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Warner Norcross + Judd LLP is a corporate law firm with over 230 attorneys serving clients in nine offices throughout Michigan. Among the largest law firms in Michigan, Warner works in virtually all areas of business law.

Michigan Law Firm - Warner Norcross + Judd LLP

I. Introduction I was recently asked whether I had ever researched specific fiduciary fees approved as reasonable in Michigan case law.&nbsp;At the time, the answer was no, but the question inspired this column. Since April 1, 2000, the effective date of the Estates and Protected Individuals Code (EPIC), there have been eight cases that addressed the reasonableness of fiduciary fees charged by fiduciaries in Michigan. This column will address the general legal principles that govern the fees of various types of fiduciaries, and analyze each of the eight post-EPIC fiduciary fee cases.

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II. Personal Representative Fees

Section 3719 of the EPIC governs compensation of a personal representative.<a id="_ednref1"></a><a href="#_edn1">1</a> It states that “[a] personal representative is entitled to reasonable compensation for services performed.”<a id="_ednref2"></a><a href="#_edn2">2</a> “A personal representative may pay the personal representative’s own compensation periodically as earned without prior court approval.”<a id="_ednref3"></a><a href="#_edn3">3</a>

If an attorney serves as a personal representative, they must keep a sufficient record of the time expended and the job performed. “[T]he attorney shall maintain time records that state the identity of the person performing personal representative services, the date the services are performed, the amount of time expended in performing the services, and a brief description of the services.”<a id="_ednref4"></a><a href="#_edn4">4</a> Furthermore, “[u]pon request of an interested person affected by payment of personal representative fees, the attorney shall send the time records to the interested person.”<a id="_ednref5"></a><a href="#_edn5">5</a>

Subsection (3) addresses two distinct situations. The first is when a will provides for fiduciary compensation and there is no contract with the decedent regarding compensation. In this case, “the personal representative may renounce the provision before qualifying and be entitled to reasonable compensation.”<a id="_ednref6"></a><a href="#_edn6">6</a> The second is when the testator and the nominated representative have made a written contract for fiduciary services. This contract will be binding on the personal representative.<a id="_ednref7"></a><a href="#_edn7">7</a>

Finally, subsection (4) allows a personal representative to renounce the right to all or a part of the compensation.<a id="_ednref8"></a><a href="#_edn8">8</a> The personal representative must file a written renunciation of the fee with the court and serve the renunciation to all affected interested persons.<a id="_ednref9"></a><a href="#_edn9">9</a>

Although the personal representative is accorded the freedom to determine the fees paid or to be paid to oneself without prior court approval, this privilege is not without limits. Section 3721 allows the court to review the reasonableness of the compensation paid by the personal representative and adjust it accordingly.<a id="_ednref10"></a><a href="#_edn10">10</a> “If the court determines that the personal representative received excessive compensation from an estate for services rendered, the court shall order the person to pay an appropriate refund and may include in the refund amount interest and penalties as the court considers just.”<a id="_ednref11"></a><a href="#_edn11">11</a>

Section 7708 of the Michigan Trust Code (“MTC”) governs compensation of a trustee.<a id="_ednref12"></a><a href="#_edn12">12</a>“ If the terms of a trust do not specify the trustee’s compensation, a trustee is entitled to compensation that is reasonable under the circumstances.”<a id="_ednref13"></a><a href="#_edn13">13</a> On the other hand, “[i]f the terms of a trust specify the trustee’s compensation, the trustee is entitled to be compensated as specified.”<a id="_ednref14"></a><a href="#_edn14">14</a> The court may, however, allow more or less compensation if either: “(a) The duties of the trustee are substantially different from those contemplated when the trust was created[,] [or] (b) The compensation specified by the terms of the trust would be unreasonably low or high.”<a id="_ednref15"></a><a href="#_edn15">15</a> This power by the court to oversee trustee fees cannot be eliminated by the terms of the trust.<a id="_ednref16"></a><a href="#_edn16">16</a>

The drafters of Section 7708 did not intend to change the existing common law as to the reasonableness of trustee fees.<a id="_ednref17"></a><a href="#_edn17">17</a> As such, the standards provided by Michigan common law regarding trustee compensation continue to apply. In Comerica v Adrian, the Michigan Court of Appeals enumerated several factors that probate courts may utilize in determining the reasonableness of a trustee fee, as follows:

(1) the size of the trust, (2) the responsibility involved, (3) the character of the work involved, (4) the results achieved, (5) the knowledge, skill, and judgment required and used, (6) the time and the services required, (7) the manner and promptness in performing its duties and responsibilities, (8) any unusual skill or experience of the trustee, (9) the fidelity or disloyalty of the trustee, (10) the amount of risk, (11) the custom in the community for allowances, and (12) any estimate of the trustee of the value of his services.<a id="_ednref18"></a><a href="#_edn18">18</a>

The burden of proof is on the claimant to satisfy the court that services rendered were necessary and that the charges are reasonable.<a id="_ednref19"></a><a href="#_edn19">19</a>

