Trust Beneficiaries Awarded Damages Against A Trustee Who Charged Unreasonable Fees

by Dan Conlisk

Trustees who faithfully and properly perform their duties are entitled to compensation. But, under Missouri law and that of most states, a trustee’s compensation must be reasonable and it is a breach of a trustee’s fiduciary obligations to charge excessive fees. Accordingly, in Hanks v. Morris, 432 S.W.3d 293 (Mo. Ct. App. 2014), the Missouri Court of Appeals upheld the imposition of damages and punitive damages against a trustee who, among other misconduct, charged excessive trustees’ fees.

Simplifying Hanks’ complex facts, Hanks created a trust and appointed Morris and Owens to serve as co-trustees after his death. Hanks was a farmer and chose Morris as a trustee because he had worked on Hanks’ farms for years and had knowledge of its operations. As is the case in many disputes with trustees that result in litigation, Morris and Owens used trust assets for personal purposes. These included providing financial support to a developmental baseball team in which Owens had an interest, transferring trust funds to Owens’ start-up winery/bed and breakfast, and retaining Owens’ wife – for exorbitant pay — as the trust’s accountant.

The Trust required that trustee’s fees were to be determined by the application of a certain trust company’s fee schedule. Under that fee schedule, the trust company would have charged a base fee of approximately $38,000 for standard trustee services and sought additional compensation for extraordinary services not provided for by the fee schedule. Including accounting fees paid to Owens’ wife, Hanks and Owens charged $264,628. Rather than charging a base fee and seeking additional fees for specific additional services, Morris charged the trust $125 per hour for all services he performed – even cleaning out a shed on farm property. He also charged the more than $22,000 for general and legal duties, even though there was no indication that such services were extraordinary and outside those contemplated by the fee schedule.

In attempting to defend his conduct, Morris sought to combine two sections of the Missouri Trust Code (the “UTC”). The first requires that “[a] trustee who has special skills or expertise, or is named trustee in reliance upon the trustee’s representation that the trustee has special skills or expertise, shall use those special skills or expertise.” Mo.Rev.Stat. §456.8-806. The second governs trustees’ compensation. It allows – even where a trust provides for the trustee’s compensation – that a trustee may receive additional compensation if: (1) the trustee’s services are substantially different from those contemplated when the trust was created; or (2) the trustee’s compensation as set forth in the trust is unreasonably low or high. Mo.Rev.Stat. §456.7-708. Morris argued that, because he was required to use special skills and expertise (under §§456.8-806), he was entitled to additional compensation (under §456.7-708).

The court flatly rejected this argument. First, it noted that the UTC’s requirement that a trustee employ his/her special skill or expertise – which clarifies the standard by which a trustee must discharge his or her duties – is separate from the statute’s trustee compensation provisions. In short, a trustee is not entitled to additional compensation simply because he or she properly fulfills minimum trust/fiduciary requirements.

Second, because Hanks had appointed Morris as a trustee based upon his (Morris’) knowledge of operations of Hanks’ farm, the performance of such farm-related services was specifically contemplated by the trust and, in turn, the trust’s fee provisions. As a result, the trust, and the trust company fee schedule that it incorporated, did not automatically allow Morris to claim additional compensation merely because he was performing farm-related duties.

Third, although the trust company’s fee schedule may have allowed additional fees for extraordinary farm-related work, Morris was not allowed to pay himself such additional fees without notifying and consulting with trust beneficiaries. He did not do so. Finally, the court emphasized that Morris could have petitioned the court for additional fees if he believed his compensation was unreasonably low. The court rebuked Morris for failing to pursue either of these options, and instead unilaterally paying himself outrageous fees.

As in Hanks, trust disputes, both in terms of the facts and the applicable law, are complicated. But consistent principles govern trustees’ conduct: they must act solely in the interest of trust beneficiaries and must be transparent in the discharge of their duties. Secretly paying themselves unreasonable compensation violates both. Where a trustee engages in such misconduct, trust beneficiaries have a remedy in court.