In Re: Estate of Walter, C. , 191 A.3d 873 ( 2018 )

J-A07032-18
2018 Pa. Super. 179
IN RE: ESTATE OF CARRYL L. : IN THE SUPERIOR COURT OF
WALTER, DECEASED : PENNSYLVANIA
:
:
APPEAL OF: LYNN M. WALTER :
:
:
:
: No. 844 MDA 2017
Appeal from the Order Entered April 27, 2017
In the Court of Common Pleas of Cumberland County Orphans' Court at
No(s): 21-2011-00593
BEFORE: PANELLA, J., OLSON, J., and STEVENS*, P.J.E.
OPINION BY STEVENS, P.J.E.: FILED JUNE 22, 2018
Appellant, Lynn M. Walter, former Executrix for the estate of Carryl
Walter (“Decedent”), appeals from the order entered by the Court of Common
Pleas of Cumberland County sustaining objections to her accounting upon a
finding of improper distributions and misappropriation of funds. We affirm.
The Orphans’ Court sets forth the relevant procedural history and facts
as follows:
PROCEDURAL HISTORY
A Decree of Probate and a Grant of Letters Testamentary were
entered on May 19, 2011, in the Cumberland County Office of
Register of Wills and Clerk of the Orphans’ Court for [Decedent’s]
Will executed on November 12, 2010. [Three years later, after
learning of the Estate, the Commonwealth, acting as parens
patriae because the will named charities as beneficiaries, filed a
petition to void gifts allegedly made pursuant to the Will.] A
Citation was issued on May 6, 2014, based on [the
Commonwealth’s petition]. The Citation was amended on March
3, 2015, to extend the issuance to the Estate’s attorney and the
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* Former Justice specially assigned to the Superior Court.
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Executrix of the Estate, [Appellant], which further alleged
misappropriation of funds.
In June 2015, a material conflict was found to exist, and the
Appellant was removed, followed by the Grant of Letters of
Administration [to Appellee] d/b/n/c/t/a in July 2015. Objections
to the Executrix’s account were filed in September 2016, and
discovery was extended through the calendar year 2016.
Thereafter, a hearing was held on the Objections on March 30,
2017, and a decision entered on April 27, 2017. An appeal was
filed on April 30, 2017, to Superior Court. . . .
The [Orphans’ Court’s decision] sustained seven (7) Objections to
the former Executrix’s Accounting as improperly distributed with
specific notation that no finding was made as to proper
distribution, malpractice on part of the former Estate’s attorney,
error of the bank, or set-offs for any successful claim by former
Executrix to the IOLTA fund. . . .
FACTS
This case arises out of the embezzlement of Estate funds and
conversion of its assets by the now-former Estate attorney
(Attorney), while under the fiduciary eyes of the now-former
Executrix [Appellant]. Carryl Walter (Decedent) died testate on
May 11, 2011; Decedent left major assets of cash in Members 1st
Credit Union (MFFCU), a gold and silver coin collection in a safe
deposit box, and a mobile home. The salient facts from the
proceeding are:
1) Executrix is the ex-daughter-in-law of Decedent
and, among other accounting positions, a former
payroll supervisor with the Harrisburg School
District.
2) Attorney was Karl Rominger, Esq.
3) Decedent had various accounts with MFFCU,
specifically a money market account, checking
account, savings account, and certificates of
deposit accounts.
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4) Executrix was orally advised on May 25, 2011, by
a representative of MFFCU that the checking,
savings, and money market accounts were
“benefacted” to her, and together they transferred
the balances of those accounts into an individual
account opened in the Executrix’s individual name.
5) In the Will, specific bequests were given to
Executrix, $50,000.00; to Executrix’s daughter
(Decedent’s granddaughter), $20,000; to
Executrix’s son (Decedent’s grandson),
$20,000.00; inter alia, with a specific gift of the
coin collection to the National Military Family
Association.
6) The coin collection was removed from a safe
deposit box and sold to a dealer in New
Cumberland, PA., who had been found by
Executrix, and together Executrix and Attorney
took the coins to that dealer, who gave Executrix a
check for $92,314.00
7) Executrix set up a separate Estate bank account for
the coin proceeds to send to the charity per good
accounting practice, but instead the funds were
transferred to Attorney’s IOLTA account allegedly
at the charity’s request, and Attorney subsequently
embezzled those funds from the IOLTA account.
8) Executrix was told by Attorney [that] the charity[]
[had sent an] email request[ing] cash in lieu of coin
delivery[,] but [she] never saw any documentation
[to that effect].