When evaluating a petition for review of the trustee's fees, the probate court must review the requested fees for reasonableness with “an eye toward preservation of the estate's assets for the beneficiaries.”<a id="_ednref20"></a><a href="#_edn20">20</a> The probate court has the “broadest discretion” in evaluating “the worth of services rendered in light of its experience and knowledge of such matters” and in determining “[t]he weight to be given any factor.”<a id="_ednref21"></a><a href="#_edn21">21</a> The appellate court has noted that while time is one factor to be considered, it may be a poor indicator of the services provided by the trustee in certain circumstances.<a id="_ednref22"></a><a href="#_edn22">22</a> In addition, the appellate court has indicated that a claimant’s failure to present records concerning the services provided is not fatal, but is “usually weighed against him.”<a id="_ednref23"></a><a href="#_edn23">23</a>

On petition by an interested person, section 7207 grants the court the power to review the terms of employment of agents of a trustee, as well as the reasonableness of the compensation of the person so employed or the reasonableness of the compensation determined by the trustee for the trustee’s own services.<a id="_ednref24"></a><a href="#_edn24">24</a> Section 7207 further gives the court the power to order a refund if it finds that the compensation was excessive.<a id="_ednref25"></a><a href="#_edn25">25</a>

Lastly, section 7814 of the MTC governs the trustee’s duty to inform and report. As a general matter, “a trustee shall keep the qualified trust beneficiaries reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.”<a id="_ednref26"></a><a href="#_edn26">26</a> In regards to compensation of the trustee, a trustee must “[n]otify the qualified trust beneficiaries in advance of any change in the method or rate of the trustee’s compensation.”<a id="_ednref27"></a><a href="#_edn27">27</a>

IV. Guardian and Conservator Fees

“A guardian is entitled to reasonable compensation for service as guardian and to reimbursement for room, board, and clothing personally provided to the ward, but only as approved by court order.”<a id="_ednref28"></a><a href="#_edn28">28</a> Furthermore, Section 5315(1) provides that “[a] guardian of a person for whom a conservator is also appointed is entitled to receive reasonable sums for his or her services and for room and board furnished to the ward as agreed on between the guardian and the conservator.”<a id="_ednref29"></a><a href="#_edn29">29</a> The amount agreed upon must be “reasonable under the circumstances.”<a id="_ednref30"></a><a href="#_edn30">30</a>

A conservator is also entitled to reasonable compensation. “If not otherwise compensated for services rendered, a . . . conservator, or special conservator appointed in a protective proceeding, is entitled to reasonable compensation from the estate.”<a id="_ednref31"></a><a href="#_edn31">31</a>

The Michigan Court Rules require that a conservator file an annual account, with the accounting subject to the provisions of MCR 5.310(C)(2)(c). This provision states that all accountings “must be itemized” and show detailed receipts and disbursements during the accounting period.<a id="_ednref32"></a><a href="#_edn32">32</a> It further provides that “[a] written description of the services performed must be included or appended regarding compensation sought by a personal representative.<a id="_ednref33"></a><a href="#_edn33">33</a> The accounting must also include notice that “interested persons have a right to review” and “may object to all or part of an accounting by filing an objection with the court before allowance of the accounting.”<a id="_ednref34"></a><a href="#_edn34">34</a>

Under EPIC and the MTC, the propriety of fiduciary fees is evaluated under the standard of reasonable compensation. What is “reasonable compensation” under the EPIC and/or the MTC has not yet been discussed in any reported decision. However, the reasonableness of fiduciary fees arose in each of the following unreported cases.

In re Estate of Winters, No 265183, 2007 WL 778475 (Mich App Mar 15, 2007)

In Winters, Diane initially served as personal representative of the estate of her deceased brother. Diane hired her sister Laurie to perform certain tasks for the estate. Diane paid herself $75 per hour for 533 hours of work (total fee: $39,975), and she paid Laurie $25 per hour for 288 hours of work (total fee: $7,200). In addition to aggregate fees of $47,175, Diane and Laurie received reimbursement for expenses of nearly $20,000. Hence, Diane and Laurie received the aggregate amount of $65,000 from the estate.

An interested party filed an objection to Diane and Laurie’s fees with the probate court. Following an evidentiary hearing, the probate court entered an order that “limited the fiduciary fees paid by the estate to [Diane] and [Laurie] to a maximum of $15,000 or one and one-half percent of the value of the estate, plus documented expenses.”<a id="_ednref35"></a><a href="#_edn35">35</a> Diane appealed.

First, Diane argued that the $65,000 fee was reasonable. Diane claimed that “[she and her sister] expended a great deal of effort on behalf of the estate and provided valuable services which saved the estate many thousands of dollars.”<a id="_ednref36"></a><a href="#_edn36">36</a> However, an expert witness testified that “both the hourly rate and the hours expended were excessive for the size and complexity of the estate.”<a id="_ednref37"></a><a href="#_edn37">37</a> “[T]he normal fee of a personal representative in the county was $35 to $45 per hour . . . and the skills and experience of [Diane and her sister] did not justify the premium hourly rate [they] charged.”<a id="_ednref38"></a><a href="#_edn38">38</a> The expert witness also made note that Diane “charged a minimum of one quarter hour for any task, and that she charged for 91 hours of travel time at the full hourly rate.”<a id="_ednref39"></a><a href="#_edn39">39</a> Furthermore, Diane recorded an additional 275 hours of work after the major issues in the estate were resolved by the fall of 2002.<a id="_ednref40"></a><a href="#_edn40">40</a>

In addition, the Michigan Court of Appeals considered Diane’s contention that the value to the estate of the services she performed was relevant to evaluating the reasonableness of the fees charged:

It is true that the value to the estate of the services performed must be considered. However, respondent's claims that she benefited the estate by $110,000 lack record support. The sale for which she claims she ‘saved’ $46,000 in real estate commissions was pending when her brother died. In addition, the expert witness questioned whether she actually ‘saved’ the estate any money by selling other properties without a realtor, because a realtor may have obtained a better sales price. Moreover, she may have taken more time to accomplish tasks than a higher-paid professional would have, which negated any savings. Finally, a significant portion of the costs respondent allegedly saved the estate were [sic] offset by the fees charged by her sister and herself.<a id="_ednref41"></a><a href="#_edn41">41</a>

The appellate court found that the probate court did not abuse its discretion in finding that the fiduciary fees charged were excessive in proportion to the services Diane performed.

