Historically, trustees and executors served without any compensation.1 In recognition of the fact that technological advancements have increased the complexity of dealing with assets in a trust or estate, modern legislation allows fiduciaries to collect commissions for their service. The character of fiduciary compensation varies from state to state, and this article deals specifically with Georgia’s payment regime, which awards fees based on the value of the trust or estate. There are certainly advantages to using this type of system; however, there are various shortcomings, some of which are unique to an asset-based compensation system, while others mirror those found in states with different types of compensation rules.
Compensation by Agreement
Georgia law is flexible when it comes to allowing different types of agreements between a fiduciary and a principal to determine fiduciary compensation. For instance, the pay schedule for a trustee or executor2 does not need to be included in the trust instrument or the will itself; instead, a separate agreement is sufficient.3 The fiduciary can also enter into a written agreement with the beneficiaries.4 Similarly, in the case of co-trustees, a separate agreement can dictate how the commissions will be divided between the fiduciaries.5 These agreements typically present very few problems because the parties negotiating the terms are able to represent their own interests.6 The more difficult, as well as more common, scenario is one in which the principal and fiduciary did not pre-arrange a compensation schedule.
Statutory Compensation Regime
States have varying approaches for setting trustee or executor compensation when there is no agreement to that affect. Some states leave it entirely to the probate court to devise a set of rules7, while others statutorily declare that compensation shall be “reasonable.”8 Although legislators in Georgia seriously considered adopting the latter approach, there was fear it would lead to excessive litigation to define the contours of what is “reasonable.”9 Georgia ultimately became one of a handful of states to adopt a fee schedule based on the value of the assets in the trust or estate.10
Georgia law allows corporate trustees to be compensated according to their published fee schedules, so long as the fees are reasonable.11 Corporate trustees often establish fees based on the value of the assets in the trust. For individual trustees, Georgia law states that the trustee may be compensated 1% of the fair market value of the property as it is received, plus an annual fee based on a percentage of the value of the trust assets.12 This percentage ranges from 0.5% to 1.75% based on the value of the assets in the trust.13 In recognition of the economies of scale that exist in administration of higher value trusts, the statutory rate is arranged in a tiered or bracket system in which the highest percentage of fees are on the first dollars of trust value.14 The rate for executor compensation allows the fiduciary to collect a 2.5% commission for all money received and a separate 2.5% of money paid or distributed, plus a 10% fee on any interest earned by the estate.15 Interestingly, the statutes allow for “reasonable compensation” for the delivery of property in kind.16 This amount is to be set by the probate court, and cannot exceed 3% of the value of the property delivered.17
Downsides to an Asset-Based Compensation Regime
Because an executor can receiver a higher compensation for handling cash,18 the statutory compensation schedule may encourage otherwise imprudent liquidation of assets rather than distribution of property in kind. Another issue that may arise involves appraising assets, particularly those that are difficult to value. Fiduciaries must decide how frequently to appraise these assets, while considering that frequent appraisals are expensive and burdensome, but choosing to delay an appraisal may result in a breach of a fiduciary duty in a highly volatile market. Appraisals in an asset-based fees regime also illustrate the extent to which market conditions affect the compensation of the fiduciary, even when the labor required is not similarly adjusted to reflect an increase or decrease in compensation.
Despite Georgia’s unwillingness to adopt a purely “reasonable” standard, at times, Georgia courts still must get involved to set the compensation rate on a case-by-case basis. This can present problems from a jurisprudential standpoint because, even though a fiduciary would not be setting their own compensation based on what is reasonable, a judicial determination presents an increased likelihood of litigation over whether the declared compensation was, in fact, reasonable. In addition, from a practical standpoint, this approach is inefficient because it requires the fiduciary to go to court to request compensation. Given the fact that some assets are cumbersome to manage and administer, the 3% may, in some situations, result in less-than-equitable compensation.
