A California appeals court ruled that a trial court inappropriately awarded trustee fees to the successor trustee of a special needs trust despite clear language in the trust prohibiting a successor trustee from receiving a fee. As a result, the trustee did not receive any of his fees that had totaled over six figures. Thorpe v. Reed (Cal.Ct.App., 6th.Dist., No. H037330, Dec. 13, 2012).
Danny Reed was seriously injured when a drunk driver ran over his tent at the Burning Man festival in 1996 when he was 21 years old. The proceeds from the settlement of a suit stemming from that incident and a second personal injury suit that he filed after being hit by a car while crossing the street were deposited into a first-party special needs trust. His mother, Jolaine Allen, was named as the trustee of the trust. The trust explicitly stated that Ms. Allen was entitled to compensation for serving as trustee but that a “Special Trustee and any successor Trustee shall not be entitled to receive reasonable compensation for services in the administration of this trust.”
In 2009, the Public Guardian reviewed the trust and found out that Danny’s mother had made a number of errors in managing the trust, including the deposit of $92,000 of trust assets into an account in Mr. Reed’s own name, rendering him potentially ineligible for SSI. The mother agreed to resign as trustee but asked that her daughter, Danny’s sister, be appointed in her place. Instead, the probate court, over Mr. Reed’s objection, appointed Thomas Thorpe, an attorney in private practice, as temporary and, eventually, permanent trustee. During his limited tenure, Mr. Thorpe attempted to amend the trust to remove the limitation on trustee compensation, but his motion was never heard due to continued litigation between Mr. Thorpe and Mr. Reed over who should serve as trustee. After serving as trustee for less than six months, Mr. Thorpe resigned and Mr. Reed’s sister was named as trustee. Mr. Thorpe then filed a petition for fees, seeking $65,844.08 for himself and $42,926.99 for his attorneys. After a five-day trial (which resulted in an additional $146,556 in fees), the probate court awarded $51,285.63 to Mr. Thorpe and his lawyers. Mr. Reed appealed, arguing that the trial judge exceeded his authority by awarding fees despite the trust’s clear prohibition.
The California Court of Appeals, Sixth Appellate District, overruled the probate court. The court found that “the trust instrument specifically states that a successor trustee . . . is not entitled to compensation. The probate court appointed [Thorpe] unconditionally, and [Thorpe] unconditionally accepted the appointment by performing duties. If [Thorpe] deemed the amount of compensation specified in the trust to be inadequate, he could have refused to act.”
With regard to the relevant statutes, the court concluded as follows:
[t]here is neither mention of compensation generally nor conferment of specific authority to compensate a temporary trustee differently from the amount specified in the trust instrument. The trial court’s construction of the statutes is not only contrary to the plain words but also operates to eviscerate the specific statue that limits the compensation of a trustee to the amount fixed by the trust instrument.
The bottom line: Anyone being asked to serve as trustee must read the trust agreement before accepting the role.
The case is annexed here – Thorpe v. Reed
(Courtesy of the Academy of Special Needs Planners (ASNP). The purpose of ASNP is to assist special needs attorneys in providing the highest quality service and advice to individuals with special needs and to their families.)