Diane next argued that the probate court erred by allowing testimony by expert witness James Nelson regarding fiduciary fees in Washtenaw County. According to Diane, “the witness lacked knowledge of all of the details of the estate, and having not reviewed the voluminous records, he did not have the proper foundation upon which to base an opinion.”<a id="_ednref42"></a><a href="#_edn42">42</a> The appellate court disagreed:

The proffered witness, a licensed attorney for over 30 years, testified that approximately half of his practice was probate-related, and that he was familiar with fees charged for estates similar to that of the decedent. The record reveals that he possessed more knowledge than a ‘common man’ would about the reasonableness of fiduciary fees. Further, there was a question of fact, i.e., whether the personal representative fees were reasonable, that was subject to his analysis. His testimony regarding reasonable rates of compensation for personal representatives and institutional fiduciaries aided the factfinder in determining whether the fees charged by respondent were reasonable. In short, the probate court properly allowed his testimony.<a id="_ednref43"></a><a href="#_edn43">43</a>

The appellate court therefore affirmed the ruling of the probate court.

In re Estate of Parks, Nos 281203, 281204, 281437, 281438, 2009 WL 726024 (Mich App Mar 19, 2009)

Fiduciary fees were an issue in the extensive litigation surrounding the death of civil rights activist Rosa Parks, who died in 2005 with a valid pour-over will that funded the revocable trust she created during her lifetime. In 2006, the probate court appointed probate attorneys John M. Chase, Jr. and Melvin D. Jefferson, Jr. to serve as successor co-personal representatives of the estate and successor co-trustees of the trust.

In 2007, Mr. Chase and Mr. Jefferson as co-fiduciaries filed and served both their first annual account (apparently for both the estate and trust) and their petition to allow such account. The account reflected that Mr. Chase and Mr. Jefferson had served as co-legal counsel for the estate and trust, as well as co-fiduciaries, and that they had charged different hourly rates for legal services and fiduciary services. “Chase charged $195 per hour for legal work and $95 per hour for fiduciary work. . . . Jefferson charged $195 per hour for legal work and $90 per hour for fiduciary work.”<a id="_ednref44"></a><a href="#_edn44">44</a> Mr. Chase and Mr. Jefferson “presented the probate court with combined statements of legal and fiduciary services provided. Chase’s statement consisted of 21 pages of chronological entries and Jefferson’s statement was 13 pages of chronological entries.”<a id="_ednref45"></a><a href="#_edn45">45</a> The account included $60,847.50 in legal and fiduciary fees for Mr. Chase, and $45,899.25 in legal and fiduciary fees for Mr. Jefferson.<a id="_ednref46"></a><a href="#_edn46">46</a>

Interested parties Elaine Steele and the Rosa and Raymond Parks Institute for Self Development filed objections to the co-fiduciaries’ requests for legal and fiduciary fees. Specifically, the objecting parties objected to the hourly rate for legal services, and they asked the probate court to reduce such rates to $90 per hour. “The probate court held a hearing on the objections . . . and . . . entered an opinion and order approving the accounts and request for attorney and fiduciary fees.”<a id="_ednref47"></a><a href="#_edn47">47</a> The objecting parties appealed.

The Michigan Court of Appeals held that the objecting parties failed to demonstrate an abuse of discretion by the probate court. It should be noted that the appellate court, in analyzing the reasonableness of the fees, did not differentiate between legal and fiduciary fees.

First, the appellate court found support in the record for the probate court’s finding that the co-fiduciaries’ services had benefited the estate and trust:

It is readily discernible from the record that petitioners, because of their legal skill-set and vast probate experience, were uniquely suited for the task of moving this matter along with the best interest of the estate in mind. The record supports the probate court's observation that due to petitioners' abilities, the matter was settled in a more efficient manner than would otherwise have been expected considering the contentiousness involved among the parties, and costly litigation at trial was avoided as a result of petitioners' efforts. Thus, by their efficiency and skill, petitioners succeeded in preserving the estate's assets.<a id="_ednref48"></a><a href="#_edn48">48</a>

Second, the appellate court found that the co-fiduciaries’ services had increased the value of the estate and trust:

[The co-fiduciaries] recognized the historical significance, as well as the monetary value, of Rosa Parks' personal assets. [The co-fiduciaries] contacted professionals, Guernsey’s, who had extensive experience in marshaling, identifying, preserving, cataloging, and valuing these types of assets. Guernsey's spent many days searching and evaluating items located at both the apartment and the Wildemere house, in old boxes and bins in the basement and attic. . . . Ultimately, Guernsey's produced a 69–page inventory of assets to be sold pursuant to the marketing agreement. Had [the co-fiduciaries] not recognized the value and significance of the personal items and contacted Guernsey’s, the estate's value would not have increased by such a large factor, if at all.<a id="_ednref49"></a><a href="#_edn49">49</a>

