Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

April 21, 2013
How can my cousin and I agree on a fee for her services as trustee?

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. Is it possible to pay her out of the trust? 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 the common practice? How can we handle this comfortably?

Anne, Sacramento

A: I am going to assume that the irrevocable trust does not require court approval for payment of 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 the trustee. If she does decide to take a fee, the Probate Code statute governing the fees of a trustee states that, "If the trust instrument does not specify the trustee's compensation, the trustee is entitled to reasonable compensation under the circumstances." That's not entirely helpful because what is reasonable to one person might seem unreasonable to another. There is some guidance provided by the California Rules of Court when trustee compensation is sought in a court proceeding. In such circumstances, the court will consider, among other factors, the following: (1) The gross income of the trust estate; (2) The success or failure of the trustee's administration; (3) Any unusual skill, expertise, or experience brought to the trustee's work; (4) The fidelity or disloyalty shown by the trustee; (5) The amount of risk and responsibility assumed by the trustee; (6) The time spent in the performance of the trustee's duties; (7) The custom in the community where the court is located regarding compensation authorized by settlors, compensation allowed by the court, or charges of corporate trustees for trusts of similar size and complexity; and (8) Whether the work performed was routine, or required more than ordinary skill or judgment.

For a trustee who is a layperson, an hourly rate of $25 - $35 is one which generally is in the range allowed by the court in Sacramento. This rate can go higher if the trustee has a special skill. For example, if a trustee is also a CPA and prepares the returns for the trust, a higher hourly rate would be appropriate.

One thing your cousin should remember if she decides to take a fee for her services as trustee: her fees are reportable to the IRS as income. She is doing a "job" and her compensation would be reportable to the IRS just as she would report compensation for her regular job. Also, the compensation would be paid out of the trust directly to your cousin. It would not come from you.

It is nice that you are wanting to pay your cousin for what can sometimes be a very difficult task and that you are working cooperatively to handle it in a manner that works for the both of you. Fostering this type of a relationship between a trustee and a beneficiary is important, especially if the trust is long-term and the relationship could possibly last several years. If you and she feel comfortable about agreeing upon a reasonable hourly rate, she can keep track of the time she spends performing work as a trustee and pay herself either on a monthly, quarterly or annual basis, whichever she prefers.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at cbuck@sacbee.com

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.



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