26 Jan WHAT FEE IS “REASONABLE” FOR A NON-PROFESSIONAL TRUSTEE UNDER TEXAS LAW?
Many trusts do not name corporate (i.e., banks or other financial institutions, etc.) or professionals (attorneys or CPAs) as a trustee. Unlike corporate trustees (which generally charge a percentage of assets held in the trust on an annual basis pursuant to a fee schedule) or professional trustees, trusts often have family members, friends or other trusted non-professional individuals named to act as trustees. Furthermore, many trusts do not indicate a certain dollar amount or percentage of assets due to the uncertainty of how much assets will be left at the time of death in addition to other reasons. As a result, many trusts indicate that the trustee is entitled to “reasonable compensation”. Also, unless the terms of the trust provide otherwise, the trustee is entitled to “reasonable compensation” from the trust for acting as trustee under Texas law but there is no guidance as to “reasonable compensation”. As a result, “reasonable compensation” is determined by case law in Texas and laws from other jurisdictions to determine what is reasonable based on the evidence.
Factors to determine what is “reasonable” include, without limitation, the following:
- The trustee’s skill and experience.
Usually, a non-professional trustee will fail to have the knowledge, skill or expertise of a professional and thus should be paid less than a professional. If the trustee is a professional (accountant, attorney, real estate agent, etc.) that saves time, then the trustee should be entitled to more.
- Difficulty in administering the trust.
Does the trustee have difficulty in dealing with partnership interests, oil and gas and real estate interests, businesses, etc. and how successful was the administration? Was the trustee’s work routine or did it require special skills? For example, if the beneficiary is disabled, does the trustee have special knowledge on public benefits laws?
- Amount of time spent by trustee.
Was there substantial time spent (other than from additional time spent due to lack of knowledge or experience)? Did the trustee give up other opportunities resulting from the time to act as trustee?
- What is customary in the community?
To determine what is reasonable, courts may look to see what others in the area may charge with similar knowledge and expertise. Normally, a non-professional would be entitled to a lower compensation than a professional or corporate trustee. The fee chart of corporate trustees in the area should be reviewed.
- Value and income of trust property.
The amount and character and income of trust property should be reviewed.
- Performance of Trustee.
The trustee should not be rewarded for poor performance. If it takes longer to administer the trust due to lack of skill or knowledge, then the compensation should not be as much.
- Trustee’s responsibility and care and labor bestowed.
- Loyalty of trustee.
If the trustee is also a beneficiary, there may be a conflict of interest. The trustee must be certain to act in a fiduciary manner. The trustee should put the best interest of the beneficiaries over their own.
“Reasonable” trustee fees are only what a court determines to be reasonable. Non-professional trustees should use the above-mentioned guidelines before taking a fee.
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