What Percentage Does a Trustee Get Paid in California?

A trustee manages trust assets for beneficiaries, handling investments and distributions according to trust terms and legal requirements. Trustees are entitled to compensation for their time, effort, and expertise. Understanding how this compensation is determined is important for both the trustee seeking fair payment and the beneficiaries who are impacted by these fees.

Methods for Determining Trustee Compensation

Trustee compensation can be structured in several ways, reflecting the diverse nature of trusts and the services required. One common approach involves an hourly rate, particularly suitable for trusts that are straightforward or have a limited duration. For instance, private family trustees might charge between $100 and $250 per hour, while professional fiduciaries could range from $200 to $350 per hour, and attorneys or CPAs serving as trustees might bill $300 to $450 or more per hour for their services. This method provides transparency regarding the time spent on trust administration.

Another compensation model is a fixed fee, which may be a one-time payment for specific tasks or an annual amount, regardless of the trust’s size or complexity. This structure is less common but can be appropriate for trusts with predictable, consistent administrative needs. Some trust agreements may also include predefined fee schedules that outline compensation for specific tasks or responsibilities, offering clarity and consistency in fee calculations.

Compensation can also be based on a percentage of the trust’s assets under management (AUM). This model is frequently adopted by professional trustees, including corporate trustees such as banks or investment firms. While a percentage-based fee is often discussed, it is one of several mechanisms, and the overarching principle guiding all compensation methods is that the payment must be reasonable under the circumstances. This means that even if a percentage is used, it must align with the effort and responsibility involved.

Key Factors Influencing Trustee Compensation

Many elements contribute to determining a trustee’s appropriate compensation, extending beyond the chosen payment method. The complexity of the trust is a significant factor, as trusts with diverse assets, numerous beneficiaries, or ongoing legal disputes often demand more extensive management. For example, a trust holding commercial properties or active businesses typically requires more work than one with only liquid assets.

The time and labor required to administer the trust also heavily influence compensation. Trustees responsible for frequent distributions, complex investment strategies, or continuous beneficiary communication will generally spend more hours and effort, justifying higher fees. The trustee’s skill, experience, and professional background play a role as well; those with specialized knowledge in finance, law, or investments may command higher compensation.

The size and nature of the trust assets directly impact the trustee’s responsibilities and potential compensation. Larger trusts, particularly those with substantial and varied asset portfolios, inherently involve more oversight and risk. Additionally, any provisions for compensation outlined within the trust instrument itself are considered, although these are still subject to review for reasonableness if challenged. The custom in the community for similar services also provides a benchmark for what is considered fair compensation.

California’s Approach to Trustee Compensation

California law, specifically the Probate Code, mandates that trustee compensation be “reasonable” rather than dictating a fixed percentage or specific formula. While a trust instrument can specify a percentage or a set fee, this provision is not absolute and remains subject to judicial review for reasonableness if challenged. This means that a percentage stipulated in the trust can be adjusted by a court if it is deemed inequitable or unreasonably high or low, especially if the trustee’s duties have changed significantly.

California courts interpret “reasonable compensation” by considering various factors, many of which align with the general influencing factors mentioned earlier. These include the income generated by the trust estate, the effectiveness of the trustee’s administration, the trustee’s unique skills or proficiency, the level of risk and responsibility assumed, and the time spent performing duties. There is no one-size-fits-all formula for calculating trustee fees in California, unlike the statutory fee schedule that exists for probate fees.

Professional trustees, such as corporate fiduciaries or private professional fiduciaries, often use a percentage of assets under management as a starting point or benchmark for their fees. For instance, professional trustees might charge an annual fee of approximately 1.5% to 2.5% of the trust’s total assets, which can increase for extraordinary services. Non-professional trustees, often family members, typically charge lower fees, ranging from 0.5% to 1% of the trust assets annually, or an hourly rate between $30 and $75. Even when a percentage is applied, it must still align with the overall standard of reasonable compensation given the specific circumstances of the trust.

Reviewing and Challenging Trustee Compensation

Beneficiaries and other interested parties have avenues to review, approve, or challenge trustee compensation in California. If the trust instrument provides specific instructions for compensation, the trustee is generally entitled to be paid in accordance with those terms. However, if the trust does not specify compensation, the trustee is entitled to reasonable compensation under the circumstances. Trustees typically pay themselves for the work performed, though it is prudent to be conservative with fees as beneficiaries can challenge them.

Compensation can be approved informally if all beneficiaries consent, but formal approval can also be sought through a court petition. A beneficiary may petition the court to determine whether a trustee fee is reasonable, especially if they believe it is excessive or if there has been misconduct. California Probate Code section 17200 allows the court to review the reasonableness of the trustee’s compensation.

A court may intervene to determine or adjust compensation in various circumstances, such as when there is a dispute among beneficiaries, ambiguity in the trust instrument, or a claim that the compensation is unreasonably high or low. If a trustee’s compensation is found to be unreasonable, or if the trustee breaches their duties, the court has the authority to reduce or deny fees. In severe cases of misconduct or mismanagement, a trustee might be subject to a “surcharge action,” where the court orders the trustee to personally pay money back to the trust for any losses or damages incurred.