Seeking approval

It is a well-established general rule of common law that trustees are not allowed to charge for trustee services (Robinson v Pett [1734] 3 P Wms 249), the office of trustee being a gratuitous one. So, it is standard practice for professional trustees to include a specific authorisation for payment of their ‘proper and reasonable’ fees via a standard charging clause in the will or trust instrument, pursuant to s28 of the Trustee Act 2000.

However, a beneficiary is entitled to have the charges made by a professional trustee investigated, and the trustee held liable to account for any charges made insofar as they are unreasonable or excessive. A common pitfall is thinking that such a clause enables fees to be charged without beneficiaries’ approval.

A useful reminder that active and informed consent must be obtained is in the recent High Court case of Pullan v Wilson & Ors [2014] EWHC 126 (Ch), involving a professional trustee (in this case a chartered accountant) of ten high-value family trusts, who was denied recovery of all of his fees.

It is an instructive case for showing how a court weighs what is a proper and reasonable charge for a professional trustee and illustrates the need for a professional to agree and record the basis on which they intend to charge for their services before accepting a trusteeship.

The trustee’s charges of £850,000 were exceeded by £20,000 that to which he was entitled. As HHJ Hodge QC noted: “At the very least, those hourly rates should have been recorded in terms in the engagement letter.

If this unhappy litigation serves no other useful purpose, I trust that it will serve as a warning to trustees, to those appointing them, and (where appropriate, as it would have been in the present case, given the background of disputes and ongoing litigation between the trustees and their beneficiaries) to the principal beneficiaries to clarify the precise basis of a trustee’s charges and remuneration in advance.”

The court made these useful points:

• A professional should identify clearly in advance and in writing to the other trustees (and, if appropriate, the principal beneficiaries) the basis on which they, and, if applicable, their assistants, intend to charge for the services.

• Where charging rates for the trustee and their assistants has not been specifically approved in advance, those charges will not necessarily be ‘proper and reasonable’. It is a matter for the court to determine what they are, taking all the relevant circumstances into account.

• The court will consider the time involved and the level of skill and expertise for work undertaken and standard charging rates may not be reasonable if the task performed does not require a person with the particular level of skill. To hold otherwise would be inconsistent with the trustee’s duty to avoid any conflict between their duties to the trust and their personal interests.

• While the court is not conducting an inter partes assessment of costs, the analogy is both relevant and useful with regard to the reasonableness, and the propriety, of the remuneration claimed which imports elements of proportionality, in terms both of the time spent and of the level of skill and expertise required.

 

As counsel for the trustee noted, the case has wider and far-reaching ramifications: finding that a professional who charges their normal and reasonable rate for the sort of work they usually do is not entitled to charge that rate under the charging clause.

It means a professional cannot safely assume, when accepting a trusteeship on the basis of a normal charging rate, that such a rate will not later be challenged by a beneficiary at some unforeseen time.

Lloyd Junor is a senior associate at Thomas Eggar

He writes the regular in-practice article on wealth structuring for Private Client Adviser