So long as the trustee performs his duties and tasks properly, she is entitled to take compensation. However, if the trustee does not perform properly, she may be liable to the trust or its beneficiaries out of her own pocket.
Compensation
Some trusts set out a fee schedule for trustee compensation. If so, certainly the trustee should follow that schedule, or seek court approval to deviate.
Other trusts say something flexible (but vague) like “reasonable” compensation. In determining “reasonable” compensation, the trustee should consider the following:
- the degree of risk and responsibility assumed by the trustee;
- time required (documented by detailed records);
- the value of the trust;
- customary fees charged by other trustees; and
- whether extraordinary efforts were required.
The trustee can also take reimbursement for out-of-pocket expenses. Thus, fees for attorneys, accountants, or investment managers are usually separate from the fee paid for trustee compensation. However, if the trustee saves his own efforts by hiring a professional, normally the trustee’s compensation will be somewhat lower as a result.
If the trustee is a family member or other “amateur” trustee, he or she should be very careful in taking compensation. Often, it is wise to seek approval, in writing, from the beneficiaries, or to get fees approved by a court.
Liability
If a trustee violates one of her duties, a court can make her repay the trust for any loss. This can include breaches of duties by people hired by the trustee. Thus, if a trustee hires an investment manager who “invests” the entire trust amount on the roulette wheel, a court may require the trustee to repay the trust for its losses. Or if the trustee wastes assets or fails to invest them altogether, the trustee will be liable.
However, so long as the trustee is managing assets appropriately, the trustee is not liable if the trust assets lose value. Investment requires risk, and the trustee is not liable when a risk causes a loss.
In addition to forcing the trustee to repay trust losses, beneficiaries can ask a court to remove the trustee and appoint a new one. Or, if the trustee is no longer willing to serve (and face the risks associated with service), the trustee may generally take steps to resign. However, once a trustee has accepted the job, resignation is not automatic. Unless the trust document provides otherwise, the trustee must follow certain procedures to obtain court permission to resign. Thus, a potential trustee should never accept a job lightly.
Conclusion
If you have been chosen to serve as a trustee, someone has placed a high amount of trust in you. Congratulations! Before you accept the job, however, you must carefully review the trust document and the principals discussed in this blog series. Serving as a trustee is not an easy job, nor is it without its risks. However, by serving effectively, you can carry out the grantor’s wishes and give life to the trust language for years to come.
As always, if you have questions or concerns about serving as a trustee, or any other aspect of estate planning or probate, please call Learned Lawyer today!