Third, the appellate court rejected the objecting parties’ contention that the co-fiduciaries should not have been compensated for time spent working on the committee formed to market the likeness of Rosa Parks:

There is no question that the estate assets, [defined as] “marketable property” [under] the settlement agreement, had not been transferred out of the estate. Until the “marketable property” presently owned by the estate is sold by the marketing committee, by and through the administration of the estate, that property continues to be controlled and administered by [the co-fiduciaries]. [F]iduciaries . . . and attorneys . . . are entitled to recover reasonable compensation for necessary legal and administrative services performed on behalf of an estate or a personal representative. The portion of [the co-fiduciaries’] fees associated with the marketing committee and the marketing agreement clearly came within the scope of their authority to administer the estate and thus they are entitled to compensation.<a id="_ednref50"></a><a href="#_edn50">50</a>

Accordingly, the Court of Appeals affirmed the ruling of the probate court.

In re Estate of Mast, Nos 281500, 285412, 288334, 2010 WL 1330827 (Mich App Apr 6, 2010)

The Mast opinion tells a heartrending story of decedent Charles O. Mast. Charles and his wife, Lucille, owned farmland in Eaton County. They executed quitclaim deeds on the farm adding one of their children, Charlotte, as a joint owner with rights of survivorship. After Lucille died in 1995, Charles gave his remaining interest in the farm to Charlotte. Both Charles and Charlotte continued to live and work on the farm.

After Lucille’s death, the Department of Human Services received referrals alleging that Charles was being abused and neglected by Charlotte. Several witnesses testified that Charles’ house was filthy, cluttered, infested with chicken excrement, and lacked proper food.<a id="_ednref51"></a><a href="#_edn51">51</a> Charles also had multiple injuries, including contusions, fractures, and torn skin.<a id="_ednref52"></a><a href="#_edn52">52</a> The lower court appointed Kathleen M. Gaydos, an attorney and principal of Tri-County Guardianship Services PLC (“Tri-County”), as Charles’s permanent guardian and conservator. Charles died in 2007. His estate was offered for probate and his farm placed into a constructive trust and transferred to Tri-County.

On appeal, Charlotte challenged the trial court’s approval of Tri-County’s second and final accounting. Charlotte first argued that “the trial court approved Gaydos’[s] billing statement even though the statement billed for work performed by Gaydos’[s] employees.”<a id="_ednref53"></a><a href="#_edn53">53</a> The trial court found that “charging any time to prepare time sheets for billing is inappropriate.”<a id="_ednref54"></a><a href="#_edn54">54</a> &nbsp;It reasoned that this type of work is “considered part of the overhead of being a fiduciary,” and it is well-established that “a fiduciary may not charge the estate for overhead.”<a id="_ednref55"></a><a href="#_edn55">55</a> The trial court allowed Gaydos to amend her billing statement. Nonetheless, Charlotte argued that the billing statement was still problematic because “all Gaydos did . . . was delete the time to prepare the time sheets for billing.”<a id="_ednref56"></a><a href="#_edn56">56</a> Furthermore, Charlotte maintained that “Gaydos admitted to delegating five percent of the work to other employees, yet there [we]re no other employees listed in the billing statement.”<a id="_ednref57"></a><a href="#_edn57">57</a> The Michigan Court of Appeals concluded that the trial court did not abuse its discretion in approving the billing statement. It found that “the most significant contribution of Gaydos’s employees was filling out the billing statements.”<a id="_ednref58"></a><a href="#_edn58">58</a> As the amended billing statement deleted these fees, it “effectively deleted much, if not all, of the employees’ work she had previously included in the billing statement.”<a id="_ednref59"></a><a href="#_edn59">59</a>

Next, Charlotte argued that the trial court abused its discretion in awarding Tri-County $100 an hour in fiduciary fees. She cited In re Kruger Estate, 176 Mich App 241; 438 NW2d 898 (1989) to support her proposition that a court abuses its discretion when it increases the fiduciary fee from that requested.<a id="_ednref60"></a><a href="#_edn60">60</a> The appellate court distinguished Kreuger because it found that the trial court “increased the attorney fees by sixty-six percent from what was requested and established by the record.”<a id="_ednref61"></a><a href="#_edn61">61</a> In addition, there was no evidence submitted to justify such an increase. By contrast, in Mast, testimony from experts on both sides generally agreed that $90 an hour was a fair rate. Moreover, Gaydos informed the court that she had not billed for the many hours that she worked throughout the course of the protracted case. The appellate court found that a $10 increase to $100 an hour in fiduciary fees was fair.

In re Awad Estate, No 300891, 2012 WL 104894 (Mich App Jan 12, 2012)

The Awad Estate opinion is worthwhile reading for every probate attorney with a sense of humor. There, Catholic Family Services (CFS) undertook the thankless task of serving as personal representative of the estate of Emil Awad, who was survived by his three feuding daughters: Marie, Camille and Nadia. The probate estate consisted of only $50,000 and tangible personal property. However, the three daughters raised myriad accusations against each other of various improprieties. CFS “received over 500 pages of documents from the [daughters] identifying and supporting issues that they wished CFS to address,” such as Marie’s contention that Camille owed $45 to the estate for cat grooming.<a id="_ednref62"></a><a href="#_edn62">62</a> CFS astutely petitioned the probate court to approve its plan of administration, which consisted of selling the TPP, empowering the daughters to investigate and pursue their claims against each other, and authorizing CFS to take no action on the daughters’ complaints. The daughters did not oppose the petition, which the probate court granted.

