In California, trustees may be entitled to compensation for the time and effort they spend managing a trust if allowed by its terms. While it is common for California trust to include permissive language for trustee fees, it is not common to define how much those fees may be. Likewise, there is no statute on point defining trustee compensation in California. Therefore, trustees typically look to determine a reasonable fee under the given circumstances (asset size and complexity of managing). The concept of what is “reasonable” for a trustee fee is somewhat subjective and varies depending on the circumstances. Understanding what constitutes a reasonable fee is essential for both trustees and beneficiaries to ensure fairness and transparency in trust administration.
Trustee’s Role and Responsibilities
A California trustee has a fiduciary obligation and is responsible for managing the assets held in a trust. A trustee’s duties include:
- Investing and managing assets: Ensuring that the trust’s assets are properly invested and managed.
- Distributing assets: Making distributions to beneficiaries according to the terms of the trust.
- Maintaining records: Keeping accurate records of the trust’s finances.
- Filing taxes: Handling tax filings and ensuring compliance with all applicable laws.
- Accounting: Publishing reports to beneficiaries detailing information about the trust’s assets and liabilities.
So What Is a “Reasonable” Fee?
Courts typically consider the following when determining if a trustee’s fee is reasonable:
- Time and effort: The amount of time and effort the trustee has spent managing the trust. Complex trusts that require more time and expertise generally justify higher fees.
- Trustee’s experience and skill: A trustee with specialized knowledge or significant experience in managing trusts might command a higher fee.
- Trust size and complexity: Larger and more complex trusts often involve more work, which can lead to higher fees.
- Standard fees in the area: The customary fees charged by trustees in the same geographic area for similar services.
- Trust terms: Sometimes, the trust document itself specifies what the trustee should be paid although this is rare.
- Executor Fees: While not directly on point, the California Probate Code does define fees for a personal representative of an estate.
How Are Trustee Fees Calculated?
Trustee fees can be calculated in different ways, including:
- Percentage of assets: A common method where the trustee charges a percentage of the trust’s assets, typically ranging from 1% to 2% annually.
- Hourly rate: Trustees might charge an hourly rate, especially if the tasks are time-consuming or require specialized knowledge.
- Flat fee: In some cases, a flat fee might be agreed upon for managing the trust.
Disputes and Adjustments
Conclusion
If beneficiaries believe that a trustee’s fee is unreasonable, they can request a court review. The court will evaluate the fee based on the factors mentioned above and make adjustments if necessary. Similarly, if the trustee feels the compensation is inadequate for the work required, they can petition the court for an increase – so long as the trust terms allow for compensation.
If you have questions, please do not hesitate to reach out to us for legal assistance.