In the Matter of the Estate of Mervin C. Poths, Sheryl Poths, Intervenor-Appellant. ( 2016 )

IN THE COURT OF APPEALS OF IOWA
No. 15-0343
Filed March 23, 2016
IN THE MATTER OF THE ESTATE OF
MERVIN C. POTHS,
SHERYL POTHS,
Intervenor-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Lucas County, John D. Lloyd,
Judge.
A sister challenges her brother’s actions as executor of their father’s
estate. AFFIRMED.
Louis R. Hockenberg, Samantha J. Gronewald, and Amanda A. James of
Sullivan & Ward, P.C., West Des Moines, for appellant.
William L. Shelton and R. William Petersen of Shelton Law Firm, Chariton,
for appellee.
Verle W. Norris of Verle W. Norris Law Firm, Corydon, for appellee.
Heard by Tabor, P.J., and Bower and McDonald, JJ.
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TABOR, Presiding Judge.
Sheryl Poths appeals the district court’s denial of her application to
remove her brother, Ronald, as executor of their father’s estate. She further
argues her father, Mervin, did not complete an inter vivos gift of corporate stock
to Ronald and the stock should be included as an asset of the estate. Because
we find Mervin completed the gift of stock, and the district court did not abuse its
discretion in refusing to remove Ronald as the executor, we affirm.
I. Background Facts and Proceedings
Mervin Poths died testate on September 14, 2012. His will—admitted into
probate on October 10, 2012—appointed his son, Ronald, as executor. Verle
Norris, who represented Mervin before he died and drafted the will, served as
counsel for the estate. Ronald and Sheryl were beneficiaries of the will. The
siblings did not have a close relationship even before their father’s death. Sheryl
hired an attorney to represent her in matters concerning the estate within two
weeks of the admission of her father’s will into probate.
Valued at approximately $1.17 million, the estate’s assets included farm
land, livestock, farm implements, bank accounts, an unincorporated feed store,
stock in Poths Grain, Inc., a closely held corporation, and personal property.
Sheryl’s primary point of disagreement with Ronald is the Poths Grain. Ronald
served as corporate president, while Mervin, as director, ran the day-to-day
operations. Ronald drove the grain truck, and the corporation paid him twenty-
five percent of the payment for each load delivered. Sheryl was not an officer of
the corporation.
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Since Mervin’s will entered probate, Sheryl has been disenchanted with
Ronald’s filings on behalf of the estate. Ronald initially filed the estate’s report
and inventory on January 10, 2013. Sheryl filed a petition to remove Ronald as
executor on June 5, 2013. Ronald filed an amended report and inventory on
June 27, 2013. On August 19, 2013, Sheryl objected to the amended report and
inventory. She claimed the inventory should reflect one-hundred percent of
Mervin’s shares in Poths Grain because an inter vivos gift of fifty percent of the
stock from Mervin to Ronald was not completed.
The district court addressed the stock controversy by appointing a
temporary executor under Iowa Code section 633.343 (2013). Both parties
stipulated to the December 6, 2013 appointment of retired judge Dale Hagan as
temporary executor. His role was “investigating and making a determination as
to the decedent’s ownership interest in said stock.” On April 28, 2014, Hagan
issued a report finding Mervin completed the gift of stock to Ronald, and as a
result, the estate inventory correctly included only Mervin’s remaining one-half
interest in the corporation. Sheryl filed an objection, contending the report
contained hearsay and biased information. On November 3, 2014, the temporary
executor resigned for health reasons. The district court granted his resignation.
On December 17, 2014, the district court held a hearing on Sheryl’s
removal petition, at which attorney Norris represented the estate. The next day,
the court held a separate hearing on the question of the inter vivos gift, at which
Norris testified regarding his personal knowledge of Mervin’s actions in
transferring the stock to Ronald. Ronald was represented by a different attorney
4
at the second hearing. Norris remained in the hallway until called to testify and
did not object or return to counsel table during the proceedings.
On January 28, 2015, the district court issued an order denying Sheryl’s
request to remove Ronald as executor and finding the inter vivos gift of stock was
completed. Sheryl now appeals.
II. Scope and Standards of Review
We review de novo as probate issues are tried in equity. See Iowa Code
§ 633.33. But we review the district court’s decision declining to remove the
executor for abuse of discretion. See In re Estate of Rutter, 633 N.W.2d 740,
745 (Iowa 2001). The trial court has broad discretion in deciding whether to
remove an executor. In re Estate of Lininger, 297 N.W. 310, 312 (Iowa 1941); In
re Estate of Randeris, 523 N.W.2d 600, 605 (Iowa Ct. App. 1994). The
appointment of an attorney is within the power of the executor. See generally In
re Will of Kenney, 239 N.W. 44, 44 (Iowa 1931); In re Estate of Buck, 569
N.W.2d 400, 401-02 (Iowa Ct. App. 1997). We also review de novo the
determination of an inter vivos gift because the issue was tried in equity. See
Raim v. Stancel, 339 N.W.2d 621, 622 (Iowa Ct. App. 1983).
