Can professional trustees and executors charge for their services?

A lay trustee is not generally entitled to remuneration. The general principle of trust law is that a trustee should not benefit or profit from their position; the High Court has recently reiterated that lay trustees should act free of charge in the recent case of Brudenell-Bruce -v- Moore and Others [2014] EWHC 3679 (Ch).

How does a professional trustee’s position differ from that?

The approach taken towards professional trustees’ services differs, as you would expect. Professional trustees are held to a higher standard of care and are expected to have a greater level of knowledge/skills than a lay trustee, therefore they may be entitled to remuneration for their services.

The starting position is that trustees are entitled to be indemnified for expenses incurred as a trustee, but are not entitled to receive payment for their services, subject to the below exemptions:

• Section 28 Trustee Act 2000 permits the inclusion of an express charging clause in a trust document where the trustee is acting in a professional capacity. If the trust makes express provision for remuneration payments, then a professional trustee may charge for their services against trust funds

• Section 29 Trustee Act 2000 – A professional trustee (or trust corporation) may be entitled to receive ‘reasonable remuneration’ for their services, where no provision was made for such charges in the trust document. This is conditional on receiving agreement from any other trustees in writing for such remuneration

• These two sections of the Trustee Act will apply in regards to trustee remuneration only where the trust deed or documents do not contain an alternative charging clause or other provision in relation to trustee remuneration.

What do recent cases say on this?

The High Court considered the remuneration of professional trustees in Alastair Mark Pullan v David Wilson & 2 Ors [2014] EWHC 126 (Ch).

The claimant in this case challenged the professional trustee’s charge out rates, claiming that they were excessively high and unreasonable. The trustee (defendant) had applied the charge out rates that would be expected in their profession (accountancy & tax) to their role as trustee. They charged the same rate for simple administrative work that required only basic skills.

The claimant’s challenge was dismissed because they had been aware of the defendant’s remuneration rates for over two years and had not queried them during this time.

The court commented that the rates were excessive in relation to some of the work. However, the claimant was prevented from challenging the remuneration due to their failure to query these earlier.

A trustee’s standard charging rates (i.e. those that are line with their profession) will only be considered by the court as an initial reference point. The court will scrutinise the reasonableness of the trustee’s charges in relation to the work undertaken as trustee.

The lapse of time in bringing a claim in this case resulted in the court not being able to scrutinise the remuneration rates in the way that it usually would.

What is best practice for professional trustees, to avoid pitfalls?

Although the claimant unsuccessfully challenged a professional trustee’s remuneration rates in the recent High Court case, there are some useful practical points to take away from the decision.

Firstly, professional trustees should take care to set out their charging rates, and potentially also the basis for those rates, in an engagement letter. Care should be taken to ensure that these are agreed beforehand with beneficiaries to avoid litigation by aggrieved beneficiaries, which can be hugely costly.

Most prudent solicitors and professionals will already comply with this suggestion. The above case serves as reminder to send out terms of engagement letters before work commences and to identify agreed charging rates. These should be sent out to all beneficiaries and co-trustees with a financial interest in the trust. Further:

• Professional trustee charges ought to be proper and reasonable in relation to the nature of the work carried out
• Keep detailed records of time spent, so that disputes/criticism can be addressed
• Beneficiaries should challenge professional trustees’ remuneration rates sooner rather than later, or risk losing their right to challenge them in the future and even lose the right to have the court scrutinise them. Failure to challenge may risk their ability to recoup trustee’s fees charged to the trust, even where those rates are excessive.

For help and advice in this area, please contact Beth King-Smith at [email protected] or on 01905 744 842, or Helen Cain at [email protected] or 01905 744 887.