Reasonable Compensation for the Individual Fiduciary – Searching for a Definition

June 06, 2016

Introduction

The commissions of an individual serving as a fiduciary – be it an executor, trustee or even a guardian – are generally predicated on a statutory rate table based on the value of the estate subject to administration. For the executor and guardian, the rates are established pursuant to N.Y. Surrogate’s Court Procedure Act 2307 (SCPA); for the trustee, they are contained in SCPA 2308 and 2309. Indeed, these statutory provisions are default rules, applicable in the absence of a contrary provision in a will or trust instrument.1 Given the freedom of testation (in the case of a will) and contract (in the case of an inter vivos trust), a testator or grantor has the right to deny, limit or even enhance the statutory commission base to which the individual fiduciary might otherwise be entitled.2

Unlike the individual fiduciary, the compensation of a corporate fiduciary is based upon the provisions of SCPA 2312. Enacted in 1984, that statute explicitly directs that the commissions of a corporate fiduciary be predicated on a determination of “reasonable compensation” for services rendered, if the will or lifetime trust instrument does not provide for specific rates or amounts of commissions. 3 While the statute does not define reasonable compensation, the legislative history of SCPA 2312, longstanding precedent in New York and elsewhere, and commentary have developed a standard reminiscent of the quantum meruit analysis established by the courts in In re Potts4 and In re Freeman5 for fixing reasonable legal fees. Yet, while this standard has been utilized in determining reasonable compensation due to the corporate fiduciary, is it also applicable to the individual fiduciary where the will or inter vivos instrument directs that the executor, trustee, or guardian receive reasonable compensation for work performed? After examination of the relevant statutes, treatises and case law, discussed below, the authors conclude that it is.

Reprinted with permission from: New York State Bar Association Journal, June 2016, Vol. 88, No. 5, published by the New York Stare Bar Association, One Elk Street, Albany, NY  12207.

 

 

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