9) Decedent had a mobile home that Executrix tried
to sell on her own – estimated value of $49,900.00.
10) The best offer for the mobile home was
$35,000.00; however, no sale occurred due to
potential buyer’s financial issues.
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11) The mobile home was “sold” via title transfer to
Executrix’s daughter in lieu of her receipt of a
$20,000.00 specific bequest.
12) The only beneficiary designation form signed by
Decedent, on or about December 29, 2009, as
shown in MFFCU computer’s system for all
accounts was for a certificate of deposit,
denominated as Share 41, which at Decedent’s
death had matured on September 25, 2010, and
that account left empty [sic].
13) At one point in time, Share 41 had a $50,000.00
balance with Executrix individually listed as
beneficiary.
14) There are no paper beneficiary forms (or
electronic copies thereof) that support MFFCU’s
computer system review that designates Executrix
as beneficiary for any other accounts.
15) Inexplicably, overdraft fees were charged three
(3) times to the Estate’s bank account within the
first year.
16) Attorney embezzled various funds from the
Estate, including directly from the Estate’s bank
savings accounts, totaling $32,623.36[.] Attorney
has been permitted by Executrix to be the lone
signatory [of such accounts].
17) Executrix paid herself and Attorney fees, each
totaling $21,417.12, which occurred in two
payments—August 2011 and January 2012.
Orphans’ Court Opinion, filed 9/29/17 at 1-5.
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In Appellant’s Statement of Questions Presented, she raises the
following issues for our review:
I. WHETHER THE LOWER COURT ABUSED ITS
DISCRETION WHEN IT SUSTAINED THE OBJECTIONS
OF THE ADMINISTRATOR RELATED TO APPELLANT’S
RELIANCE ON THE ADVICE OF LEGAL COUNSEL?
II. WHETHER THE LOWER COURT ABUSED ITS
DISCRETION WHEN IT CONCLUDED THAT THE
OBJECTOR MET ITS BURDEN OF PROOF NECESSARY
TO FIND THAT APPELLANT HAD BREACHED HER
FIDUCIARY DUTY AND THEN SUBSEQUENTLY
SURCHARGED APPELLANT?
III. WHETHER THE LOWER COURT ABUSED ITS
DISCRETION WHEN IT CONCLUDED THAT THE
OBJECTOR MET ITS BURDEN OF PROOF NECESSARY
TO FIND THAT THREE MEMBERS 1ST ACCOUNTS
MARKED AS “IN TRUST FOR LYNN WALTER” WERE
ESTATE ASSETS?
Appellant’s brief, at 5.
Our standard of review of the findings of an orphans' court
is deferential.
When reviewing a decree entered by the Orphans'
Court, this Court must determine whether the record
is free from legal error and the court's factual findings
are supported by the evidence. Because the Orphans'
Court sits as the fact-finder, it determines the
credibility of the witnesses and, on review, we will not
reverse its credibility determinations absent an abuse
of that discretion.
In re Estate of Geniviva, [675 A.2d 306, 310 (Pa.Super. 1996)]
(internal citations omitted). However, “we are not constrained to
give the same deference to any resulting legal conclusions.” Id.
“[W]here the rules of law on which the [court] relied are palpably
wrong or clearly inapplicable, we will reverse the [court's] decree.”
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Horner v. Horner, 719 A.2d 1101, 1103 (Pa.Super. 1998)
(discussing standard of review for courts of equity).
In re Estate of Harrison, 745 A.2d 676, 678–79 (Pa.Super. 2000).
Appellant’s first two issues coalesce to contend the orphans’ court’s
decision to impose against her a surcharge of $391,868.45 unduly punishes
her for crimes committed by Attorney, on whose legal expertise she relied as
a layperson. Such reliance on Attorney’s advice, she maintains, provided her
with a good faith defense to a surcharge, as her decisions were reasonable
and prudent under the totality of circumstances in accordance with
Pennsylvania decisional law. See infra.
Both Appellee1 and the Commonwealth support the orphans’ court’s
rejection of Appellant’s good faith defense, as they argue a prudent person in
Appellant’s fiduciary position and with her professional bookkeeping
experience and knowledge would have maintained close oversight of all
deposits and withdrawals from estate accounts. Instead, Appellant allowed
Attorney to transfer estate funds into two bank accounts over which Appellant
either could not or chose not to oversee and to which Attorney enjoyed access.