Similarly, if a fiduciary is being compensated according to the statutory schedule, he may go to court to petition for additional compensation beyond what the statute allows.19 This requires the fiduciary to serve notice on the beneficiaries, and there will then be a hearing at which the beneficiaries may voice any objections.20 At that point, the judge will award the compensation she deems to be “reasonable.”21 If a will provides the executor with less compensation than the statute allows, the representative may petition the court for additional compensation in the same manner.22 Interestingly, the trust code does not have a provision that mirrors this one, indicating that a trustee who is compensated according to the trust agreement may not be able to petition for additional compensation.23 Instead, a trustee must seek the consent of the settlor, if living, or of the beneficiaries to modify the compensation-related provisions of the trust instrument.24 In addition, if a temporary executor needs to be appointed to administer a will, the executor must petition the court for compensation because temporary administrators are not statutorily entitled to compensation.25 Again, despite Georgia’s reluctance to adopt a reasonableness standard, Georgia courts ultimately end up making an inquiry into the specifics of individual cases to set compensation.
The Official Comment to Georgia’s executor compensation statute gives some guidance as to what types of factors should be considered when setting a compensation regime, including “whether an unusually greater expenditure of time or effort was required; whether the [executor] had responsibilities regarding non-probate assets; whether significant tax issues were involved; whether the [executor] performed legal services for the estate; and whether the [executor] continued or liquidated a business enterprise.”26 One of the most common circumstances that is not addressed in the relevant statutes but in which courts are known to award additional compensation is when an executor works to carry on a business in which the decedent owned an interest.27 A court can also consider the amount of time a fiduciary spent on a given matter, but hourly compensation has been deemed unreasonable.28 While allowing a judge to have broad discretion when awarding compensation allows for greater flexibility, the fact that the fiduciary must affirmatively petition the court to do so in itself may require more of the fiduciary than a regime in which the parties work together to come up with a compensation plan. Furthermore, the costs associated with petitioning the court usually come out of the trust or estate, having a potentially deleterious effect on beneficiaries.
Reimbursement of Expenses
Fiduciaries are entitled to reimbursement from the trust or the estate for reasonable expenses incurred in administration.29 This may include necessary expenses for travel, bond premiums, legal counsel, or accounting services.30 Although the statutes allowing for compensation use the “reasonable” language Georgia legislators sought to avoid, there have been few published cases involving a dispute over expenses. However, Georgia courts have allowed a trustee to be reimbursed from the trust corpus for the legal fees expended in a cause of action for breach of a fiduciary obligation when that cause of action was unsuccessful.31 If, however, the suit against the trustee is successful, the trustee will not be entitled to reimbursement.32
Reduction in Compensation
Similarly, various faults in administration may negatively impact the compensation to which a fiduciary is entitled. A breach of duty can result in reduced compensation. For instance, a Georgia court reduced an executor’s compensation in Greenway v. Hamilton because of various acts of self-dealing that constituted a breach of the duty of good faith.33 Georgia law also penalizes inattentive fiduciaries whose conduct does not amount to bad faith. Statutory law reduces compensation to executors who fail to file, or even improperly file, inventories or estate accounts.34 In Fall v. Simmons, a fiduciary who only filed accounts at five and ten year intervals forfeited the right to compensation for the entire estate administration.35 However, an executor can file for relief from commission forfeiture from the court, which can soften the potentially harsh results of a careless omission.36
Georgia statutorily allows an executor to renounce his right to compensation.37 Though there is no such express allowance under the Trust Code, many trustees who are related to the beneficiaries or the settlor may work without compensation. In fact, many trust instruments expressly state that if an immediate family member of the beneficiary, or the beneficiary himself, serves as trustee that the trustee may not collect compensation.38
Ethical Considerations of Drafting Attorney Serving as Executor or Trustee
Aside from a family member, a settlor or testator may request that their drafting attorney serve as the fiduciary under the instrument because of the attorney’s familiarity with the principal’s familial and financial circumstances. This is not unusual, and in fact, it is common in some states.39 Other states, however, forbid the drafting attorney from serving as a fiduciary.40 Georgia law permits an attorney to serve, but the attorney must act within the ethical guidelines set forth by the Georgia Rules of Professional conduct.41 Specifically, attorneys must not attempt to influence a client’s decision or promote themselves, must disclose the potential conflict of interest, and get the client’s written consent.42 Although attorneys generally should not accept a substantial gift from a client, compensation for services as a fiduciary does not constitute a gift and therefore is allowable unless there is a chance that the compensation will “materially limit the lawyer’s independent professional judgment.”43 If an attorney serves as a fiduciary, he or she may collect fees in their capacity as the attorney in addition to the fees as compensation for services as a fiduciary.44 The attorney should be careful to clearly delineate the capacity in which they are acting and segregate billing and income in order to avoid violating rules of professional conduct and the fiduciary obligations required under the will or trust.