In its final amended accounting, CFS charged fiduciary fees of $3,982, based on a $55 hourly rate. The probate court approved CFS’s fiduciary fees over Marie’s objection.<a id="_ednref63"></a><a href="#_edn63">63</a> Marie appealed, claiming that the amount of time spent by CFS on estate administration was excessive relative to its size. The Michigan Court of Appeals affirmed the probate court’s finding that the feuding daughters had made estate administration unnecessarily expensive. “The court ultimately found, as supported by the record, that it was [Marie’s] actions and the acrimony between the sisters that contributed to the depletion of the estate and the increased fees.”<a id="_ednref64"></a><a href="#_edn64">64</a> The appellate court also found that Marie had waived objections to the plan of administration by not contesting CFS’s petition. “[Marie] cannot complain now about the fees incurred by the estate in collecting the personal property, preparing it for auction, and in conducting the auction after she agreed to the process.”<a id="_ednref65"></a><a href="#_edn65">65</a>

In re Estate of Wetsman, Nos 292350, 292738, 301356, 294961, 296365, 301355, 2012 WL 4210413 (Mich App Sept 20, 2012)

Following Charlotte Wetsman’s death in 2007, her son Stephen Shefman (an attorney) served as personal representative of her estate and retained himself as legal counsel for the estate. Stephen charged an hourly rate of $125 for fiduciary services. Stephen and his brother engaged in contentious litigation concerning the estate.

In July 2008, Stephen petitioned the probate court to allow his first annual account, which requested approval of fiduciary and attorney fees exceeding $145,000.”<a id="_ednref66"></a><a href="#_edn66">66</a> Following an evidentiary hearing, the probate court reduced Stephen’s hourly rate for fiduciary services from $125 to $40.&nbsp; The $40 hourly rate produced total allowed fiduciary fees of $3,615.<a id="_ednref67"></a><a href="#_edn67">67</a> At the same time, the probate court removed Stephen as personal representative and replaced him with the county public administrator.

In July 2009, Stephen petitioned the probate court to allow his second and final account as personal representative, for the period through May 28, 2009. As part of that account, Stephen sought attorney and fiduciary fees exceeding $179,000.”<a id="_ednref68"></a><a href="#_edn68">68</a> Again, the probate court reduced Stephen’s hourly rate to $40, which produced total allowed fiduciary fees of $1,580.<a id="_ednref69"></a><a href="#_edn69">69</a>

Stephen appealed the probate court’s rulings regarding his fiduciary fees. However, the Michigan Court of Appeals found no abuse of discretion by the probate court. The appellate court initially noted that, “[u]nder the EPIC, Stephen was entitled to reasonable compensation.”<a id="_ednref70"></a><a href="#_edn70">70</a> The appellate court recognized the limited evidence that Stephen had offered in support of the $125 hourly rate. “[A]ccording to Stephen’s own testimony, [the requested hourly rate of $125] was derived from making inquiries of various people. Again, Stephen’s own expert testified that the requested rate was on the high side. No empirical data was presented in support of the requested rate.”<a id="_ednref71"></a><a href="#_edn71">71</a>

The appellate court noted that the probate court’s fee reduction was supported by its factual findings:

The probate court found that the same problems that existed in evaluating attorney fees [i.e., distinguishing between services that benefited the estate and those that benefited Stephen personally] also existed in evaluating Stephen’s requested fiduciary fees. . . . [I]t is apparent from the probate court’s decision that it considered fee requests by other fiduciaries. The court found that “$125 is at the absolute top end of fees that are requested by fiduciaries who come into the court,” and noted that, in cases where such fees are requested, a skilled fiduciary performed a service that was complicated in one respect or another. . . . [T]he evidence [showed] that Stephen was not an experienced fiduciary and that the case was not overly complex.<a id="_ednref72"></a><a href="#_edn72">72</a>

In re Barron Revocable Trust, No 307713, 2013 WL 275913 (Mich App Jan 24, 2013)

Attorney Michael Scullen served as successor trustee of the Ilene G. Barron Revocable Trust. He also retained himself as legal counsel for himself as trustee. He charged the same hourly rate ($185 to $195) for both trustee services and attorney services.

The trust beneficiaries objected to Mr. Scullen’s trust administration, including the amount of his compensation as both trustee and legal counsel. The probate court held an evidentiary hearing on the beneficiaries’ objections. The beneficiaries proffered expert testimony on the excessiveness of the trustee’s fee, but the probate court excluded such testimony from evidence under MRE 703. The beneficiaries also apparently failed to offer the trustee’s billing statements and accountings into evidence.

Nonetheless, the probate court reduced Mr. Scullen’s hourly rate for trustee services (but not legal services) to $100. “The probate court found [the trustee’s] fee to be excessive relative to the custom in the community and reduced his hourly rate for his fiduciary services to $100 per hour.”<a id="_ednref73"></a><a href="#_edn73">73</a> In evaluating the reasonableness of the trustee’s compensation, the probate court referenced the factors enumerated under Michigan Rule of Professional Conduct (MRPC) 1.5(a) for use in evaluating the reasonableness of attorney fees, rather than the Comerica Bank factors. Mr. Scullen appealed.