III. Analysis of Sheryl’s Claims
Sheryl argues the district court wrongly concluded that, before his death,
Mervin completed a gift of shares in Poths Grain to Ronald. She further
contends the court should have removed Ronald as executor of Mervin’s estate.
She claims the gift created a conflict of interest for Ronald, he engaged in self-
dealing, he did not provide her with information in a timely manner, and he did
not obtain an appraisal of Poths Grain based on its fair market value. She also
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claims he is hostile and their lack of communication is cause for removal. Lastly,
she seeks removal of Norris as estate counsel.
A. Gift
After Mervin’s wife Merilea died in early 2011, his thoughts turned to
estate planning. That fall, Mervin contacted attorney Norris and expressed his
desire to give half of his 5000 shares in Poths Grain to his son Ronald. Mervin
told Norris that Ronald deserved the gift because of his hard work and loyalty to
the corporation. Because Mervin could not find the original stock certificate,
Norris helped him execute an Affidavit of Lost Certificate.
On March 1, 2012, a new stock certificate issued reflecting Mervin’s
ownership of all 5000 shares in the grain corporation. Mervin then assigned fifty
percent of his shares to Ronald, and two additional stock certificates issued—one
showing Mervin owned 2500 shares and one showing Ronald owned 2500
shares. Mervin signed the front of the certificates, which indicated he was
president of the corporation. Norris completed forms on the back of the second
and third certificates, indicating transfers from the original issuance dated March
1, 2012. The certificates remained in Norris’s office. Norris testified that,
because Mervin could not locate complete records for the corporation, Norris
“thought it necessary to document the [stock] transfer in a formal way.” So Norris
“started a formal corporate record book” for Poths Grain after his March 1
meeting with Mervin.
Ronald testified his father told him about the transfer of stock sometime in
March 2012, but Ronald did not see the stock certificates until after Mervin died.
Neither Ronald nor the corporation reported the gift to tax authorities.
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Sheryl asserted in the district court that Mervin did not complete the gift of
stock to Ronald and therefore died owning all 5000 shares in the corporation.
The district court determined Mervin’s intent in transferring the shares to Ronald
was “not in doubt” and his intent prevailed over any errors by the corporation in
the issuance of the new certificates. On appeal, Sheryl argues the record does
not support the court’s finding of a completed gift.1
A gift is complete when the donor has a present intent to make a gift and
divests himself of “all control and dominion over the subject of the gift.” In re
Estate of Crabtree, 550 N.W.2d 168, 170 (Iowa 1996) (quoting Taylor v. Grimes,
273 N.W. 898, 901 (1937)). The transfer of dominion and control must be a
present transfer, not a future transfer. Id. The transfer must also be
accompanied by three elements: (1) donative intent, (2) delivery, and (3)
acceptance. Gray v. Roth, 438 N.W.2d 25, 29 (Iowa Ct. App. 1989). “The intent
of the grantor is the controlling element.” Id. Although less positive proof is
required to establish gifts between parent and child, delivery is still required.
Gartin v. Taylor, 577 N.W.2d 410, 412 (Iowa 1998). Here, Ronald bears the
burden to show the gift is supported by clear and convincing evidence. See
Raim, 339 N.W.2d at 624. Clear and convincing evidence means we find “no
serious or substantial doubt about the correctness of the conclusion drawn from
it.” Id.1
She also seeks to strike the temporary executor’s report finding a completed gift. The
report was not entered into evidence and constituted only a recommendation from the
temporary executor; it was not a final order from the district court. Accordingly, on
appeal we need only address the overarching issue concerning the validity of the gift.
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Sheryl contests all three elements. On the question of donative intent, she
points to testimony that her father did not tell his long-time tax advisor about the
stock transfer. Despite that evidence, the record contains clear and convincing
proof that Mervin communicated his donative intent to both Norris and Ronald.
Mervin also went to the effort to have new stock certificates created. Nothing in
the record suggests Mervin left himself the option to rescind the transfer. We find
Mervin possessed the present intent to give the stock to Ronald.
We turn next to the question whether Mervin acted on his donative intent
or as Justice Ladd asked: “Was it ever delivered?” Dolph v. Wortman, 168 N.W.
