Reasonable Compensation for Trustee:

Understanding Trustee Fees in California

Hi, I’m Kim Ward, welcome, or welcome back! I am an expert with helping with homes in probate or a trust administration, so what are reasonable trustee fees? Here in California, even when a family member acts as a trustee, we see a high degree of conflict over this subject. This is especially true when the claimed fee is small compared to the size of the trust estate. You may be grappling with a fee dispute having to do with a trust, but let me preface this, that I am not an attorney, nor am I a tax professional, so this is not legal or tax advice, it is a general overview of trustee fees.

Here in California, California Probate Code Section 15681 generally permits a reasonable fee. Most California superior courts do not have the guidelines in their local rules. California rule of court 7776 list factors that may have to do with a trustee compensation, the trustee and the beneficiaries are likely to apply those factors differently.

Here, we will discuss the best practices for trustee with respect to claiming a fee. Using the common situation where mom and dad picked one of their several children to act as their successor trustee. When the selected sibling becomes a successor trustee, the remaining siblings, may be resentful that they didn’t decline the fee that they can receive. So what should be done to mitigate this?

The easiest way for preventing dispute around the compensation is for the Trustee to seek clarity in the trust agreement prior to their loved ones death. Much of the time, there is a fee amount included within the trust, so if you are already nominated to serve as the successor trustee in your parent’s trust, ask them to work with their estate planner on how to calculate a fee for the time that you will be putting into acting as their successor trustee. This is especially helpful when there’s substantial work to be done outside of what is normal and customary, or if you are relatively certain that your siblings may be a bit hostile about you receiving that fee. The creators of the trust, known as settlers, grantor or trustees, can avoid or reduce the conflict by specifying a formula for trustee compensation, and they can put this into their trust instrument under California Probate Code.

California Probate Code Section 15680 states “if the trust instrument provides for the trustee’s compensation, the trustee is entitled to be compensated in accordance with the trust instrument.”

Using the above section of the probate code the trust or the will should state how the trustee would receive a management fee. Also, the trustee would receive payment each year if the heirs choose to keep the assets, such in a case of investment property that they owned and the family chose to keep as a rental. If the trustee is responsible for managing the rental and ensuring the rent amount(s) coming to the trust and then perhaps being distributed to the various heirs, they’re entitled to compensation for their work.

Alternatively, the trust or will may have an hourly fee in it, and sometimes they take into consideration for inflation. General language in your trust or will regarding an agreement to pay may avoid a fight among your children or your beneficiaries or heirs.

The decedent may write, “given that we hold real estate and other assets, we acknowledge that our success or trustee will have to develop many hours administering the estate and our trustee should receive a fee for their services in accord with the hourly rate that a private fiduciary would receive.” Professional fiduciaries licensed in California, currently charge in the neighborhood of $100 to $150 per hour. Such language will leave the trustee in a far better situation to claim a substantial fee than generic information, which will authorize them to take a reasonable fee.

So, if you are a trustee, these are some important steps you can take to clearly and precisely track your work on settling the estate:

Start a time log. In this log the trustee should detail the date on which a task has been performed and the number of hours per task. The Trustee should break it down into fractional increments with a brief description of the nature of each particular task. Remember, the more complex tasks generally warrant a higher fee. The log may be kept electronically, or in some type of a spiral notebook. The calls that you’ll be making on behalf of the estate can be easily tracked using your cell phone, that way you can show how long it took you to handle a particular phone call. Emails and texts also provide very good record keeping. Hold on to billing invoices from an attorney who is hired to help them and advise you as the trustee.

Do Not reconstructing timelines after the fact it is difficult, and as the trustee, you could lose many hours. If good records are not kept, they may not be accepted by the probate judge.

Make sure you take a fee at regular intervals. California trustees generally receive their fee over the course of the trust administration without any court pre-approval. This is a preferred method rather than waiting until the trust is completed. Spreading out the fee, as in charging a fee at the end of each calendar year has several advantages 1) it may encourage the trustee to be diligent about keeping the log of their time worked 2) The fee might be an administrative expense against the income, thus reducing the income tax for the estate 3) The trustee may actually pay less taxes for the income because the fee will be spread across multiple tax years rather than bundled into one single year and 4) When spread across multiple years, the fee, may be more palatable to the beneficiaries as opposed to a giant lump sum at the end of the administration.

Keep track of un-reimbursed expenses. While the fee generally is treated as taxable income to the trustee during the year it was received, reimbursement is not taxable. So as the trustee you should keep a mileage log with respect to any trust-related travel, this includes any tolls that are paid. Any expenditures to prepare mom and dad’s home when preparing it for sale is also something that should be carefully documented with supporting invoices and canceled checks early on.

Establish an estate account this is using a tax payer identification number or an EIN, and I do have a video all about that HERE.

A diligent trustee who works prudently and in the interest of the beneficiaries, deserves a fee for successfully administrating the trust. On the other hand, a trustee that delays things and doesn’t handle things properly, may experience a lower fee, California Probate Code Section 16420 permits the courts to reduce or deny a fee to the trustee when they’ve actually committed some type of a breach to the trust.

My final piece of advice is that it is always a good idea to consult with an attorney when there’s any type of question regarding this article. If you would like help finding a great probate attorney here is San Diego, or you have a question regarding the real estate of a recently passed loved one please contact me and my team at KimWard@ProbateAndTrustHelp.com or 619.741.0111.