Yes, you absolutely can, and often should, address trustee compensation within the terms of your trust document, however, there are specific rules and limitations governed by state law, particularly in California where Ted Cook practices estate planning. Failing to properly address this can lead to legal challenges, disputes among beneficiaries, and even personal liability for the trustee. It’s a nuanced area, and careful planning is essential to ensure fairness, compliance, and a smoothly functioning trust administration.
What are the typical rules around trustee fees?
Generally, trustee compensation is governed by state statutes, such as the California Probate Code. These codes often establish a schedule of fees based on a percentage of the trust’s assets, or an hourly rate for the trustee’s services. However, these statutory rates are often seen as high and may not accurately reflect the actual work performed. A trust document can deviate from these statutory rates, but any such deviation must be clearly defined and reasonable. According to a recent survey by the American Academy of Estate Planning Attorneys, approximately 65% of trusts include provisions addressing trustee compensation, demonstrating its increasing importance in estate planning.
- Trusts with complex assets (real estate, businesses) often require higher compensation.
- A trustee serving in a professional capacity (e.g., a bank trust department) can typically charge market rates.
It’s important to remember that a trustee has a fiduciary duty to act in the best interests of the beneficiaries. Excessive or unreasonable compensation could be considered a breach of that duty.
How can I structure trustee compensation in my trust?
There are several ways to structure trustee compensation. You can specify a fixed fee, a percentage of assets under management (AUM), or an hourly rate. A combination of these methods is also possible. For example, you might set a base fee plus an hourly rate for complex tasks. It’s crucial to clearly define the scope of services covered by the compensation. Does it include investment management, property maintenance, tax preparation, or distribution of assets?
I once worked with a family where the trust document was silent on trustee compensation. The trustee, an elderly aunt, diligently managed the trust for years, incurring significant legal and accounting fees. When she requested reimbursement from the trust, the beneficiaries protested, claiming she hadn’t sought their approval for the expenses. It created a massive family rift, and we had to engage in costly litigation to resolve the dispute. Had the trust document clearly addressed compensation, it would have been a non-issue.
What if I want to compensate a family member as trustee?
Compensating a family member as trustee can be tricky. While it’s permissible, it’s essential to ensure the compensation is reasonable and transparent to avoid accusations of self-dealing. The trust document should clearly state the basis for the compensation, whether it’s a fixed fee, hourly rate, or percentage of assets. It’s often a good idea to get a professional appraisal of the services being provided to ensure the compensation is fair market value.
One of my clients, Sarah, was appointed trustee for her aging mother’s trust. Sarah was a successful businesswoman, but she wasn’t experienced in trust administration. We worked together to draft a trust document that included reasonable compensation for her services, and we obtained a third-party appraisal to support the rate. Sarah meticulously documented her time and expenses, and we held regular meetings with the beneficiaries to keep them informed of the trust’s administration.
What happens if the trust document doesn’t address compensation?
If the trust document is silent on trustee compensation, the trustee is typically entitled to reasonable compensation as determined by state law. However, what constitutes “reasonable” can be subjective and lead to disputes. California Probate Code section 16362 sets the standards for reasonable compensation, which will vary by the size of the trust, the complexity of the assets, and the amount of time spent administering the trust. It is much easier to avoid these complications by proactively addressing compensation in the trust document.
“Properly addressing trustee compensation in the trust document isn’t just about avoiding disputes; it’s about ensuring the trustee is adequately compensated for their time and effort, and that the beneficiaries receive the maximum benefit from the trust.” – Ted Cook, Estate Planning Attorney.
Ted always suggests a review of this important area to ensure alignment with all applicable laws.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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