Acting as a Trustee or a Power of Attorney Agent is a lot of work which involves a significant degree of liability. Because of this, a person or organization acting as Trustee or a Power of Attorney Agent is entitled to compensation for such services. Although Trusts and Power of Attorney documents may specify the amount of compensation, most estate plans state that the Trustee / Power of Attorney agent shall receive “reasonable compensation,” which is a term of art referenced by the California Probate Code. How do you know whether compensation is “reasonable”?
“Reasonable compensation” is not a defined term. When California courts determine “reasonable compensation,” they look at specific factors in accordance to California Rules of Court which are:
• The gross income of the trust;
• The success or failure of the trustee's administration, as measured, e.g., by the growth in value of the investments;
• Any unusual skill, expertise, or experience that the trustee has brought to the position, e.g., investment management expertise;
• The "fidelity" or "disloyalty" shown by the trustee,
• The amount of risk and responsibility assumed by the trustee, as measured, e.g., by negotiation of oil leases or management of a large office building;
• The time that the trustee spent performing trust duties;
• The custom in the community, including the compensation allowed to trustees by settlors or courts and the fees charged by corporate trustees; and
• Whether the work was routine or required more than ordinary skill and judgment.
In practice, most non-professional Trustees use corporate trustee fee schedules as an upper limit on their own fees. These fee schedules are not legal standards but they may suggest benchmarks for what constitutes “reasonable compensation.” Corporate trustee fees on the first $1 million of market value of trust assets tend to range from 1.0 to 1.3 percent and fees on the second $1 million tend to range from 0.70 to 1.25 percent per year. Therefore, a non-professional trustee taking a fee slightly less than that would likely fall within “reasonable compensation.”
It is important to note that although the Trustee / Power of Attorneyt Agent are entitled by law to “reasonable compensation,” the Trustee’s / Power of Attorney’ Agent’s method for determining “reasonable compensation” is not final and may be challenged by beneficiaries of the trust. The judge will ultimately look to the factors listed above to determine whether a particular fee is “reasonable.” However, because the method based on corporate trustee schedules is so common, it is likely a good benchmark for what a judge will ultimately determine whether a fee is “reasonable.”