Virginia Conservatorship – Calculating the Conservator’s Fee
By Attorney Jennifer Kahl – June 30, 2022
One of the more nuanced aspects of conservatorship administration is the calculation of the fee which the Conservator can take as payment for his or her services. This guide will help you understand and calculate that fee.
Following the Court Order
Your role as conservator was established through a court order. If the court order includes specific instructions about the conservator’s fee, then those instructions control. However, most orders do not outline a specific fee, so the conservator must look elsewhere for guidance.
Virginia Code § 64.2-1208 states that fiduciaries (which include conservators) shall receive “reasonable compensation.” This isn’t incredibly helpful. Different people have different opinions about what is “reasonable.” Ultimately, the decision about what is and is not reasonable will be made by the Commissioner of Accounts (“COA”).
The Standard Schedule
As a guide to what might be “reasonable,” the Virginia Manual for Commissioners of Accounts publishes a fee schedule. It looks like this:
- 1% of the first $500,000 (.01)
- 3/4 of 1% of the next $500,000 (.0075)
- 1/2 of 1% of assets over $1 million and less than $10 million (.005)
- $10 million or more – by agreement with the Commissioner (prior consultation required)
- 5% of non-investment income received during the year.
These percentages are taken on an annual basis and are calculated using the value of the assets at the beginning of the accounting period. Compensation should be prorated for periods of less than one year.
However, the fee schedule is not dispositive; it is not “intended as a substitute for the analysis the Commissioner must do to determine the statutory ‘reasonable compensation’ in each case.” (COA Manual 21 Appendix, page 361). The schedule, then, is just a guide to assist the conservator and COA in determining what might or might not be reasonable.
In my experience, COAs have always approved conservator’s fees that were calculated using the fee schedule. However, if the schedule produces an extraordinarily large fee, I get the COA’s written approval of the fee before I advise the conservator to take it.
A conservator can take 5% of “non-income receipts.” Examples of non-income receipts are rental income, Social Security benefits, and pension payments. Non-income payments are usually periodic. In contrast, examples of income receipts include federal or state tax refunds, interest/dividends earned on bank/investment accounts, long term care benefits, required minimum distributions from retirement accounts, and capital gains.
Problems with the Fee Schedule
The problem with the fee schedule is that it compensates the conservator based on the size of the estate, not on the amount of work done. In my experience, some of the most time-consuming and difficult estates are the very small ones. Conservators of small estates often put in a lot of effort for very little compensation.
In these cases, the conservator can send the COA a written request asking for approval of a higher fee. Successful requests include clear details and explanations for why the requested fee is “reasonable.” A conservator’s success will depend on the details of the case and the temperament of the COA.
The best way to ensure proper compensation of the conservator is to address the conservator’s fee in the court order. That way, any questions about the fee can be raised during the court hearing, with all the parties present, and with the Guardian ad Litem there to represent the interest of the incapacitated person. Unfortunately, most prospective conservators (and even the attorneys who represent them) are not thinking about the fee when they are working on the initial petition.
How Attorney Bills Impact the Fee
The most confusing component of the fee calculation is how it interacts with the attorney fees. The purpose of the conservator’s fee is to compensate the conservator for “services that the fiduciary is expected to perform” (COA Manual 21.1). Per the COA Manual, “expected services” include the preparation of inventories and accountings. If the conservator hires someone else to perform those services, the conservator is responsible for paying that person. This is problematic because many conservators hire attorneys or accountants to do exactly those things. This plays out in one of two ways: (1) if the attorney has already been paid from conservatorship funds, the conservator’s fee will be reduced by the amount paid to the attorney, or (2) if the attorney has not been paid from estate funds, the conservator takes the entire fee and pays the attorney personally.
Of course, attorneys also assist conservators with legal matters that fall outside the “expected services” of a conservator. Legal services that are “reasonably necessary to aid the [conservator] in the performance of his or her duties” are payable by the estate (COA Manual 21.1). These attorney expenses do not impact the conservator’s fee. The challenge, then, is determining which attorney services are for “conservator services” and which are for “legal services.”
For example, a conservator might hire an attorney to (1) petition the court for conservatorship, (2) prepare the inventory, and (3) petition the commissioner and court for permission to sell the ward’s real estate. Item (2) is clearly “conservator services,” while items (1) and (3) are “legal services.” The attorney, then, should be very clear on her billing report to indicate which bills pertain to items (1) and (3) and which pertain to item (2). Of course, not all matters are so clear. There are plenty of situations where the conservator, attorney, or COA might disagree on what is “legal work” and what is “conservator work.”
In cases where the attorney’s billing might impact the conservator’s fee, I recommend getting the COA’s approval before taking the fee. I usually write the COA a letter where I summarize the situation and explain which fees are legal services and which are conservator services. I include copies of my billing statements. Once the COA approves my characterization of the attorney fees, I can confidently calculate the conservator’s fee.
Calculating the conservator’s fee is a complex process. I usually do it at the end of each accounting period, at the same time I prepare the accounting. I go through the calculations and determine if the result is “reasonable.” I prorate it, if necessary, for a partial year. Then I review all the attorney billing to see which bills are payable by the estate and which are not. Based on this review, I put together a proposal for the conservator’s fee and send it to the COA. After the COA has approved my request, I instruct the conservator to take the fee.
If you are serving as a conservator, or if you are considering petitioning the court for conservatorship, call The Heritage Law Group today. We would love to speak with you.