On appeal, Mr. Scullen argued that there was no evidence to support the probate court’s ruling that reduced his hourly rate, because “the expert testimony presented on the excessiveness of appellant's fee was found inadmissible and the [trustee’s] billing statements and accountings were not admitted into evidence.”<a id="_ednref74"></a><a href="#_edn74">74</a>

However, the Michigan Court of Appeals “conclude[d] that the evidence, in light of the probate court's extensive experience and knowledge in evaluating the reasonableness of trustee fees, supported the court's reduction in [the trustee’s] hourly rate for his fiduciary services.”<a id="_ednref75"></a><a href="#_edn75">75</a> “Notably, testimony revealed the value, complexity, and composition of the assets comprising the trust, [the trustee’s] specific actions in administering the trust, specific issues that arose during the administration, [the trustee’s] level of experience in the practice of trust administration, and the adversarial nature of the relationship between two of the [trust beneficiaries] and [the trustee].”<a id="_ednref76"></a><a href="#_edn76">76</a>

Moreover, “the probate court properly relied on its own personal knowledge and extensive experience in reviewing trustee fees,” including “the customary fee charged in the community for fiduciary services.”<a id="_ednref77"></a><a href="#_edn77">77</a> “On this record, we believe the probate court's decision reducing [the trustee’s] fiduciary fee to $100 per hour was within the range of reasonable and principled outcomes, and thus, did not constitute an abuse of discretion.”<a id="_ednref78"></a><a href="#_edn78">78</a>

Mr. Scullen also argued that the probate court failed to consider the appropriate factors in evaluating the reasonableness of his fiduciary fee. “[T]he probate court did not reference the factors enumerated in Comerica . . . to be used in evaluating the reasonableness of a trustee's fees in its opinion. Instead, the court referenced the factors enumerated under Michigan Rule of Professional Conduct (MRPC) 1.5(a) for use in evaluating the reasonableness of attorney fees.”<a id="_ednref79"></a><a href="#_edn79">79</a>

The appellate court tacitly recognized that the probate court erred in this regard but nonetheless concluded that the probate court was actually aware of the relevant factors. “It is evident from testimony at the evidentiary hearing, as well as the numerous petitions before the court concerning the administration of the trust, that the court was keenly aware of the factors pertinent to the probate court's determination of the reasonableness of a trustee's fee under Michigan law.”<a id="_ednref80"></a><a href="#_edn80">80</a> The appellate court also found that the Comerica Bank factors were similar to the MRPC 1.5(a) factors. “Many of those factors are similar to the factors used to evaluate the reasonableness of trustee fees identified in Comerica, i.e., the skill and time involved, the customary fee, the amount in question or size of the trust or estate, and the experience of the attorney/trustee.”<a id="_ednref81"></a><a href="#_edn81">81</a> Therefore, the Court of Appeals found no reversible error in this regard.

Apart from the reasonable compensation inquiry, the appellate court found that certain of the beneficiaries’ objections were barred by res judicata, because they could have been raised in a prior proceeding, and that certain objections might be barred by the terms of the trust agreement, which required beneficiaries to raise objections within 90 days of being served with trust accountings.&nbsp; Accordingly, the appellate court remanded the case for further factual development.<a id="_ednref82"></a><a href="#_edn82">82</a>

In the Matter of O’Neill Revocable Trust, Nos 303629, 303631, 303632, 303655, 2013 WL 5379670 (Mich App Sept 26, 2013)

In the Matter of O’Neill Revocable Trust presented a dispute over trustee fees, among other contested matters. John F. Mills, a practicing attorney, served as successor trustee of the revocable trusts respectively created by John O’Neill and Mary Ann O’Neill during their lifetimes. John and Mary Ann’s five adult children were the remainder beneficiaries of the trusts. Mr. Mills charged a trustee fee of $300 per hour; he also paid himself $300 per hour as the attorney for the trust.<a id="_ednref83"></a><a href="#_edn83">83</a> Mr. Mills “disclosed his $300 per hour rate to the siblings at a family meeting shortly after John’s death [i.e., the death of the predecessor trustee].”<a id="_ednref84"></a><a href="#_edn84">84</a>

Regarding accountings, both trust agreements provided, “Such accounts shall become binding on all income beneficiaries and remaindermen sixty (60) days after mailing.”<a id="_ednref85"></a><a href="#_edn85">85</a> Mr. Mills served his 2007 accountings for both trusts upon the beneficiaries, who failed to raise any objections to his trustee or attorney fees within 60 days. Mr. Mills also served his 2008 accountings for both trusts upon the beneficiaries, who again failed to raise any objections to his trustee or attorney fees within 60 days.<a id="_ednref86"></a><a href="#_edn86">86</a>

