Fla.Stats. §736.0708(1) tells us that unless the trust agreement says different, "a trustee is entitled to compensation that is reasonable under the circumstances." The statutes do not tell us how to compute what is “reasonable.”
Back in 1958, the Florida Supreme Court, in West Coast Hospital Ass’n v. Florida National Bank of Jacksonville, 100 So.2d 807 (Fla. 1958), listed out the factors that should determine what is reasonable for this purpose. These factors are:
• The amount of capital and income received and disbursed by the trustee. • The wages or salary customarily granted to agents for performing like work in the community. • The success or failure of the trustee’s administration. • Any unusual skill or experience the trustee brought to the trust administration. • The loyalty or disloyalty of the trustee to the beneficiaries. • The amount of risk and responsibility assumed by the trustee. • The time involved in administering the trust. • The custom in the community as to compensation of trustees by settlors or courts and as to compensation paid trust companies and banks serving as trustees. • The character of the work performed by the trustee, whether routine or involving skill and judgment. • Any estimate the trustee has given of the value of his or her own services.• Payments made or allowed by the beneficiaries to the trustee and intended to be applied toward the trustee’s compensation.
Subsequent to that case, there have been several cases that many argue require a “Lodestar” approach to computation of trustee fees. The Lodestar approach generally is an hourly fee approach - calculate how many hours the trustee works and multiply it by a reasonable hourly rate and you reach a reasonable fee. This approach differs greatly from the above factor approach, and will typically result in significantly lower trustee fees when dealing with trusts with significant assets. The Lodestar approach is usually raised by trust beneficiaries unhappy with the fees being charged by a trustee. To my knowledge, most trustees do not apply the Lodestar approach.
There are several weaknesses to the Lodestar argument. First, the case law cited applies to payment of attorneys fees in trust matters, and personal representative fees. Attorneys provide a different service, have different duties, are officers of the court, and have different exposure to liability, than trustees, so an automatic extension of the Lodestar approach to trustees just because attorneys are subject to them is a stretch. Likewise, personal representatives are now paid in large part on a reasonable fee schedule promulgated by statute - hourly fees were thus rejected by the legislature. Lastly, when Florida adopted a new trustee fee statute in 2007, the Senate Staff Anlysis of the statute specifically provided that regarding the statute, the West Coast Hospital factors should be considered in determining what trustee fee is reasonable.
Now, the 2nd District Court of Appeal has ruled that trustee fees should not be calculated under a Lodestar formula. The court seemed particularly influenced by the above Senate Staff Analysis that included a reference to the West Coast Hospital factors. Hopefully, this decision will put the issue to bed, but I guess that a few more District Courts of Appeal may need to similarly rule before trust beneficiaries cease raising Lodestar as the mechanism for computing trustee fees.
See Rubin on Probate Litigation for a further discussion of this case.