CHAPTER LIV

COMPENSATION OF TRUSTEE

§ 459. No Compensation to Trustee

In Great Britain, whence we derived our law of trusts, it is not usual to allow any trustee compensation. Over there, they have a legal maxim to the effect that a trustee may "make no profit out of his office." We have followed this rule so far as trustees and directors for charitable, educational, and public purposes, are concerned. It is not unreasonable to expect that capable men can be found who will give the time and care needed to manage the property and affairs of those institutions that exist not for profit but for the public good or to help the unfortunate.

It should be said that there are few capable business men in this country who do not give gratuitously time and ability to one or more institutions that yield them no profit or return. The rule that a trustee should "make no profit out of his office" properly applies to these, but in this country it is held not to apply to executives, guardians, and other trustees who handle private trusts, and are deemed entitled to compensation.

Trustees may have no compensation for their time and trouble, even when directed by a testator to carry on a business, unless the testator has made provision for such case in his will and has directed compensation. But, under a constructive trust, one who carries on another's business and is required to account for all profits, will be allowed compensation for necessary time or trouble expended by such a trustee in attending to the business.

§ 460. Reimbursement of Expenses

Both in England and in this country, a trustee is entitled to be repaid expenditures reasonably and properly incurred in the care of the trust property. It is necessary that the expenses should be within the limits of the trustee's authority, and a trustee should not incur any expenses beyond his authority, unless they are authorized by the court or agreed to by the cestui que trust, who in such case must be of age.

A trustee should keep accurate accounts if he expects to be repaid. The courts will not allow lump or estimated expenses. As to a trustee's power to incur expenses, see Chapters XLVII and XLIX.

A trustee is not compelled to give up any property in his charge until all proper expenses and disbursements made by him during his period of trusteeship have been repaid. Such expenses are considered a lien upon the estate.

§ 461. Rules in Regard to Compensation

In the United States it is the rule that executors, guardians, and trustees, should be paid for the services they render, and that it is not reasonable to expect gratuitous services in the care of property from capable business men. If, however, from the instrument creating the trust it seems that no compensation for the trustee was desired or ordered by the maker of the trust, no compensation will be allowed.

The statutes of the various states mention only the fees. or compensation of executors, administrators, and guardians, but the equity courts by construction, and by enlarging upon their jurisdiction, have made the statutes include also "trustees."

In some states the court in its discretion awards compensation; in some the statute prescribes a commission and sometimes a per diem rate; and in others, fees and per diem rates were established long ago, and are now absurdly low.

When the executor or the trustee has caused loss by his negligence or mismanagement, he forfeits any claim to compensation.

§ 462. Amount of Compensation

In New York 5 per cent is allowed on the first $1,000, above that and up to $10,000 the rate is 22 per cent, and on anything above that the commission is 1 per cent. If there are more than one executor, no additional fee is allowed unless the estate is worth over $100,000, in which case each executor will receive the full amount. When executors are afterwards trustees and the two functions are distinct, a separate compensation will be allowed for each service. Some of the other states are more liberal and give 5 per cent without regard to the amount. In California the fee is 7 per cent on the first $1,000, 4 per cent on the next $9,000, 3 per cent on the next $10,000, I per cent on the next $50,000, and 2 per cent on all others above that. In Massachusetts the trustees are awarded such compensation as the court may order, and this will vary according to the time and labor involved, the size of the estate, and the ideas of the court. In Virginia, the courts allow a commission of 5 per cent, though in cases where the duties of the trustee have been long and arduous and the responsibility great, a larger percentage has been allowed. In Alabama, no statute has determined the rate of a trustee's compensation, and it is determined upon the labor and trouble of the trustee, though generally the percentage allowed is 5 per cent. In Ohio, the rate is 6 per cent upon the first $1,000, 4 per cent upon the next $4,000, and upon all sums in excess of $5,000, 2 per cent. The court may also make such further allowance for extra services and expenses as is reasonable. In Illinois, trustees receive no compensation except under a special stipulation, but even under such stipulation, no allowance can be made for extra service in making journeys to collect debts

or claims, nor for defense in a suit against the estate, nor for services in defending a suit against the estate.

When a legacy is left to an executor, he will not be allowed also to receive commissions unless the will directs that the legacy is in addition to the commissions.

In those states where the allowance of compensation is in the discretion of the court, any misconduct on the part of the trustee causing loss will be ground for cutting down his compensation or for refusing it altogether.

In the will of Henry C. Frick, $100,000 was left to each of the executors.

REVIEW QUESTIONS

1. Why were trustees allowed no compensation in England? What is the rule in your state? Are trustees of public institutions entitled to compensation?

2. What is the rule as to repayment of disbursements by a trustee? What is a trustee's duty as to money paid out?

3. Why are trustees compensated in the United States? How is this compensation ascertained in your state? If the trustee is negligent or mismanages the property, does it affect his claim for compensation?

4. When executors are later trustees, does that fact affect their commission? When a legacy is left to an executor, does that affect his compensation?

CHAPTER LV

TERMINATION OF TRUST

§ 463. How a Trustee Is Discharged

When a trust is terminated, the trustee is discharged. The trustee, however, may be discharged under some circumstances that do not involve the termination of the trust. The other trustees or a trustee appointed to fill the vacancy will continue the trust. A trustee may be discharged in the following ways:1

1. The fulfilment of the trust. In such case, the trustee should have a release from those to whom he has transferred the trust property, or he should have an order of court authorizing him to distribute the property, which, when done, would terminate the trust. In the case of an executor, he would have to file his accounting and its approval would discharge him.

2. By unanimous consent. If all the cestuis que trust are of age and consent, the trustee may be discharged and in many cases the property may be transferred and the trust may be terminated.

3. By removal for cause. If the trustee is guilty of misconduct, is incapable, refuses to obey orders of court, or has left its jurisdiction, he may be removed. This terminates his connection with the trust but does not end the trust.

4. The loss of the trust property by litigation or otherwise would, of course, by taking away the subject matter, end both the trust and the trusteeship.

1

5. The death of the trustee would end the trustee's con

1 Perry on Trusts, § 921.