is simple, ostensibly free and overly expedient.

2. Corporate Trustee

In light of the significant amount of responsibility accorded to a trustee, some settlors pick a corporate trustee, such as a bank and trust company, to act as the successor trustee. The benefit in selecting a trustee is that a corporate trustee generally possesses fiscal competence, the ability to manage assets and knowledge of a trustee’s ongoing duties. Thus, the possibility of the trust estate being depleted through imprudent investments or foolish purchases is diminished. 

Yet with this degree of fiscal sophistication comes a monetary cost. Corporate trustees usually require the trust to have a minimum amount in assets before it assumes trusteeships. In particular, prominent corporate trustees require a minimum trust estate of at least $1,000,000 dollars before it assumes responsibility typically. Furthermore, another drawback is the corporate trustee’s fee. A corporate trustee’s fee is commonly based off of the trust estate in percentage terms. For example, a corporate trustee might charge 4% for trust administration based off of the value of the entire trust estate. Thereby in the case of a $1,000,000 trust, the corporate trustee would charge $40,000 to serve as trustee, an appreciable amount of money.

3. Private Fiduciary

A hybrid option between a family member and a corporate trustee is a private professional fiduciary. They may have a combination of skills including social work, bookkeeping, accounting and institutional trust administration. In regards to competency, private professional fiduciaries must meet certain state requirements to operate under the Professional Fiduciaries Act (Bus & P C  §§6500-6592). Although, as in the case of a corporate trustee, a private professional fiduciary’s fee is quite high. A typical private professional fiduciary might charge $125 an hour to handle trust administration.

4. Attorney

Finally, clients often ask the attorney who drafted the trust to serve as the trustee. Even though an attorney would have intimate knowledge of a trustee’s duties and liabilities, there are multiples reasons why this a poor decision. 

First, there are ethical issues involved with appointing the drafting attorney as trustee. An attorney owes a duty of loyalty to each and every client and thus must avoid representation that presents a conflict of interest. Cal Rules of Prof Cond 3-300. If the attorney has previously represented a beneficiary and is now acting as trustee of the trust, the attorney is trapped between following the terms of the trust and representing his former client’s interest, namely beneficiary, which might or might not be in harmony. Thus, it creates a conflict of interest as the attorney must heed to the needs of two parties that might diverge. 

Second, per Prob C §15642(b)(6), the beneficiaries of a trust of which a "disqualified person" (see attorney who drafted the trust) is the sole trustee can remove the disqualified person-trustee. Accordingly, if the attorney-trustee can show that it was the settlor's intent that the attorney serve as trustee and this intent was not the product of fraud, menace, duress or undue influence (the burden of proof rests on the attorney-trustee), the court can permit the trustee to continue. Yet if the court finds to the contrary, it can impose all costs of the proceeding, including attorney fees, on the attorney. Prob C §15642(d). 

Third, a trustee who is an attorney may generally receive only the trustee's compensation or compensation for legal services performed for the trustee, unless the trustee obtains approval for the right to dual compensation. Prob C §15687(d). This prevents an attorney-trustee from “double-dipping” in that the attorney is not entitled to compensation as both the trustee and as the trust’s legal counsel. In light of this, I have declined to be the successor trustee each time a client or clients have asked that I serve as trustee.

On the whole, most of my clients have ultimately decided on appointing a close relative as the successor trustee since the close relative would be most attuned to the beneficiary's needs. 

Successor Trustee Fees

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.

Trust Petition

Although a revocable trust is not necessarily a public record, the probate department of the superior court has the ability to intervene in the internal affairs of trusts. Prob C §17000(a).

Consequently Probate Code §17200(b) allows a trustee or beneficiary to petition the probate department of the superior court to resolve the following matters:

1. Determining questions of construction of a trust instrument;
2. Determining the existence or nonexistence of any immunity, power, privilege, duty, or right;
3. Determining the validity of a trust provision;
4. Ascertaining beneficiaries and determining to whom property shall pass on termination of the trust, to the extent not specified in the instrument;
5. Settling accounts and passing on the trustee's acts, including the exercise of discretionary powers;
6. Instructing the trustee;

7. Compelling the trustee to submit a report or account to the beneficiary under specified circumstances;

8. Granting powers to the trustee;

9. Fixing or allowing payment of the trustee's compensation or reviewing its reasonableness;

10. Appointing or removing a trustee;

11. Accepting the resignation of a trustee;

12. Compelling redress of a breach of the trust;
13. Modifying or terminating the trust;
14. Combining or dividing trusts;
15. Amending the trust to qualify a decedent's estate for the federal estate tax charitable deduction;
16. Transferring a trust or trust property between jurisdictions;
17. Transferring a supervised testamentary trust between counties;
18. Removing a testamentary trust from court supervision;
19. Excusing compliance with the governing instrument of an organization under Prob C §16105;
20. Determining the trust's liability for a deceased settlor's debts (but this does not confer standing to bring an action under Prob C §17200 on a person whose only claim to trust assets is as a creditor);
21. Determining petitions under Prob C §15687 (rules regarding dual compensation to attorney, who also acts as trustee, for legal services rendered to the trust) and reviewing the reasonableness of compensation for legal services under that section; and
22. Appointing a practice administrator for a deceased or disabled member of the State Bar under Prob C §9764 or §2468.