252, 254 (Iowa 1918). Delivery can be actual, constructive, or symbolic. Carlson
v. Bankers Trust Co., 50 N.W.2d 1, 7 (Iowa 1951). Manual transfer is not
required; instead, we may construe words and actions evincing the donor’s intent
to satisfy the element of delivery. See Ferrell v. Stinson, 11 N.W.2d 701, 704
(Iowa 1943).
When it comes to certificates of stock, our supreme court has not required
physical delivery. Leedham v. Leedham, 254 N.W. 61, 62 (Iowa 1934). The
Leedham court explained:
A certificate of stock is not the stock itself, but merely written
evidence of the ownership thereof and of the rights and liabilities
resulting from such ownership. It is merely the paper representative
of an incorporeal right, and stands on a footing similar to that of
other muniments of title. . . . [R]eal shares of stock in a corporation
may be transferred by a written assignment thereof, without
delivery of such certificates representing the stock.
Id. (citation omitted); see also Shaw v. Addison, 28 N.W.2d 816, 821 (Iowa 1947)
(reiterating “a gift of corporate stock is generally complete where the owner
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directs the transfer to the donee on the books of the corporation even though the
donor retains the new certificate issued in the name of the donee”).
In this case, Mervin executed the new certificates of stock and directed the
transfer of half his shares to Ronald. Attorney Norris recorded the transfer on the
rejuvenated books of the corporation. Mervin did not retain dominion or control
of the transferred stock. We conclude the transfer of the stock to Ronald, as
reflected on the corporate books, fulfills the delivery requirement. See Kintzinger
v. Millin, 117 N.W.2d 68, 75 (Iowa 1962), superseded by statute on other
grounds by, Iowa Code § 633.449, as recognized in In re Estate of DeVoss, 474
N.W.2d 542, 545 (Iowa 1991).
As for the third element, Sheryl acknowledges the law presumes
acceptance of a beneficial gift. See Graham v. Johnston, 49 N.W.2d 540, 543
(Iowa 1951). But she contends the record is “replete” with evidence showing
Ronald did not accept the gift. She points primarily to his failure to report the gift
on his 2012 tax returns, as well as the fact he did not retrieve the stock
certificates from the attorney’s office. These circumstances do not rebut the
presumption of acceptance. As the district court observed, Ronald’s failure to
inform the tax preparers about the stock transfer reflected his lack of knowledge
regarding tax laws rather than a repudiation of the gift from his father. In filing
the estate’s initial report and inventory in January 2013, Ronald acknowledged
his acceptance of the gift of stock.
The transfer of stock from Mervin to Ronald satisfied the elements
necessary to complete an inter vivos gift. Like the district court, we conclude any
error in Mervin signing the certificates as president of the closely held corporation
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(when Ronald actually held that office) did not invalidate the intended gift. We
find no error in the district court’s ruling on this issue.
B. Removal of Ronald as Executor
An executor may be removed if he “has mismanaged the estate [or] failed
to perform any duty imposed by law.” Iowa Code § 633.65. The burden to prove
removal of the executor is appropriate is upon the person seeking removal. See
In re Estate of Atwood, 577 N.W.2d 60, 63 (Iowa Ct. App. 1998). But the burden
shifts to the executor when an “indication of self-dealing” is present. See
generally In re Estate of Snapp, 502 N.W.2d 29, 32 (Iowa Ct. App. 1993) (citation
omitted). Evidence of the executor using his position as a personal advantage
may also serve as grounds for an executor’s removal. In re Estate of Jones, 492
N.W.2d 723, 726 (Iowa Ct. App. 1992).
On appeal, Sheryl lists several reasons why Ronald should be removed as
executor.2 First, she alleges Ronald engaged in self-dealing. See Iowa Code §
633.155 (“No fiduciary shall in any manner engage in self-dealing, except on
order of court after notice to all interested persons . . . .”). Second, Sheryl argues
Ronald failed to perform certain duties required by law, namely obtaining the
court’s permission to continue a business under Iowa Code section 633.83,
providing information or properly updating the reports and inventories, and
valuing the corporation at fair market value. She also argues her brother has
2
Among the reasons, she asserts Ronald has a conflict of interest with the estate in
claiming receipt of the corporate stock as an inter vivos gift. As we found above, the gift
was completed. Sheryl’s counsel agreed during the oral argument that the conflict-of-
interest question would be moot once we resolved the gift issue. Accordingly, we do not
consider whether Ronald had a disqualifying conflict involving the exclusion of the gifted
shares from their father’s estate.
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engaged “in unwarranted hostility and lack of communication.” We will address
each of these reasons for removal in turn.
