If the trust document is silent on the matter of trustee compensation, then California law directs that said compensation must be “reasonable.” (Probate Code Section 15681.) Often, a trust simply states that the trustee is entitled to “reasonable compensation” without any definition or any guidelines to help determine the amount of trustee compensation. In those cases, California law provides for the following guidelines to consider when determining or approving trustee compensation (California Rule of Court 7.776):

1. The gross income of the trust.
2. The success or failure of the trustee’s administration.
3. Whether the trustee possessed unusual skill, expertise, or experience.
4. The amount of time spent by the trustee in performance of trustee duties.
5. The custom and practice in the community.
6. The charges of corporate trustees for trusts of similar size and complexity.

Applying these legal guidelines to each case requires application of the facts and circumstances of each case, as well as case law and the practices of the local courts. This can be difficult to do. Opinions can vary as to what is “reasonable” under this law. Strategy is often involved in asserting or opposing trustee compensation claims.

In contrast, a living trust can be drafted to specify the amount of trustee compensation and define the amount in different ways, such as by allowing compensation at a set hourly rate or, as was the case under prior law, by allowing compensation based on a percentage of the trust for each year of service (for example: 1% annually or 1% of the first $1M and a smaller percentage above $1M).

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