Compensation is an important topic to an executor or a trustee. While Georgia’s statutory compensation regime allows a fiduciary to enjoy some degree of certainty in the compensation he will collect, there are many facets of these laws that complicate the otherwise straightforward fee schedule. For instance, there are many circumstances in which a court must approve the compensation rate, such as when a fiduciary requests additional compensation or when an executor is dealing with property other than cash. Because of this, Georgia’s rules may not prevent unnecessary court entanglement to the degree legislators had hoped they would. Furthermore, certain situations may encourage a trustee to liquidate assets rather than manage them because managing the property may be more complicated and likely will result in less compensation. Certain acts and omissions can reduce the commissions a fiduciary is entitled to. While this encourages competent management of the trust or estate, there are situations in which a fiduciary can forfeit compensation due to carelessness or because of a judgment call. When that fiduciary is also the attorney who drafted the will or trust, he or she must be even more vigilant while serving in that capacity.
1 Mary F. Radford, Georgia Trusts and Trustees, § 7.7: Trustee Compensation (2016).
2 While it is common in Georgia to use the term “personal representative” or “administrator” when the fiduciary is administering an intestate estate, for purposes of this article, the authors will use the term “executor” to refer to the administrator of an estate, whether testate or intestate.
3 O.C.G.A. § 53–6–60(a) (referring to executors); O.C.G.A. § 53–12–210(a) (referring to trustees).
5 O.C.G.A. § 53-12-211.
6 However, a Georgia court struck down such an agreement in Johnston v. First Bank of Brunswick because the arrangement allowed the Trustee to be paid for services not yet rendered. 130 S.E.2d 698 (1963).
7 Another article in this series by Frank S. Berall, Attorney Fees and Fiduciary Commissions for Estate Administration, notes that Connecticut is one of several states that leaves compensation to the exclusive jurisdiction of the probate court. http://www.wealthstrategiesjournal.com/attorney-fees-and-fiduciary-commissions-for-estate-administration/
8 Mary F. Radford, Georgia Trusts and Trustees, § 7.7: Trustee Compensation (2016).
9 Id. Another article published in this same series by Amy L. Lonergan and Joshua S. Miller, What is Reasonable? Determining Fiduciary Fees in Massachusetts, described how, after a fiduciary set his or her own fees, Massachusetts courts have interpreted the reasonableness requirement, indicating that perhaps Georgia was onto something. http://www.wealthstrategiesjournal.com/what-is-reasonable-determining-fiduciary-fees-in-massachusetts/
10 Other states include Hawaii, Kentucky, Maryland, New Jersey, and New York. Mary Radford et. al., The Law of Trusts and Trustees, § 975: Compensation of Trustees (2017).
11 O.C.G.A. § 53–12–210(c)(1).
12 Id. at (c)(2).
13 Id. The fee schedule is as follows:
Percentage Fee Market Value
1.75 percent / year on the first $500,000.00
1.25 percent / year on the next $500,000.00
1.00 percent / year on the next $1,000,000.00
0.85 percent / year on the next $3,000,000.00
0.50 percent / year on values over $5,000,000.00
15 O.C.G.A. § 53–6–60(b)(1)-(2).
16 Id. at (b)(3).
18 See supra notes 15–17 and accompanying text.
19 O.C.G.A. § 53–6–62 (referring to executors); O.C.G.A. § 53–12–212 (referring to trustees).
22 O.C.G.A. § 53–6–62(c). However, if the type of services the executor provides that serve as the basis for requesting additional compensation were contemplated in the will, this additional compensation may not be allowed. Dixon v Richardson, 194 Ga 443, 443(3) (1942) (where “will specifically gave to the executors a definite sum as ‘full compensation for their services’”).
