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HomeMy WebLinkAbout05-30-08 (14) F:\FILES\Clients\Mumma 5844.1 (estate) 8747 (Kim)\5844.I.Mumma Estate\5844.I.pra Created: 9/20/04 0:06PM .~ised: 5/30/08 2:07PM 5344.1 George B. Faller, Jr., Esquire I.D. No. 49813 MARTSON DEARDORFF WILLIAMS OTTO GILROY & FALLER MARTS ON LAW OFFICES 10 East High Street Carlisle, P A 17013 (717) 243-3341 Attorneys for Barbara McK. Mumma and Lisa M. Morgan o <;;0 ~~-- ::J ;' '-;,~.'~~ .r r--~ ~,.:~? c.-::::) c::C) .~-'l"'" (.,) CJ (.....:) N c..J INRE: Estate of Robert M. Mumma, Deceased IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA NO. 21-86-398 ORPHAN'S COURT DIVISION PRAECIPE TO THE ORPHANS' COURT: Please file on the docket and make the attached Curriculum Vitae, Opinion Letter-I, Opinion Letter-2, Opinion Letter-3, and Opinion L:er~~~Part of the record Geor e B. Faller, Jr. I.D. No. 49813 Ivo V. Otto, III I.D. No. 27763 MARTS ON DEARDORFF WILLIAMS OTTO GILROY & FALLER MARTS ON LAW OFFICES 10 East High Street Carlisle, P A 17013 (717) 243-3341 Date: May 30, 2008 Joseph A. O'Connor, Jr. Brady L. Green, Esquire MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philadelphia, PA 19103-2921 (215) 963-5079 Attorneys for Barbara McK. Mumma and Lisa M. Morgan .J CIRRICULUM VITAE FOR DAVID C. CLEAVER I. Education: 1964, B.A., University of North Carolina Chapel Hill, N.C. 1967, J.D. Dickinson School of Law Carlisle, P A Editor, Dickinson Law Review II. Court Admissions: 1967, Supreme Court of Pennsylvania 1969, Superior Court of Pennsylvania 1971, Commonwealth Court of Pennsylvania 1972, United States Supreme Court Also admitted to: U. S. District Court, Middle District of Pennsylvania U.S. District Court, District of Maryland III. Academic Experience: Adjunct Professor of Law, Dickinson School of Law 1971 to present Courses taught: Wills and Decedent's Estates Trusts Probate Practice IV. Publications: 1976, Cases and Materials on Wills and Decedents Estates 1983, Pennsylvania Probate and Estate Administration with forms 1993, Pennsylvania Probate and Estate Administration with forms, 2nd Edition 2000, Pennsylvania Probate and Estate Administration with forms, 3rd Edition 2006, West's Pennsylvania Practice Series Vol. 19 and 19A Pennsylvania Probate and Estate Administration v. Representative Estate Client 1998 to present: Statewide Solicitor for The Pennsylvania State Association of Registers of Wills and Clerks of the Orphans' Court KELLER, KELLER AND BECK, LLC ATTORNEYS AT LAW JOHN N. KELLER' DAVID S. KELLER+ J. EDWARD BECK, JR. OF COUNSEL DAVID C CLEAVER 1035 WAYNE AVENUE CHAMBERSBURG, PA 17201 TEL (717) 264-1110 FAX (717) 264-5135 E-MAIL law@kkfb.com 343-B SOUTH POTOMAC STREET WAYNESBORO, PA 17268 TEL (717) 762-3331 FAX (717) 762-1810 May 23, 2008 OPINION LETTER - 1 Ivo V. Otto, III, Esquire Martson, Deardorft~ Williams, Otto Gilroy & Fowler 10 East High Street Carlisle, P A 17013 In Re: Estate of Robert M. Mumma Dear Mr. Otto, At your request I have reviewed various documents concerning the Estate of Robert M. Mumma, deceased. The review of these documents was undertaken in order to review various matters concerning the administration of the estate of Mr. Mumma and prepare comments concerning an expert report of Jonathan M. Crist, Esquire, dated May 25,2004. I have therefore reviewed the last will and testament of Robert M. Mumma and the first codicil to that will. The will I reviewed was dated May 19, 1982 and the first codicil thereto was dated October 12, 1984. Mr. Mumma died on April 12, 1986. and both the will and codicil were admitted to probate by the Register of Wills of Cumberland County, Pennsylvania on June 5, 1986. Letters Testamentary were granted by the Register of Wills to the decedent's widow, Barbara McK. Mumma and the decedent's daughter, Lisa M. Mumma, now by marriage Lisa M. Morgan. The first complete advertisement of the grant of letters occurred on June 20. 