Even after receiving notification of three overdraft charges on the accounts,
Appellant still did not investigate account transactions or intervene to protect
estate funds. Such complete deference to Attorney’s advice, which continued
with respect to the management of other estate assets, was wholly
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1Appellee is Nicholas Peters, present Administrator d/b/n/c/t/a of Decedent’s
Estate.
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incompatible with how a prudent person charged with a fiduciary duty under
such circumstances would have acted, Appellee and the Commonwealth posit.
Our Supreme Court has recognized that “[w]here a fiduciary
acts upon the advice of counsel, such fact is ‘a factor to be
considered in determining good faith, but is not a blanket of
immunity in all circumstances.’” In re Lohm's Estate, 440 Pa.
268, 269 A.2d 451, 455 (1970).
There are two aspects to this ‘factor’ which must be
weighed in deciding whether the fiduciary may defend
against a surcharge attempt on the basis of reliance
upon the advice of counsel. The initial choice of
counsel must have been prudent under all the
circumstances then existing, and the subsequent
decision to rely upon this counsel must also have been
a reasonably wise and prudent choice.
Id.
In re Smith, 890 A.2d 1082, 1089 (Pa.Super. 2006).
In advancing her position, Appellant initially argues the orphan’s court
failed to give appropriate weight to the undisputed fact that her choice of
Attorney was prudent under all circumstances then existing. Neither the
Commonwealth nor Appellee disputes that the appointment of Attorney, which
was consistent with the directive of Decedent’s Will, was reasonable. They do
contest, however, Appellant’s suggestion that this factor carries enough
weight to offset her subsequent pattern of inattention to the depletion of
estate assets over the course of years.
Our review of the record reveals the orphans’ court effectively gave due
regard to the governing standard of review expressed in In re Lohm’s Estate
and again in In re Smith. Specifically, the court acknowledged a prudent
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person in Appellant’s position may not have discovered all Attorney’s actions
that gave rise to the objections filed in this matter—Attorney’s avarice and
gambling addiction were unforeseeable causes of early estate dissipation, the
court opined. Attorney’s protracted pattern of embezzlement, however, was
discoverable with the exercise of due diligence, such that Appellant was not
discharged from her fiduciary accountabilities to protect and preserve the
estate in this respect. See Orphans’ Court Opinion, at 6. We agree and,
therefore, discern no error with the court’s application of law to the present
matter.
We also find the record belies Appellant’s contention that the weight of
the evidence tipped in favor of finding that she made good faith efforts to act
with prudence and wisdom in administering the estate only to be derailed by
Attorney’s skillful deception. Indeed, the instances of Appellant’s
administrative breakdowns, which ranged from recurring failures of due
diligence to benefitting herself to the detriment of other beneficiaries, were
many.
“One's appointment as an estate executor confers an honor and trust
and, commensurately, the duty to oversee the administration with
competence so as to avoid compromising the probity of the estate. At a
minimum, this requires one to investigate estate transactions to determine
their soundness prior to approval.” Matter of Estate of Frey, 693 A.2d 1349,
1353 (Pa. Super. Ct. 1997).
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Rather than investigate three separate bank notices advising overdraft
fees had been assessed on checking and savings accounts holding estate
assets, Appellant simply relied upon Attorney’s unsubstantiated assurances
that the notices were of no concern, which enabled Attorney to steal from the
estate for years. A prudent executrix with Appellant’s experience as a
professional bookkeeper would have investigated and ascertained the reasons
for the serial overdraft notices. See in re Lohm’s Estate, 269 A.2d at 455
(finding executor’s reliance on tax attorney’s advice, which led to late filing,
not reasonable where prudent person in handling own affairs would ascertain
tax filing due date). No error attends the court’s conclusion that a surcharge
should reflect such losses.
Appellant’s failure to bequeath Decedent’s valuable gold and silver coin
collection to the National Military Family Association, as the Will specifically
directed, was another example of Appellant’s unreasonable administration of
the estate. Instead of carrying out the Will’s bequest in this regard, Appellant
opted to believe Attorney’s false claim that the charity preferred cash instead
of the coins, and she agreed to convert the estate’s interest in the coins to
$92,314.00 cash. She then allowed Appellant to place the funds in his IOLTA
account on the pretense that he would distribute them to the charity from said
account.