1. Self-Dealing
Executors are prohibited from engaging in self-dealing transactions with
the estate and from obtaining personal advantage from their dealings with estate
property. See Harvey v. Leonard, 268 N.W.2d 504, 512 (Iowa 1978). An
executor cannot use his position, directly or indirectly, for his own advantage or
profit. See Coster v. Crookham, 468 N.W.2d 802, 806 (Iowa 1991). “Personal
benefit in dealing with trust assets is clearly the signpost of self-dealing . . . .” In
re Estate of Snapp, 502 N.W.2d at 34.
Sheryl alleges two instances of Ronald’s self-dealing. First, she argues
Ronald improperly paid himself a salary from the corporation. Second, she
claims Ronald used estate funds to pay taxes on property he would inherit at the
closure of the estate.
In response to his sister’s first allegation, Ronald argues his decision to
pay himself constituted a corporate governance issue and was not an
impermissible transaction between him and the estate. He also notes he paid
himself the same amount as he received for hauling grain before Mervin’s death.
This case is unlike In re Estate of Snapp, where our court found an executor-son
engaged in self-dealing by receiving “great personal benefit” from appointing
himself as president of his father’s companies shortly after his father’s death and
receiving “salaries” in excess of $450,000 over eight years. Id. Here, Ronald
merely continued his role as truck driver for Poths Grain, receiving the same
percentage payment from the corporation as before his father’s death. Sheryl
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has not shown Ronald derived a personal benefit from his position as executor in
this instance.
Sheryl next claims the district court should have removed Ronald as
executor because he “authorized the estate to pay the mortgage, taxes, and
other bills related to the farmland and assets” that he inherited under their
father’s will. She cites Iowa Code section 633.350, which provides “when a
person dies, the title to the person’s property, real and personal, passes to the
person to whom it is devised by the person’s last will.” She claims Ronald
received the inherited property at the instant of Mervin’s death, and then became
personally responsible for those expenses. Ronald responds that proceeds from
the sale of livestock owned by Mervin were deposited into the estate’s bank
account. Ronald also asserts he “advanced personal funds into the estate
account when it was short on cash.”
The district court did not “read Sheryl’s request to remove the executor as
asking the court to construe the decedent’s will” and concluded it did not have
the authority to do so in the removal proceeding. The court decided: “That task
will be up to the court at the time of the hearing on the final report if Sheryl
chooses to put it in issue at that time.” We concur in the district court’s
reasoning. “A hearing on a final report in probate properly includes the liability of
the executor to the estate.” In re Estate of Randeris v. Randeris, 523 N.W.2d
600, 605 (Iowa Ct. App. 1994). We find no abuse of discretion in the district
court’s decision not to remove Ronald as executor based on this allegation.
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2. Other Executor Duties
Sheryl also urges removal of Ronald as the executor based on his failure
“to perform certain duties as required by law.” For example, Sheryl argues the
district court should have removed Ronald for not obtaining the court’s
permission to continue operating his father’s unincorporated feed store. Iowa
Code section 633.83 states: “Upon a showing of advantage to the estate, the
court may authorize the fiduciary to continue any business of the estate for the
benefit thereof. The order may be without notice, or after such notice as the
court may prescribe.”
The district court assumed without deciding that Ronald should have
obtained permission to run the feed store. But the court went on to say “the feed
store has been operated at a profit by the estate and that a negative equity
position that existed at the time of Mervin’s death had been eliminated. It is
difficult to see what would be gained by removing Ronald as executor for
successfully operating the feed business.” We agree with the district court that
Ronald’s continuation of the feed business, at a profit, even without court
approval, did not require his removal as executor. See generally In re Estate of
Amick, 281 N.W. 786, 788 (Iowa 1938) (holding inadvertent failure to include
certain assets in the estate did not necessarily require removal of executors).
Sheryl also contends the district court abused its discretion in not
removing Ronald as the executor based on his failure to provide her with
inventory information and his failure to amend the estate inventory when new
information was discovered, as required by Iowa Code section 633.364. Sheryl
claims Ronald made errors in listing farm equipment owned by the estate, failing
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to list the value of the feed store, and not submitting a fair market valuation of the
grain corporation. She points out these errors were in his benefit.
Ronald disputes the breadth of his missteps. He notes that he
inadvertently miscategorized two pieces of equipment and omitted the feed store
assets, but properly filed an amended report to reflect the accurate estate
inventory. The district court determined that neither error caused it “any reason
to believe that there is risk to this estate by Ronald continuing as executor.” We
find no abuse of discretion in the court’s determination. See In re Estate of
Amick, 281 N.W. at 788.
