Reasonable compensation for Arizona trustees and personal representatives

“Can I get paid? If I can, how much?” Those are among the most common questions we receive from individuals who, perhaps for the first time, are serving as the trustee of a family member’s trust or as personal representative of their estate.

Let’s take those two questions in order.

The first one is easy: Yes – Arizona law provides that a trustee (see A.R.S. § 14-10708) or personal representative (A.R.S. § 14-3719) is legally entitled to “reasonable” compensation for their services.

The answer to the second – how much? – is more elusive. We will devote most of this article to a general discussion of the factors that come into play.

Before we get into that, let’s clear the air on something. If you don’t want to be paid for your efforts, that’s up to you. However, please don’t feel that wanting to be paid for your services reveals some sort of character defect. Serving as a trustee or personal representative (PR) – let’s use the catch-all term “fiduciary” – is an important job that needs to be done right. Depending on the size and nature of the decedent’s assets and liabilities and the beneficiary situation, a conscientious fiduciary is likely to devote many hours to unfamiliar duties, at inconvenient times, under emotionally trying conditions and close scrutiny, and it would be unreasonable for anyone to expect them to do it for free.

Reasonable Compensation

Many factors influence what is “reasonable,” and their impact on fiduciary compensation is very fact-specific and will vary dramatically from case to case. Let’s take a look at some of those factors.

What the Decedent Intended. The will or trust might specify what the fiduciary’s compensation will be – an hourly rate, a percentage of the value of the assets, or some other standard. If no specific number is mentioned, the statutory standard of “reasonable” might be used. In uncommon cases, the will or trust might prohibit compensating the fiduciary altogether.

In any event, the decedent might not have the final say. The statute governing trustee compensation provides that, in certain circumstances, “the court may allow more or less compensation.” Similarly, the statute governing PR compensation states: “If a will provides for compensation of the personal representative and there is no contract with the decedent regarding compensation, [the PR] may renounce the provision before qualifying and be entitled to reasonable compensation.”

What Is Customary. In a probate estate, where the court approves the method or rate of payment to the PR, the court will try to determine what compensation is “customary” for estates of a similar nature and that are administered by a PR of similar experience. The determination might start with a fee structure of an attorney, paralegal, or professional fiduciary and perhaps discount it as appropriate to reflect the non-professional PR’s relative lack of skill or experience.

Two resources might give you a different starting point and “comp”:

• the fee schedule of the Maricopa County Public Fiduciary, and
• an online tool (to which we cannot attest), “AZ Compensation Calculator,” provided by EstateExec.

The Size and Nature of the Estate. Some estates require more time and effort than others. If the assets consist mostly of bank deposits and securities and there are few debts beyond a few months’ bills, a “standard” hourly rate and the expending of relatively few hours will keep the fiduciary compensation fairly low.

Conversely, if the estate has diverse holdings, such as business or real estate ownership, and/or a long line of creditors or plaintiffs, and/or assets that involve high levels of care or risk, that will justify compensation on a greater scale.

Degree of Difficulty. The size and nature of the estate might be relatively simple, but other factors can still result in high fiduciary compensation:

• If the fiduciary lives in another state, travel time and cost reimbursements could be substantial (trustees are entitled to reimbursement for any expenses they incur in the course of performing their duties).
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• If the fiduciary’s responsibilities force them to take time away from their job or business, they should expect to be reimbursed for their lost wages or profits.
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• If the decedent left behind a lot of children or other beneficiaries, communicating with them and sorting out their residue from the estate will make more work for the fiduciary.
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• If the decedent left behind children or grandchildren who have “issues” or special needs, ensuring their continuing attention and care will likely fall on the fiduciary.
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• If an heir or beneficiary is looking over the fiduciary’s shoulder and challenging their every move, the fiduciary should expect to be paid for the extra time and trouble. Ditto if the decedent’s children don’t like each other, and ditto to the third power if one of the children is the fiduciary.

Who’s Doing the Work. If the fiduciary hires a law firm to manage the trust or probate estate, that will justify the payment of fees paid at a professional rate (to the law firm), and it will reduce the hours of work performed by the fiduciary. In that scenario, if the will or trust calls for the fiduciary to be paid a percentage of the value of the estate, the court would likely downsize the fiduciary’s compensation to reflect the cost of services performed by the professionals who are actually doing the work.

Closing Comments

Record-keeping. If it hasn’t already become clear, keeping good records is essential if you are to justify your fiduciary fees and repayment of expenses. A daily diary of time and services will prove invaluable in filing your compensation request with the probate court or fending off challenges from beneficiaries who view every nickel paid to you as a pro rata cut in their distribution.

The website of the aforementioned EstateExec suggests these contents of your diary (per day, per task):

• nature of the task (e.g., drove to bank to get medallion stamp for IBM stock)
• amount of time spent (e.g., 2 hours)
• hourly rate for the task (e.g., $25/hour)
• results (e.g., sold the car for Blue Book value)
• parties involved in the task
• type of asset

Priority of Payment. To draw to a close on an upbeat note, know that, in Arizona, if there’s not enough money to satisfy all of the estate’s obligations, fiduciaries get paid first.

As set forth in A.R.S. § 14-3805, here is the priority of payments from an estate or trust:

1. Costs and expenses of administration
2. Reasonable funeral expenses
3. Debts and taxes with preference under federal law
4. Reasonable and necessary medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him
5. Debts and taxes with preference under the laws of this state
6. All other claims (e.g., unsecured creditors)

And then, whatever is left goes to heirs and beneficiaries.

Delegation. If by this time you have concluded that no reasonable amount of compensation can justify your shouldering the burden of serving as a trustee or PR, consider delegating your responsibilities to a law firm (such as Hoopes Adams & Scharber) that is experienced and efficient in this area and can serve as your legal advocate and defender. To discuss a probate or trust administration matter with Ron Adams or Ryan Scharber, call us at 480-345-8845.