“In August 2009, Mills filed petitions to allow accounts covering March 2007 to June 2009 relative to both trusts and files, seeking approval of trustee and attorney fees, administrative expenses, completed distributions, and a proposed plan of distribution.”<a id="_ednref87"></a><a href="#_edn87">87</a> “He asked the probate court to approve $107,279 in trustee fees and $10,797 in outside attorney fees incurred in the administration of John's trust, as well as requesting approval of $4,058 in trustee fees and $3,595 in outside attorney fees incurred in the administration of Mary Ann's trust.”<a id="_ednref88"></a><a href="#_edn88">88</a> All but one of the O'Neill siblings objected to both petitions.<a id="_ednref89"></a><a href="#_edn89">89</a> The objecting beneficiaries alleged various breaches of fiduciary duty and claimed that the trustee had “charg[ed] fees that were excessive as to hourly rate and time consumed.”<a id="_ednref90"></a><a href="#_edn90">90</a>

The probate court generally ruled in favor of the trustee and against the objecting beneficiaries. “The probate court, however, did decrease the amount of fees for which Mills sought approval in his petitions, finding certain hourly rates excessive.”<a id="_ednref91"></a><a href="#_edn91">91</a> The probate court allowed Mr. Mills to charge $300 per hour for attorney services, but only $150 per hour for trustee services, despite “testimony by Mills's expert witness that the $300 per hour rate was reasonable for the services provided by Mills even if Mills viewed those services as ‘trustee’ work.”<a id="_ednref92"></a><a href="#_edn92">92</a> The probate court also reduced the rate paid for services performed by Mr. Mills’s paralegal. “Mills had also billed ‘trustee’ fees at $150 per hour for the work of his paralegal, and the probate court reduced her hourly rate to $80 for certain travel time and janitorial services associated with the real properties and to $125 for the remainder of her services.”<a id="_ednref93"></a><a href="#_edn93">93</a> In sum, the trustee fees were reduced by $24,330.<a id="_ednref94"></a><a href="#_edn94">94</a>

The objecting beneficiaries appealed the probate court’s adverse rulings. The Court of Appeals initially recognized that former Article VII of the Estates and Protected Individuals Code governed the case, rather than the MTC. “Because the events at issue here occurred before the MTC became effective in April 2010, we must rely on the previous version of Article VII, not the MTC.”<a id="_ednref95"></a><a href="#_edn95">95</a>

The Court of Appeals also observed that reasonableness was the governing principle in a dispute over trustee compensation. “On petition of an interested person, after notice to all interested persons, the court may review . . . the reasonableness of the compensation of a person so employed and the reasonableness of the compensation determined by the trustee for the trustee's own services.”<a id="_ednref96"></a><a href="#_edn96">96</a> Based on the statutory provision cited above, the appellate court held that “the payment of expenses by a trustee and the compensation owed to a trustee for services rendered are measured by a general reasonableness standard. And both John and Mary Ann's trusts expressly employed a reasonableness standard relative to the payment of expenses by the trustee and the trustee's compensation.”<a id="_ednref97"></a><a href="#_edn97">97</a> The Court of Appeals found that the probate court had erroneously failed to identify which of Mr. Mills’ services were trustee services (billable at $150 per hour), and which were attorney services (billable at $300 per hour):

The probate court found that some of Mills' services constituted legal work for which he properly billed at $300 per hour and that some of his services constituted trustee work for which the rate should have been $150 per hour. However, the court failed to identify those entries in the invoices that the court believed reflected legal work, and Mills himself testified that all of the services provided were trustee services, not legal services.<a id="_ednref98"></a><a href="#_edn98">98</a>

However, the Court of Appeals concluded that this error was immaterial, based on its further finding that the objecting beneficiaries had waived the right to object to the reasonableness of the $300 hourly rate. First, the beneficiaries had failed to timely object upon being told of Mr. Mills’ hourly rate at the parties’ initial meeting. “It is abundantly clear that the O'Neill siblings knew about Mills' billing rate up front and made no objection to it; rather, they allowed him to proceed as trustee and only after the fact asked a court to visit the question of reasonableness as to compensation.”<a id="_ednref99"></a><a href="#_edn99">99</a>

Second, the beneficiaries had failed to timely object upon being served with the 2007 and 2008 accountings for the trusts, which disclosed the amount of trustee compensation in gross, and to which objection was required to be made within 60 days.

If the O'Neill siblings were troubled by or objected to the fees being charged by Mills, it was imperative for them to squarely and timely confront Mills about a reduction in the fees and, if no satisfactory resolution came about, to seek court intervention on the issue of fees. They were not entitled to sit back and allow Mills to continue providing services, only to attack his rates and fees in the future.<a id="_ednref100"></a><a href="#_edn100">100</a>

Because the objecting beneficiaries had waived their right to object to the reasonableness of the $300 hourly rate, “the probate court should have allowed the $300 per hour rate to stand for all of Mills' services.”<a id="_ednref101"></a><a href="#_edn101">101</a> Unfortunately for Mr. Mills, he did not file a cross-appeal regarding the probate court’s reduction of his trustee fees. Because of the absence of a cross-appeal, the Court of Appeals declined to “reinstate the initial charges and . . . allow[ed] the reduction made by the court to remain intact.”<a id="_ednref102"></a><a href="#_edn102">102</a>

In re Stout Revocable Trust, No 313063, 2014 WL 265553 (Mich App Jan 23, 2014)

Stout involved three trusts created by Robert Stout and Dolores Stout, husband and wife. Their son, Kevin, served as successor trustee of the trusts after the deaths of the settlors. A dispute arose between trustee Kevin and trust beneficiaries Tara, Alison and Kyle (Kevin’s sister, niece and nephew, respectively). The beneficiaries petitioned the probate court to remove trustee Kevin and surcharge him for breaches of trust, and the trustee petitioned to settle the trusts.