Ronald further argues Sheryl was not entitled to additional information as
neither she nor the district court asked him to file an interlocutory report under
Iowa Code section 633.469. That section reads, in pertinent part: “The court may
on application of any interested party, or on its own motion, order such an
accounting at any time.” Iowa Code § 633.469. The district court stated it did not
“see any missing information that would be provided by an interim report,” but
noted Sheryl could apply for such a report “as this estate winds toward
conclusion” if she believed it was necessary. The record also reflects that
Sheryl, through counsel, has requested numerous account statements and other
information related to the estate, beyond what Ronald has filed with the court.
On these occasions Ronald has responded, though not at the speed to which
Sheryl believes she is entitled. We find no abuse of discretion in the court’s
disinclination to remove Ronald as executor based on these allegations.
Sheryl also asserts Ronald should have had the grain corporation
appraised to determine its fair market value and to give an accurate accounting
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of the estate’s value. Ronald insists the corporation’s value is the appraised
value of its assets. The estate has not filed a final report and inventory.
Gathering information for an estate is a fluid process. Because the estate is still
open, we do not decide what should be done to determine the value of its assets.
See Ryan v. Hutchinson, 143 N.W. 433, 439 (Iowa 1913). But we find no abuse
of discretion in the district court not removing Ronald as executor on this basis.
Finally, Sheryl claims Ronald has been hostile and has not communicated
with her about the probate proceedings. Unwarranted hostility between the
executor and the beneficiaries may support removal of an executor. Randeris,
523 N.W.2d at 606. Ronald argues Sheryl has not preserved error on this
particular ground for removal. Sheryl did not include these issues in her petition
or otherwise bring them to the district court’s attention. Therefore, we do not
consider her argument concerning hostility and lack of communication. See
State v. Rutledge, 600 N.W.2d 324, 325 (Iowa 1999) (“Nothing is more basic in
the law of appeal and error than the axiom that a party cannot sing a song to us
that was not first sung in the trial court.”).
C. Removal of Counsel
Sheryl also urges Norris be removed as counsel for the estate—
advancing two reasons for this action. First, she argues if Ronald is removed the
new executor should have the opportunity to appoint counsel in accord with Iowa
Code section 633.82. See In re Estate of Buck, 569 N.W.2d 400, 402 (Iowa Ct.
App. 1997) (stating “fiduciaries shall have the power to select the attorney of their
choice”). Because we find no abuse of discretion in the district court’s refusal to
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remove Ronald, we do not have a situation where a new executor would wish to
select their own attorney.
Second, Sheryl argues attorney Norris should be removed as counsel for
the estate because he allegedly violated Iowa Rule of Professional Conduct
32:3.73 by testifying in regard to the inter vivos gift between Mervin and Ronald.4
We do not believe that rule sweeps so broadly. Another jurisdiction has found
that an identical state rule of professional conduct does not act as a “general
disqualification of a lawyer likely to be a witness from representation of a party in
all phases of a lawsuit.” Nevas v. MacDonald, No. CV 04-0200626-S, 2006 WL
618568, at *1 (Conn. Super. Ct. Feb. 14, 2006); see also Columbo v. Puig, 745
So. 2d 1106, 1107 (Fla. Dist. Ct. App. 1999) (per curiam) (interpreting rule’s key
words “at trial” to mean that counsel should be permitted to represent party “in
any proceedings before trial and after trial”).
Attorney Norris took pains not to act as both an advocate and a witness in
the same proceeding. The court conducted the hearing regarding the gift
separately from the hearing to remove the executor. Ronald was represented by
separate counsel at the hearing where Norris testified. In his testimony, Norris
3
The rule reads:
A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a
necessary witness unless: (1) the testimony relates to an uncontested issue; (2)
the testimony relates to the nature and value of legal services rendered in the
case; or (3) disqualification of the lawyer would work substantial hardship on the
client.
4
When Sheryl objected to attorney Norris providing testimony, Sheryl did not know what
information he would provide. She only assumed it would be favorable to Ronald. In
National Child Care, Inc. v. Dickinson, the Iowa Supreme Court held a lawyer could
testify in a similar circumstance. 446 N.W.2d 810, 812 (Iowa 1989) (“At the time of the
ruling, there was nothing in the record to indicate what [the attorney’s] testimony might
be, other than the allegation by National that it would be adverse to his client’s
interests.”).
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did not offer a conclusion on whether the gift was legally sufficient. He only
addressed the actions he took at Mervin’s request. We do not find that Norris’s
conduct merited his removal as counsel for the estate.
AFFIRMED.