How much is appropriate to pay a trustee who handles a family's living trust? It's a common question. This week, Sacramento estate planning attorney Carlena Tapella of Webb & Tapella law firm offers some guidance.
I am the single beneficiary of an irrevocable trust, and my cousin is the trustee. The trust does not state how much the trustee can/must charge for services. She is hesitant to take any pay, but I would like to pay her something. She is the only one who can write checks for the trust but feels uncomfortable writing a check to herself, even though I approve. What is common practice? How do we handle this comfortably?
I am going to assume that the irrevocable trust does not require court approval for paying fees to a trustee. (Such approval is generally required for a court-created special needs trust, which is a form of irrevocable trust.)
Your cousin is not required to charge for her services as trustee. In California, the probate code states: "If the trust instrument does not specify the trustee's compensation, the trustee is entitled to reasonable compensation under the circumstances."
But what is "reasonable" to one person might seem unreasonable to another.
There is some guidance provided by California courts in cases where trustee compensation is sought in court proceedings. In such circumstances, the court will consider, among other factors:
The gross income of the trust estate.
The success or failure of the trustee's administration.
Any unusual skill, expertise or experience brought to the trustee's work.
The fidelity or disloyalty shown by the trustee.
The amount of risk and responsibility assumed by the trustee.
The time spent performing the trustee's duties.
The custom regarding compensation.
Whether the work performed was routine or required more than ordinary skills or judgment.
For a trustee who is a lay person, an hourly rate of $25 to $35 is generally the range allowed by Sacramento Superior Court.
This rate can go higher if the trustee has a special skill. For instance, if the trustee is also a CPA and prepares the trust's tax returns, a higher hourly rate would be appropriate.
One thing your cousin should remember if she decides to take a fee: It's reportable as income to the IRS. She is doing a "job" and her fees are considered income, the same as compensation for her regular job. Also, any compensation would be paid directly to her out of the trust. It would not come from you.
It is nice that you want to pay your cousin for what can sometimes be a difficult task. It's also good that you are working cooperatively to handle it in a manner that works for both of you.
If the two of you feel comfortable agreeing on a reasonable hourly rate, your cousin should keep track of the time she spends working as trustee and pay herself on a monthly, quarterly or annual basis, whichever she prefers.
Compiled by Claudia Buck
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