Never did Appellant verify with the charity that it had made this request
or investigate if it was within her powers to deviate from the Will’s specific
bequest. Nor, for that matter, did she ask Attorney to provide documentary
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proof that the charity received all income from the coin sale. Instead,
Appellant uncritically agreed with Attorney’s plan to liquidate a unique and
valuable estate asset and place the cash into his IOLTA account, over which
she would have no supervisory powers. Clearly, this was another in a series
of unreasonable and imprudent decisions inconsistent with Appellant’s
fiduciary duties to the estate and its intended beneficiaries.
Additionally, this Court has recognized the rule forbidding an executor
from placing his own interests ahead of the interests of other beneficiaries:
“An executor is a fiduciary no less than is a trustee and, as such,
primarily owes a duty of loyalty to a beneficiary of his trust.” In
re Noonan's Estate, 361 Pa. 26, 30, 63 A.2d 80, 82 (1949).
“Executors, as well as other fiduciaries, are under an obligation to
make full disclosure to beneficiaries respecting their rights and to
deal with them with utmost fairness.” Id. at 29, 63 A.2d at 82.
The Supreme Court has elaborated accordingly that:
He that is entrusted with the interest of others, cannot
be allowed to make the business an object of interest
to himself; because from the frailty of nature, one who
has the power[ ] will be too readily seized with the
inclination to use the opportunity for serving his own
interest at the expense of others for whom he is
entrusted.
Id. at 31, 63 A.2d at 83 (citation omitted) (quoting Beeson v.
Beeson, 9 Pa. 279, 284 (1848)). Thus, the rule forbidding self-
dealing serves both to shield the estate and its beneficiaries and
ensures the propriety of the executor's conduct. Id. at 32-33, 63
A.2d at 84. Consequently, “the rule is inflexible, without regard
to the consideration paid, or the honesty of intent.” Id.
In re Estate of Harrison, at 679 (citing Eagen v. Jackson, 855 F. Supp.
765, 779 (1994) (holding it is unnecessary to show fiduciary acted, inter alia,
in bad faith; “fiduciary is punished for allowing himself to be placed in a
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position of conflicting interests in order to discourage such conduct in the
future.”).
Appellant’s willingness to administer and distribute estate accounts in
patently self-serving ways without either demanding documentary support for
such actions or notifying beneficiaries and the court of such highly
consequential developments placed Appellant’s interests in conflict with the
interests of the beneficiaries she was entrusted to serve. Chief among
Appellant’s actions in this regard was her willingness to accept the estate’s
several MFFCU bank accounts totaling $205,271.33 as her own, based on
nothing more than a MFFCU employee’s mistaken belief that Appellant was
the sole beneficiary for all accounts.
Appellant knew Decedent’s Will bequested just $50,000 to her as one of
many beneficiaries, and she admitted she was “flabbergasted” at the
surprising news offered by the MFFCU employee. Yet, she never asked to see
the documentary support for this unexpected development nor did she inquire
further with MFFCU records custodians or officers in an effort to safeguard the
interests of all beneficiaries. Instead, despite realizing that over $205,000 of
estate assets was no longer available to other designated beneficiaries,
Appellant kept this information to herself and Attorney. As noted, above,
Appellant would eventually spend the entire amount.
On this point, the orphans’ court opines:
The [Payable On Demand] beneficiary designations on the MFFCU
accounts are not supported by the documentation. It is axiomatic
to say that no designation or change of beneficiary is effective
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unless it is completed on the form used by the bank in the manner
prescribed by the bank. Executrix was “flabbergasted” to learn
that all that money was given to her; it appeared too good to be
true, and it was. At the expense of the estate, Executrix took the
representations of bank personnel that she individually was
entitled to the money, without investigation, and which was and
is today without documentary support—a statement, a receipt, an
invoice, or, in this case, a designation form—in order to specifically
account for the disbursement. Executrix had this basic knowledge
but failed to use it. In the vernacular that Executrix might more
readily understand in her professional role, she would not have
given out a paycheck to someone who had not produced a
stamped time card or signed pay sheet. Executrix should not have
so readily accepted the monies without clear, precise, and direct
evidence.
Orphans’ Court Opinion, at 7-8.
Appellant criticizes the orphans’ court’s findings as inconsistent with
evidence of record showing Decedent signed a Designation of Beneficiary Form
for a certificate of deposit in Appellant’s name, she claims. Specifically,
Appellant argues: “This form documented [Decedent’s] desire to benefit
[Appellant]. There are also account statements for the Accounts produced by
[MFFCU] that show [Appellant] as the beneficiary of the Accounts.”
Appellant’s brief, at 39.
