What is Reasonable Compensation for a Trustee? In order to answer what is reasonable compensation for a trustee, first look to the trust document. If the document provides for a specific fee, then that fee represents what the trustor had in mind for reasonable compensation. Yet, even though it is specified, if it is too little, the trustee can request reasonable compensation from the beneficiaries or from the court if necessary. Likewise, if it is too much, the beneficiaries may also seek modification. The most amicable option may be for the trustee and beneficiaries to meet at the table over drinks and discuss the details of the administration including what is a reasonable fee.
In assessing what is a reasonable charge, look first to your state’s statutory and then case law / common law. Michigan’s statutory law, the Michigan Trust Code, provides little guidance, however the case law is very helpful. The Michigan Trust Code provides that if the terms of the trust do not specify the trustee’s compensation, a trustee is entitled to compensation that is reasonable under the circumstances. Yet, it also provides that even if the terms of a trust specify the trustee’s compensation, the court may allow more or less compensation if (a) the duties of the trustee are substantially different from those contemplated when the trust was created; or (b) the compensation specified by the terms of the trust would be unreasonably low or high. MCL 700.7708.
An agreement out of court if likely to be upheld. The Michigan statutory law recognizes out-of-court settlement agreements. MCL 700.7111. When discussing the reasonable compensation to be included, assess the factors of Comerica Bank v City of Adrian, 179 Mich App 712, 723; 446 NW2d 553 (1989). These are the factors which the Michigan Court of Appeals adopted to determine the reasonableness of a trustee’s proposed fee. If the matter goes to court opposed, it will be up to the trustee to satisfy the court that the services rendered were necessary and that charges for the services are reasonable. The trustee should present records to support their claim, after which the probate court will decide how each factor is weighted. The factors are:
(1) size of trust,
(2) responsibility involved,
(3) character of the work involved,
(4) results achieved,
(5) knowledge, skill, and judgment required and used,
(6) time and services required,
(7) manner and promptness in performing its duties and responsibilities,
(8) unusual skill or experience of the trustee,
(9) fidelity or disloyalty of the trustee,
(10) amount of risk,
(11) custom in the community for allowances, and
(12) estimate of the trustee of the value of his services.
[Id. at 724.]
The agreement cannot be used to achieve termination or modification of the trust, and may not violate a material purpose of the trust. The parties are free to ask the court to approve or disapprove the agreement, and the Code directs the courts to approve if it finds representation was adequate, the terms do not violate a material purpose of the trust, and it contains terms the court has the power to approve. [Id.]
It behooves the parties to try to settle. If an agreement cannot be reached, then costly litigation, possibly reducing the trust value, may follow. A beneficiary can recover attorney fees from the trust where the court finds that the beneficiary’s efforts enhances, preserves, or protects the trust. See Becht v Miller, 279 Mich 629 (1937); In re Estate of Temple, 278 Mich App 122 (2008); MCL 700.7904(1). Likewise, a trustee may be reimbursed for the cost to defend or prosecute a matter in good faith, unless it involves a breach of trust for which a court orders relief described in MCL 700.7902(2).
As a final note, obviously going to court over compensation gives the court an opportunity to review a beneficiary’s complaints. Therefore, grounds for trustee removal merits thought. A trustee can be removed under MCL 700.7706 on a basis described in the terms of the trust; if there has been a serious breach of trust; if a lack of cooperation among cotrustees substantially impairs the administration of the trust; if removal best serves the purposes of the trust because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively; and when there has been a substantial change of circumstances, if removal of the trustee best serves the interests of the trust beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available.
When there is a question of what is reasonable, look to the trust document, consider the statutory law and case law, and whether an agreement can be reached before litigating the matter in court.