Trustee of SNT Not Entitled to Fee Because the Trust Says He Can't Receive One

A California appeals court rules 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. 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. 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 that named his mother, Jolaine Allen, as the trustee. 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, a probate court investigator determined that there were some problems with trust management, including the deposit of $92,000 of trust assets into an account in Mr. Reed's own name, rendering him potentially ineligible for SSI. Over Mr. Reed's objection, the probate court appointed Thomas Thorpe, an independent party, 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 overrules the probate court. The court finds 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."

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