To:
From:
Date:
Subject:
Issue
The issues here are first: whether a court reduce or deny fiduciary commissions (executor/trustee) to a fiduciary who has been removed and replaced by an ancillary fiduciary.
Second, if reduced, whether such commissions be paid before either the estate or the trust has been closed.
Analysis
The first issue is on whether an executor or a trustee that has been replaced get commissions when replaced by a substitute. Where property is held in trust, the trustees or the executors of that property are to exercise rights in good faith. NJ Rev Stat § 3B:14-23 (2013). This means the trustee can invest ad reinvest assets of the estate and accept embellishments on the estate. (Id)
Holding property in trust where the same is undivided means that the fiduciary rights are divided in an equitable manner. In re Estate of Higgins, 160 A.2d 525, 61 N.J. Super. 291 (Super. Ct. Prob. Div. 1960). The fiduciary shall, in the case of succession, manage the distribution of the estate to the beneficiaries. (Id.) Thus, in a situation where the property is administered by two or more fiduciaries, the majority fiduciary, will have the power to take any action. (Id.) The minority who must express any dissent to the decision of the majority in writing, will not be held accountable for breach of trust (NJ Rev Stat § 3B:14-23 (2013)).
The question is whether the replaced or previous fiduciary will receive commission or not and if yes, then how much. Substitution of a fiduciary occurs when another person qualified to be a trustee/executor is appointed and takes over the from another trustee/executor. (Commercial Trust Co. v. Barnard, 142 A. 2d 865 – (NJ 1958) The new fiduciary will have the same powers and enjoy the same rights as the previous fiduciary. NJ Rev Stat § 3B:14-23 (2013). This will include of course any form of commissions that were payable to the trustee/executor. (Id.) Commissions are the forms of payment to the fiduciaries for the duties they carry out in pursuit of the purpose of the trust. The previous trustee/executor does have a right to receive commission and the same will be provided in the trust agreement (Parker v. Wright, 103 N.J. Eq. 535, 537 (Ch. 1928)).
The commissions payable is normally indicated in the trust agreement. (Id.) Where indicated, the agreed commissions and their valuation are binding on the court (Gifford v. Commercial Trust Co. of N.J., 139 N.J. Eq. 19 (E. & A. 1946)). The court will only come in to resolve a dispute arising out of this valuation. (Id.) As such, the court can reject the determination on a limited number of grounds and can reduce the amount payable for commissions where it appears to be too high (Gifford supra.) There are rates which are set as a matter of practice. (Id.) Generally, a trustee is entitled to 6% of the income accrued by the estate annually. (Id.) Where the trust is a trust corpus the trustee will be able to get 5% on the income accrued annually (The National State Bank of Newark v. Nadeau, 57 N.J. Super. 53, 69-70 (App. Div. 1959)).
The situation in a normal trusteeship is relatively straight forward as seen above. However, the situation is difficult in the case of substitution. A substitution of a fiduciary should be approved by a superior court, the determination of the commissions payable to the substituted trustee is a matter under that court’s discretion. (In re McMillin’s Estate, 120 N.J. Eq. 432 (Ch. 1936).) Therefore, the court coming up with the determination is required to take into consideration what is reasonable and fair with regard to the circumstances. (Id.) A key area for consideration is the value of the estate and the value of the activities the trustee/executor carried out. Thus, In re Hibbler’s Estate, 78 N.J. Eq. 217, 219-221 (Prerog. 1910), the court held that the grounds for exercising discretion should be the character of the trust (the property in question) and the role played by the substituted fiduciary in furthering the deceased’s wishes.
The fiduciary may appeal the decision of the court to a superior court where he feels that the decision was unfair and an error of the law. (Id.) The superior court can only intervene into the valuation of commissions where there is abuse of discretion (In Re Estate of Rogers, 100 A.2d 527, 13 N.J. 508 (1953)). Normally, the court interprets abuse as meaning either a sum too high that the reasonable rate. (Id.) This will depend on the circumstances of each case. What the court will determine is that the commissions paid or demanded are not only fair but also reasonable (State v. Daniels, 38 N.J. 242, 249-250 (1962)).
Where, the court is satisfied that the commission is not reasonable, it can reduce the amount. (Blauvelt v. Citizens Trust Co., 3 N.J. 545 (1949)). The court will not change its estimation even where there are no disputes to from the parties (In re Simon, 93 N.J. Super. 579, (App. Div. 1967). As a result, the court will intervene to ensure commission payable is reasonable regardless of whether it was agreed. (Appleby v. Appleby 52 A.2d 829 (N.J. Ch. 1947)). Thus, where the parties accepted to a commission that was extremely high. (Id.)
The court can only deny the fiduciary party its commission where it is seen that the person generally where the previous trustee was acting in a manner that was deleterious to the interests of the trust. (Id.) Furthermore, as already argued, the commissions are evaluated based on the contribution the trustee made in improving the estate or the value he/she added to the trust. (N.J.S. 3A:10-2).
When assessing whether the previous fiduciary can get commission the determination is based on the facts of the case and the circumstances of each trust. The fiduciary is only able to get the commission out of the actual services the fiduciary rendered (In re Linn, 124 N.J. Eq. 65 (E. & A. 1938)). Therefore, a court cannot award a commission to a previous fiduciary where he had no actual contribution. To achieve such a requirement, a beneficiary could approach a court seeking to prove that the acts of the fiduciary with regards to the estate were materially deficient. (Id.) The court will need evidence to show that the pain and the effort taken by the fiduciary was exaggerated to warrant the payment of such commission. (In re Estate of Moore, 232 A.2d 641, 50 N.J. 131 (1967)).