While Appellee and the Commonwealth do not dispute that the record
reflects Decedent’s desire to benefit Appellant to some degree, they submit
Decedent signed but one Designation of Beneficiary Form in Appellant’s name
corresponding with a single account (Share 41) totaling $50,000.00—the
exact amount Decedent would eventually bequeath to Appellant through her
Will. However, as for the account itself, Decedent closed it prior to her death,
they continue, and she left open three other accounts totaling the
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$205,271.33 at issue. Significantly, Decedent signed no Designation of
Beneficiary Form for any of these remaining accounts.
To Appellant’s response that the bank statements for the remaining
accounts listed Appellant as the beneficiary, Appellant and the Commonwealth
assert this claim is misleading, for MFFCU’s officer in charge of the
investigation into the accounts confirmed that such a designation came not
from Decedent but from the bank employee who relied upon erroneous
computer records. The only Designation of Beneficiary form ever appearing
on the account was for the Share 41 account that Decedent eventually closed,
the investigator testified.
Under 20 Pa.C.S.A. § 6409, “Nontestamentary transfer on death,” a
financial institution may effect a nontestamentary transfer of an account upon
death of the owner only if the owner had signed a “registration in beneficiary”
form, which forms a contract between the owner and the financial institution
to do so. Otherwise, the account is property of the estate. See, generally,
In re Estate of Wierzbicki, 174 A.3d 1061 (Pa.Super. 2017).
Here, the record supports the position taken by Appellee and the
Commonwealth that, without a Designation of Beneficiary form applicable to
the accounts in question, there was no basis for Appellant’s claim that she was
their proper owner. Moreover, with no evidence reflecting an intent in
Decedent to name Appellant as the sole beneficiary of the MFFCU accounts,
the orphans’ court appropriately determined Appellant engaged in self-dealing
with estate assets. Under our standard of review, therefore, we find the record
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supports the decision to incorporate the converted MFFCU bank accounts in
the order of surcharge.
Other examples of self-dealing found by the orphans’ court included
both the payment of fees to Appellant and attorney and Appellant’s sale of the
estate’s vacant mobile home to her daughter. With respect to contesting the
court’s order of surcharge comprising executrix and attorney’s fees, Appellant
simply reiterates her unavailing position that she relied “completely and
totally” on Attorney’s advice on setting the amounts of compensation received.
For reasons explained above, more was due from Appellant in her role as
executrix than strict adherence to the estate attorney’s advice.
As for Appellant’s handling of the estate’s mobile home, the record
shows Appellant sold the home, appraised at $49,900.00, to her daughter in
exchange for daughter’s agreement to forego taking her $20,000.00 specific
bequest under Decedent’s Will. The objecting parties complained that
receiving less than one-half the value of the home was inequitable to the
estate and, therefore, an unreasonable decision on Appellant’s part.
Appellant essentially asserted, however, that the initial appraisal proved
too high, for she had received only two offers when she first attempted to sell
the home—one for $10,000.00, which she refused, and the other for
$35,000.00, from a prospective buyer who was unable to raise the necessary
funds to complete the deal. Moreover, she claimed the home had lost more
value when a subsequent storm caused it to sustain significant water damage
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costing the estate nearly $38,000.00 over and above the homeowner’s
insurance award to make necessary repairs.
To that explanation, Appellee and the Commonwealth argued, again,
that it was unreasonable to spend nearly twice as much on repairs than the
$20,000.00 payment the estate would receive from the sale to Appellant’s
daughter just one month later. The court, in its role as exclusive finder of fact
and arbiter of credibility, inferred from the record that Appellant decided to
provide her daughter with a newly-built home at a significant discount to be
borne by the estate. Because the facts adduced before the court support this
conclusion, we find no abuse of discretion in the imposition of a $15,000
surcharge reflecting the unreasonable loss stemming from Appellant’s sale of
the mobile home.
In summary, Appellant’s defense that she relied upon the advice of
counsel provided her with no guarantee of immunity from a surcharge.
Instead, it was her obligation as the estate fiduciary to withstand the court’s
inquiry into, inter alia, the reasonableness and prudence of such reliance. The
orphans’ court, after examining the evidence and assessing the credibility of
witnesses, determined that Appellant’s administration of Decedent’s estate
failed to reflect such reasonableness and prudence. As we discern no abuse
of discretion in the court’s findings and conclusions in this regard, Appellant’s
appeal affords her no relief.
Order affirmed.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 6/22/2018
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