Yes, a trustee in California can usually receive reasonable compensation for administering a trust unless the trust document provides otherwise. There is not necessarily one fixed fee that applies to every trust. Appropriate compensation can depend on factors such as the complexity of the estate, the assets involved, the time required, and the level of responsibility assumed by the trustee.
Trustees should understand how compensation is determined before simply paying themselves from trust assets or deciding to waive a fee.
Table of Contents
- How Much Can a Trustee Be Paid in California?
- What Factors Can Affect Trustee Compensation?
- Can a Trustee Be Paid If the Trustee Is Also a Beneficiary?
- Where Does Trustee Compensation Come From?
- Does a Trustee Have to Accept Compensation?
- When Should Trustee Fees Be Paid?
- Trust Administration Involves More Than Distributing an Inheritance
- Avoid Costly Trustee Mistakes
How Much Can a Trustee Be Paid in California?
California generally permits reasonable trustee compensation when the trust itself does not establish a different arrangement.
What is reasonable can vary substantially from one administration to another. A relatively straightforward trust with limited assets may require much less work than an estate involving multiple properties, business interests, litigation, complicated investments, or significant tax matters.
The firm's discussion of trustee compensation in California provides additional information about factors that can affect reasonable trustee fees.
What Factors Can Affect Trustee Compensation?
Several practical considerations may affect the amount of work required from a trustee, including:
- The size and complexity of the trust
- The nature and number of trust assets
- The amount of time required to complete the administration
- Management of businesses or real estate
- Investment responsibilities
- Tax issues
- Litigation or disputes
- The overall level of responsibility assumed by the trustee
A trustee handling substantial business operations, litigation, investments, or complex tax matters may reasonably perform significantly more work than someone administering a smaller and simpler trust.
Can a Trustee Be Paid If the Trustee Is Also a Beneficiary?
Yes. Being a beneficiary does not automatically prevent someone from receiving reasonable compensation for work performed as trustee.
The person's inheritance and trustee compensation are different. The inheritance is received because the person is a beneficiary under the estate plan. Trustee compensation is payment for performing the responsibilities required to administer the trust.
Where Does Trustee Compensation Come From?
Trustee compensation is generally an expense of the trust and is paid from trust assets before the beneficiaries' final shares are calculated and distributed.
This makes accurate recordkeeping particularly important. A trustee should be able to document the work performed and should avoid treating trust property as personal money.
Does a Trustee Have to Accept Compensation?
No. A trustee may decide to waive compensation.
One consideration is the different tax treatment that may apply. Trustee compensation is generally treated as taxable income to the trustee, while assets received as an inheritance are generally not taxable income merely because they were inherited.
Whether accepting or waiving compensation makes sense can depend on the trustee's circumstances, the trust, the work involved, and applicable tax considerations.
When Should Trustee Fees Be Paid?
Questions about when trustee compensation should be paid can be just as important as questions about the amount.
Because a trustee has fiduciary responsibilities to the beneficiaries and the trust, fees should be handled carefully and transparently as part of the overall administration process.
Trust Administration Involves More Than Distributing an Inheritance
A successor trustee may be responsible for locating and protecting assets, handling financial accounts, addressing taxes and debts, managing investments and real estate, maintaining records, communicating with beneficiaries, and ultimately making appropriate distributions.
Those responsibilities are why many trustees work with an experienced California trust administration attorney.
Avoid Costly Trustee Mistakes
Trustee compensation is only one of many issues that can create problems during an administration if handled incorrectly.
If you have been named as a successor trustee, Kavesh, Minor & Otis offers a free report on the 10 biggest mistakes trustees make. Understanding your duties before making major financial decisions can help protect the trust, the beneficiaries, and you personally.