The second issue is as to what point the substituted trustee able to receive the commission. Whether the commission is paid before or after the termination of the trustee. Generally, commissions are paid to the trustees/executors annually. (N.J.S. 3B:18-25). The commissions may also be paid after the assets in the estate or the trust have been distributed. (Id.) This brings an end to the trust terminating the estate. (Supra In re Lim)Therefore, the fiduciaries will receive their commissions at this point.
Where there is substitution, the situation becomes tricky. The substitution of one fiduciary means that the trustee/executor no longer has rights under the estate or has powers to improve or accrue a commission out of the estate (In re Roe, 383 Mass. 415, 421 N.E.2d 40, (1981). Thus, the fiduciaries relation to the land is finalized and ended. (Id.) Since, the estate is in truth closed, there is difficulty in determining whether to pay the trustee at the time of substitution or after the whole estate is closed. Calculating the number of commissions will require an evaluation of just how much the fiduciary contributed to the increase in the total value of the estate. (Id.) As such, courts have carried out an evaluation of the commissions payable after the estate has been closed (In re Simon, 93 N.J. Super. 579, 585-586 (App. Div. 1967)).
Analysis
With regard to the first part of the issue, it is possible for court to either deny or reduce the substituted fiduciary’s commission. There is a statutory provision on the rate of payment depending on the type of trust. The court could reduce the amount of the commission payable where it is seen as first to be an inflation of the actual amount of improvement made to the estate. The reason behind this is that the court considers the character of the estate as an essential part of the calculation of fiduciaries commission. The court will then ask itself whether there is a change, in this case, an improvement in the general character of the estate. In the case of real property, the court may look at the general value of the property and compare it to the previous price before the estate is terminated.
To justify the sum the trustee/executor is asking for he/she has to show that in generating income for the estate, he incurred some detriment, loss or went out of his way to achieve these goals. Put simply, the fiduciary improved the estate. As a result of this, he/she incurred some costs in his part to make that a reality. The commission charged is thus the compensation or payment for the work put in. An aggravated beneficiary may not agree with the estimation of commission and will be able to sue for the reduction in the amount of commission. The court will then assess to what extent the fiduciary actually incurred and decide whether the commission charged was reasonable.
The award of such orders is at the discretion of the court. The same is subject to the test of reasonableness. The court will need to look at the circumstances of the case. This involves analyzing the impact of the trustee in the estate. The court will among other things also evaluate whether the commission charged is in line with the statutory standard. This will depend on whether the commission charged meets the market rate. The duties of the executor or the trustee with regards to the trust will also be a key factor for the court to decide on. These duties will be transferred to the new trustee/executor one he/she is substituted from the trust.
The court can also deny the fiduciary the commission required. Whereas, the court will and could award the fees stated to a fiduciary but may refuse to award the commission. Fees are generally paid to the fiduciary for acting in the capacity of fiduciaries. Commissions however, depend on the services rendered in good faith for the benefit of the trust estate. In a case where there is no improvement on the character of the trust, the court will not award a commission. Also, where the fiduciary has not acted in good faith and asks for a commission the court might deny the claimant this prayer. The reason behind this is that there needs to be proof of the actual detriment, pains or labors incurred by the fiduciary towards the estate.
The courts in this case are to apply the reasonableness standard. They should at all times ask the question whether the estimation of commissions would in this case be reasonable. Would a judge in similar circumstances hold in a similar manner? It will breed a bad precedent were the court to award a commission or hold that a commission be paid where no actual work was put in deserving that commission. It will in essence be unreasonable and unfair. Moreover, if a trustee or executor feels aggravated by this decision, he/she could appeal to a superior court. The superior court will only reverse the decision of the lower court where it is apparent that there is an abuse of discretion.
With regard to the second part of the question, the payment of commission to a fiduciary varies depending on the nature of the agreement. Though this is the case, the consensus is that it is paid at the termination of the trust. This is normally when the estate is distributed between the beneficiaries. In the present case, the original or previous trustee/executor has been replaced with another. The new fiduciary takes over the duties, rights and responsibilities of the previous fiduciary.
The agreement standing between the substituted fiduciary and the estate stand terminated as his/her duties are taken over by the new fiduciary. As commission is paid at the end of the estate, the fiduciary will in theory qualify to receive a commission before the whole trust is terminated. Before paying compensation, it is important to calculate the amount deserved by the fiduciary. As such this will involve the exercise of calculating the value of the property before and after the fiduciary left. Owing to the fact that the agreement between the individual fiduciary and the trust is terminated, the fiduciary should be paid his commission before termination of the entire estate.
Conclusion
The court can reduce the amount of commission payable to the substituted fiduciary on grounds that the amount was unreasonable. Also, the court may deny the substituted fiduciary any commissions on grounds that there were no actual actions taken by the fiduciary to warrant the commission. Lastly, the fiduciary can be paid his/her commissions before the entire estate is closed.
At Legal writing experts, we would be happy to assist in preparing any legal document you need. We are international lawyers and attorneys with significant experience in legal drafting, Commercial-Corporate practice and consulting. In the last few years, we have successfully undertaken similar assignments for clients from different jurisdictions. If given this opportunity, The LegalPen will be able to prepare the legal document within the shortest time possible. You can send us your quick enquiry ( here )