23 Similarly, Unif. Trust C. § 708(a) (not adopted in Georgia) implies that when a settlor provides for specific compensation, such a provision “deprive[s] the court of power to control” compensation. Mary Radford et. al., The Law of Trusts and Trustees, § 976: Control of Compensation by Settlor or Beneficiary.
24 O.C.G.A. § 53–12–210(a).
25 O.C.G.A. § 53–6–64. This can be problematic for other reasons as well. In Georgia, only the first executor to receive the property receives commission on the property, whereas if there are two serving consecutively, they divide the commission. O.C.G.A. § 53–6–60(d). Therefore, if an executor is suddenly unable to continue to serve, if they have already received all of the estate property, every successive administrator is not entitled to such compensation, whether temporary or not. Mary F. Radford, Redfearn Georgia Wills and Administration, §11.11: Compensation of Personal Representatives (2016). This certainly preserves the assets for an executor, but may not fully compensate the successor executor for his work.
26 Official comment to O.C.G.A. § 53–6–60.
27 See, e.g., Adair v. St. Amand, 136 Ga. 1 (1911) (conducting a mineral spring business); Hosher v. Fitzpatrick, 146 Ga. 525 (1917) (conducting a hotel business); Lane v. Tarver, 153 Ga. 570 (1922) (conducting a farming business). However if the executor rightfully should have turned the business operations over to the heirs of the decedent, he will not be entitled to additional compensation. Id.
28 Ray v. Nat’l Health Inv’rs, Inc., 280 Ga. App. 44, 50 (2006) (holding that hourly compensation was not reasonable because court approval is required of compensation not within the confines of § 53–6–60).
29 O.C.G.A. § 53–6–61 (referring to executor’s expenses); O.C.G.A. § 53–12–213 (referring to trustee’s expenses).
30 O.C.G.A. § 53–6–61.
31 Snook v. Trust Co. of Ga. Bank of Savannah, N.A., 909 F.2d 480, 485 (11th Cir. 1990) (“If the trustee is found to be without liability at the conclusion of the litigation, however, then he may obtain reimbursement, provided that he demonstrates to the satisfaction of the court hearing the case that the fees were ‘reasonably necessary and proper for the defense or protection of the trust estate.’”)
32 Citizens & S. Nat’l Bank v. Haskins, 254 Ga. 131, 142 (1985).
33 280 Ga. 652 (2006).
34 O.C.G.A. § 53–6–60(f).
35 6 Ga. 265 (1849).
36 O.C.G.A. § 53–6–60(f).
37 O.C.G.A. § 53–6–60(g).
38 Considering the fact that the trust code does not allow expressly for a trustee whose compensation is set by the trust instrument to collect a fee, it is likely that this type of language would be upheld. See supra notes 22–24 and accompanying text. This type of arrangement, however, would likely not be binding on a non-related successor trustee. See Johnston v. First Bank of Brunswick, 218 Ga. 772 (1963).
39 Mary F. Radford, Redfearn Georgia Wills and Administration, § 4:14: Drafting Attorney Naming Self as Personal Representative (2016).
41 See, e.g., Ga. R. Prof’l Conduct 1.1 (regarding competency); 1.7 (regarding conflicts of interest); and 1.8 (regarding gifts and limitation of liability).
42 Georgia Formal Advisory Op. 91-1 (1991). The writing requirement is particularly important in Georgia. See, e.g., In re Estate of Peterson, 255 Ga. App. 303 (2002) (disqualifying an attorney who did not try to influence the client, but failed to memorialize consent to the conflict of interest).
43 Ga. R. Prof’l Conduct 1.8; Ga. R. Prof’l conduct 1.7; Am. Bar Assoc. Formal Ethics Op. 02-426 (2002).
44 Mary F. Radford, Redfearn Georgia Wills and Administration, §11.11: Compensation of Personal Representatives (2016). Similarly, if a person serves as both an executor and trustee of the same property, they are entitled to separate commissions for their work in both capacities. Id.