For an attorney in Massachusetts, serving as a personal representative or trustee (“fiduciary”) for a trust or estate can be a rewarding and fulfilling role. However, there are numerous pitfalls for an attorney when setting and collecting his or her fees for serving as a fiduciary.
The will or trust, as the case may be, controls the fees a fiduciary may charge for providing fiduciary services. However, the instrument often simply states that the fiduciary is entitled to reasonable compensation. If a will fails to address the issue of compensation, the Massachusetts Uniform Probate Code (“MUPC”) contains a default provision, which states that “[a] personal representative is entitled to reasonable compensation for services.” M.G.L. c. 190B, § 3-719. Similarly, the Massachusetts Uniform Trust Code (“MUTC”) states that “[i]f the terms of a trust do not specify the trustee’s compensation, a trustee shall be entitled to compensation that is reasonable under the circumstances.” M.G.L. c. 203E, §708(a). Accordingly, to determine what is considered “reasonable,” the fiduciary must look to Massachusetts case law. (It should be noted that all of the case law on this topic to date–including the cases referenced below–was decided before the enactment of the MUPC and the MUTC, but such case law is still considered the primary source of interpreting the “reasonableness” standard.)
Few key cases in Massachusetts guide the fiduciary in setting reasonable fees. In 1948, the Supreme Judicial Court in McMahon v. Krapf, 323 Mass. 118 (1948), enumerated the factors to be used in determining reasonableness of trustee fees. The Court’s list included size of the estate, marketable nature of the assets, factual and legal questions involved, time expended, skill and ability employed, amount usually paid to others for similar work and results accomplished. Id. at 123. None of these factors alone is decisive. These standards are similar to those used to establish the reasonableness of legal fees. The determination of how the factors are applied to the particular facts of the case at hand rests largely in the discretion of the probate court judge. The Court in Corcoran v. Thomas, 6 Mass. App. Ct. 199 (1978), held that “[t]he only rule of law is that the fiduciary is to receive just and reasonable compensation for all services performed in his trust.” The Corcoran Court then continued by stating that “[e]verything that a fiduciary does rightly and properly is to be paid for….” Id. Consideration is also given to the net benefit that may result from the fiduciary’s services. Sullivan v. Sullivan, 335 Mass. 268 (1957). Finally, if multiple fiduciaries are serving, each is entitled to compensation in proportion to his or her services.
Many of the cases involving fiduciary fees, including the cases mentioned above, involve the situation where the results obtained by the fiduciary were unfavorable to the trust or estate. For example, the executor in McMahon paid unwarranted bills and incurred unnecessary expenditures that were detrimental to the estate. In Corcoran, the executor charged the estate for fees ordinarily charged by a real estate broker for the sale of the real estate. The Court prevented the executor from taking the broker’s fee because, in applying some of the factors enumerated above, such as the time expended and skill involved, the services performed by the executor in selling the property did not warrant the fee. What is interesting to note about the Corcoran case is that the Court specifically did not take into account the general commissions paid to a real estate broker, despite the amount usually paid to others for similar work being one of the factors from McMahon.
Among all the factors from McMahon, time expended has been determinative in calculating reasonable fees for an attorney acting as a fiduciary. In Grimes v. Perkins School for the Blind, 22 Mass. App. Ct. 439 (1986), Mr. Grimes was acting both as the executor and the attorney for the estate. It is not uncommon for an attorney to act in multiple roles and the Court acknowledged that being one’s own attorney may be efficient. However, in reviewing Mr. Grimes’ time records, the Court took issue not only with the amount of time Mr. Grimes spent on various tasks, but that he did not separate out his time between his role as executor and his role as attorney. There was a concern that the estate was getting billed twice for the same service and Mr. Grimes was charging his hourly rate for “humdrum work,” such as going to the post office. The Court in Grimes also noted that no special skills were required, the case was not complex, it was a small estate and Mr. Grimes did not produce an appreciable benefit to the estate.
An attorney acting as a fiduciary will get called on to perform many different tasks. In some cases, it would be more appropriate for the executor to hire someone to perform the work than to do it himself and charge his hourly rate. For example, if the fiduciary mows the lawn at the decedent’s house, he or she should not charge his or her standard rate. On the other hand, there are other responsibilities that require the skill and knowledge of an attorney or professional, such as the sale of property, interpretation of a legal document and preparation of an estate or fiduciary tax return, in which it is proper to charge his or her hourly rate. Therefore, if an attorney is acting in multiple roles, prior to performing a certain task, he or she should determine whether it should be performed in his or her role as attorney or fiduciary or if it should be delegated to someone at a more appropriate billing rate.
Corporate trustees, banks and trust offices very often use fee schedules to charge for their services as fiduciary. However, such percentage schedules are not appropriate for an individual fiduciary. If a testator or settlor appoints a corporate fiduciary with a fee schedule, there is an inference that the fee schedule was known and agreed to. This is not the situation with an individual fiduciary. In the Grimes case, an expert was presented who relied on fee schedules to attempt to prove the reasonableness of the fees. The Court held that “there is no rule of law and no principal of right by which such commissions are to be charged or allowed without regard to the rendition of actual services therefore.” Grimes, 22 Mass. App. Ct. at 443. A percentage schedule may be used as a guide, but it is “not to be mechanically applied without consideration of the care, thought and intelligence” that are given to the service of the fiduciary. Id. at 444. In trusts and estates with charitable beneficiaries, the Massachusetts Attorney General has objected to individual fiduciaries who charged fees solely based on a schedule and did not provide any further substantiation to the reasonableness of their fees. If an attorney would like to charge a fee schedule for his or her services as a fiduciary, that should be discussed when the controlling document is drafted and made a part of such instrument.
If the instrument is silent as to the amount of fiduciary fees charged to the estate or trust, the attorney must look to the relevant statutes and Massachusetts case law to determine how much he or she should charge for serving as the fiduciary. The attorney is entitled to receive the fair value of his or her services and the amount charged should be reasonable based on the services provided and the factors set forth in McMahon. Relying on Massachusetts case law to set fees is challenging because much of that case law is based on situations where the actions by the fiduciary were a detriment to the estate or trust. These cases do not involve the situation where an additional fee is warranted because the actions by the executor or trustee provided a windfall. Therefore, when the attorney is charging fiduciary fees, he or she should determine the appropriate fees to charge by applying the factors enumerated in McMahon to the services provided and the results obtained.
This article first appeared in the BBA’s Trust & Estates Section’s Winter 2009 Newsletter. Updated April 2016.
Amy R. Lonergan is counsel in the Individual Clients department of the Boston office of Day Pitney LLP and Joshua S. Miller is a managing director and senior wealth strategist in the Boston office of Atlantic Trust Private Wealth Management.