Prior to the litigation, Kevin did not charge a trustee fee for his services. In May 2011, at the beginning of the contested trust proceedings, Kevin decided to begin collecting trustee compensation. He did not give notice to the beneficiaries of the change from not collecting, to collecting, a trustee fee. The beneficiaries learned that Kevin was collecting a trustee fee in July 2012, when they received and reviewed a trust accounting that disclosed payment of such fee. At trial, the trustee submitted a preliminary work log (listing 119 hours) and a final work log (listing 145 hours). He requested a trustee fee of $7,250, based on $50 per hour at 145 hours.

Following the trial, the probate court rendered a judgment that was generally favorable to Kevin. Regarding trustee fees, “[d]espite respondent's request for $50 per hour, the probate court reduced that figure to $25 per hour, finding the $50 per hour rate ‘unreasonable.’” <a id="_ednref103"></a><a href="#_edn103">103</a> Hence, the probate court awarded $3,625 for trustee fees from one or more of the trusts, which was one-half of the $7,250 requested by the trustee. The beneficiaries appealed.

With regard to Kevin’s trustee fees, the beneficiaries raised two arguments on appeal. First, the beneficiaries claimed that Kevin “breached his fiduciary duties by failing to provide notice to the beneficiaries that he would be seeking compensation for his services,” as required by MCL 700.7814(2)(d). <a id="_ednref104"></a><a href="#_edn104">104</a>

The appellate court construed MCL 700.7814(2)(d) to impose a duty upon trustee Kevin to notify the beneficiaries of the change from not collecting, to collecting, a fee:

MCL 700.7814 specifically requires trustees to provide advance notice to beneficiaries of ‘any change in the method or rate of the trustee's compensation.’ Because a change from not collecting trustee compensation to requesting compensation constitutes a change in the rate of the trustee's compensation — from a rate of nothing to the requested rate — respondent had a duty to notify the petitioners in advance.<a id="_ednref105"></a><a href="#_edn105">105</a>

The appellate court next found that trustee Kevin had breached his duty to notify the beneficiaries of the change. “Petitioners correctly point out that respondent, admittedly, did not provide advance notice to petitioners regarding his intent to begin collecting trustee compensation as of the beginning of the instant proceedings.”<a id="_ednref106"></a><a href="#_edn106">106</a> “Therefore, respondent breached his fiduciary duty to keep petitioners reasonably informed about the administration of the trust in this respect.”<a id="_ednref107"></a><a href="#_edn107">107</a>

The appellate court further ruled that the beneficiaries had been damaged by trustee Kevin’s breach, because the probate court had awarded him trustee fees for the time period when the beneficiaries did not know of the change in fee. “[G]iven that the probate court awarded respondent trustee fees, petitioners were harmed by this breach.”<a id="_ednref108"></a><a href="#_edn108">108</a> Accordingly, the appellate court ruled that the probate court had erred by allowing the trustee fees:

[W]e vacate the probate court's award of $3,625.00 to respondent as a ‘fiduciary fee,’ and direct the probate court to (1) consider whether respondent's trustee fees should be denied pursuant to MCL 700.7904(3) or (2) at a minimum, recalculate the trustee's fee to include only those hours of work incurred after petitioners had notice of respondent's intent to collect his fee.<a id="_ednref109"></a><a href="#_edn109">109</a>

Second, the beneficiaries claimed that “the probate court reversibly erred by awarding the trustee fees without considering and making findings regarding the reasonableness of the number of hours awarded and the hourly rate awarded.”<a id="_ednref110"></a><a href="#_edn110">110</a>

The appellate court found that the record contained sufficient information to support the probate court’s trustee fee award. “Respondent's itemized list of hours worked and the admitted accounting created by respondent provided sufficient information for the probate court to determine the reasonableness of his fee, and the court's reduction of his requested fee indicates the probate court took these documents into consideration.”<a id="_ednref111"></a><a href="#_edn111">111</a>

The appellate court affirmed the probate court’s ruling as to the reasonable hourly rate, subject to the vacation of the award based on the failure to provide notice. “We find no abuse of discretion in the probate court's conclusion that the reasonable rate is $25 per hour. However, as analyzed above, we vacate the probate court's award of $3,625.00 in trustee fees and direct the probate court to recalculate the fee consistent with this opinion.”<a id="_ednref112"></a><a href="#_edn112">112</a>

Given the limited number of counties reflected by the eight cases discussed here, it would seem desirable to have a more thorough record of the fiduciary fees approved in practice and the factors considered by probate courts in evaluating such rates.&nbsp; I hereby invite practitioners care to provide me with written probate court opinions and/or orders as to the reasonableness of fiduciary fees in particular cases, so that I could maintain a registry of such information and routinely publicize it for general use.

<a id="_edn1"></a><a href="#_ednref1">1</a> MCL 700.3719.

<a id="_edn2"></a><a href="#_ednref2">2</a> MCL 700.3719(1).

<a id="_edn3"></a><a href="#_ednref3">3</a> Id.

<a id="_edn4"></a><a href="#_ednref4">4</a> MCL 700.3719(2).

Partner

David L.J.M. Skidmore

Trusts and Estates

Post-EPIC Case Law Evaluating The Reasonableness Of Fiduciary Fees

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