Trustees: Are they entitled to remuneration in return for their services?
Trustees: Are they entitled to remuneration in return for their services?
This blog is the last in a series of 3 which has so far discussed the duties of trustees, the implications of breaching those duties and conflicts of interests between trustees and the trust. This final instalment focuses on trustee remuneration and whether trustees are entitled to payment in return for their services.
The General Rule
The general rule under the present law is that trustees should not be paid for acting as such. This rule is founded on the principles that trustees are not allowed to derive any benefit from trust property and that to allow them to be paid might give rise to conflicts of interest and duty.
In the case of lay trustees (someone who acts outside of a professional capacity and is not a trust corporation), the case of Brudenell-Bruce –v- Moore and ors [2014] EWHC 3679 (Ch) reaffirmed the above position. As such, it is now widely accepted that lay trustees are generally not entitled to remuneration for their services.
However, the case for professional trustees is somewhat different and the practice of paying professional trustees has become more far more common. In fact, despite the general rule, the present law does permit professional trustees to be remunerated in certain circumstances.
The Trustee Act 2000 (“the Act”)
Part V of the Act and its provisions, govern the remuneration of “professional trustees” in two ways: first, by setting down rules of construction for express professional charging clauses in trust instruments, and secondly, by providing for the remuneration of certain trustees when there is no express professional charging clause in the instrument.
Section 28 of the Act introduces the new rules of construction of express professional charging provisions in trust instruments. At subsection (1), the Act states that so long as the trustee is a trust corporation or is acting in a professional capacity and there is/are consistent provisions in the trust instrument entitling the trustee to receive payment out of the trust funds in respect of services provided by him to or on behalf of the trust fund, then the trustee will be entitled to remuneration for their services even if those services are services which could be provided by a lay trustee.
On the other hand, where there is no express charging clause, the provisions of section 29 of the Act will apply. In general terms, section 29 creates an implied professional charging clause applicable to all non-charitable trusts which do not make provision for remuneration of professional trustees. In the case of trust corporations, section 29 provides that every trust corporation which acts as a trustee (including as a sole trustee) has the right to receive “reasonable remuneration” from the trust funds for any services that it provides to or on behalf of the trust. Similarly, but subject to certain conditions and exceptions, all other trustees of non-charitable trusts shall be entitled to receive reasonable remuneration for any services on behalf of the trust; however, unlike trust corporations, that entitlement is not automatic. It is in fact conditional upon the trustee acting in a professional capacity and upon them receiving the written agreement from any other trustees.
Reasonable remuneration
The Act clearly provides for “reasonable remuneration”, but what exactly does that mean. Well, according to the Act, it means, “in relation to the provision of services by a trustee, such remuneration as is reasonable in the circumstances for the provision of those services to or on behalf of that trust by that trustee”. That definition is relatively straightforward, yet it offers little guidance in determining what the courts may consider as being reasonable.
That being said, the High Court’s decision in the case of Pullan v Wilson and others [2014] EWHC 126 (Ch) was instructive on the court’s approach to evaluating the reasonableness of a professional trustees fees. In this case, the court was tasked with, amongst other things, determining whether the hourly rates claimed by the Defendant were reasonable. The Defendant had claimed an hourly rate of £400 for himself and an hourly rate of £200 for his assistants. In determining that the hourly rates were excessive, HHJ Hodge QC made the following key points in relation to the remuneration of professional trustees:
- Before accepting the role of trustee, a professional should identify clearly and in writing to the other trustees (and if appropriate, the principal beneficiaries) the basis on which he, and, his assistants, if any, intend to charge for their services.
- Where the standard hourly charging rates of a professional trustee and his assistants (if any), have not been specifically identified and approved in advance, charges based on those standard rates will not necessarily be reasonable (and whether they are or not will be a matter for the court to determine, taking all of the circumstances into account).
- There is an appropriate level of fee for each particular piece of work, and in evaluating this, the court will consider both the time involved and the level of skill and expertise required. A professional’s standard charging rate may not be reasonable if the task he is performing does not require a person with his level of skill.
Practical implications
As noted above, there is a growing practice for paying for professional trustees for their services and most modern trust instruments will now almost always invariably contain an express professional charging clause. The legislative provisions have moved away from the general rule in relation to professional trustees and the absence of an express charging clause would make it unlikely that a professional trustee would now accept office in relation to the trust.
Where such a clause is to be included in the trust instrument, it is recommended that before finalising the terms of any such clause, the level of remuneration should be clearly established and agreed between all the parties including the principal beneficiaries (if appropriate). Once a beneficiary has agreed to the level of remuneration, the court will be unable to intervene, even if the fees are unreasonable. It is therefore vital that a clear and unambiguous agreement is reached in respect of any remuneration that is to be paid so as to avoid future issues.