1986. In preparing this report I have also reviewed the first and interim account for the estate. the first and interim account for the residual trust, the first and interim account for the marital trust, the second and interim account for the marital trust, the second and interim account for the residual trust. the third and interim account for the marital trust. the third and interim account for the estate, the third and interim account for the residual trust, and the fourth and interim account for the marital trust. In addition I have reviewed the inventory filed by the executors for the decedent's estate. the Fcderal Estate Tax Return (Form 706). the Pennsylvania Inheritance Tax Return, the appraisal of Helsel Realtors, Federal and Pennsylvania Fiduciary Income Tax Returns filed tor the decedent's estate, the Federal and Pennsylvania Fiduciary Income Tax Returns tiled for the marital trust under the decedent's will. an affidavit of William Boswell, former counsel to the decedent, and a memo from David R. Landry of the law firm of Stradley, Ronon, Stevcns and Young dated April 27, 1989 relating to the shares of stock owned by Robert M. Mumma, II. two * Certified Civil Trial Advocate by National Board of Trial Advocacy + Certified Criminal Trial Advocate by National Board of Trial Advocacy The National Board of Tridl AdvlKacy is a Pennsylvania Suprt"m~ Court Accredited Agen<..y expert reports prepared by Robert C. May, Esquire, Objections and Supplemental Objections of Barbara M. Mumma and various objections filed by Robert M. Mumma, II. In addition to reviewing the above recited material, I have been made aware of extensive litigation which has been on-going with regard to the estate of Robert M. Mumma since his death, as well as the results of litigation where there has been a final judicial determination. Specifically, I am aware of litigation known as "In Re: Estate of Robert M. Mumma, deceased, No. 21-86-398 (O.C. Cumberland), civil litigation filed in Cumberland County to No. 423-94 Civil Term, civil litigation filed in Dauphin County to No. 4753-S-1993, and a Federal suit captioned as R.S.E, Inc. v. Hempt Brothers, a suit styled as Barbara McK. Mumma, et. aI. v. Robert M. Mumma, II, et. aI., No. 66 Equity 1988 (C.P. Cumberland), a suit styled as Robert M. Mumma, II, et. aI. v. D-E Distribution Corp. et. aI., No. 666 Equity, November Term 1993 (C.P. Philadelphia), and Robert M. Mumma, II v. Dauphin Deposit Bank and Trust Co., No. 4753 S 1993 (C.P. Dauphin). With regard to the above litigation, I noted that in the action of Barbara McK. Mumma, et. aI. v. Robert M. Mumma, II, et. aI., No. 66 Equity, (Cumberland) 1988, this case was decided adversely to Robert M. Mumma, II, and the decision of the Cumberland County Common Pleas Court was affirmed by the Superior Court at 433 Pa. Super. 660, 639 A.2d 846 (1993), with allocatur denied, 539 Pa. 679, 652 A.2d 1324 (1994). Likewise, in the action styled as In Re: Estate of Mumma, No. 21-86-398, Cumberland County, thi~.action was decided adversely against Robert Mumma, II, and the decision of the Cumberland County Orphans' Court was affirmed by the Superior Court at 437 Pa. Super. 672,649 A2d 467 (1994). Lastly, in the action styled Robert M. Mumma, II, Plaintiffv. Pennsy Supply, Inc., Defendant, No. 99-2765 Equity Term (Cumberland, 1999) Judge Oller decreed that Robert Mumma, II did not retain any ownership interest in a corporation known as Pennsy Supply, Inc., or any deviation thereof, and that the transfers of shares in Pennsy Supply, Inc. were not voided by a shareholders agreement executed in 1961. I have actually read the Opinions of the Court of Common Pleas of Cumberland County, Pennsylvania in all 3 of these Cumberland County cases. In addition to the above litigation, I have also been made aware the case of Robert M. Mumma, III v. Pennsy Supply, Inc., No. 99-2765 Equity, which action was decided adversely against Robert Mumma, II, and was affirmed by the Superior Court at 833 A.2d 1156, with allocatur denied at 577 Pa. 723, 847 A.2d 1287 (2004). It is my further understanding that two other actions instituted by Robert M. Mumma, II were decided adversely to Mr. Mumma, being Robert M. Mumma, II v. Harry G. Lake, Jr., et. aI., No. 2004 - CB- 1540 (C.P. Dauphin) affirmed, 895 A.2d 657 (Pa. Super. 2006), allocatur denied, 588 Pa. 759, 903 A.2d 538 (2006). and Robert M. Mumma, II v. Commonwealth of Pennsylvania, et. aI., No. 477 M.D. 2004 (Pa. Commonwealth), affirmed 585 Pa. 9, 887 A.2d 1217 (2005). From my review of all of the multiple lawsuits that have ensued since the death of Robert M. Mumma I have not found, nor have I been made aware of, any litigation which has been decided favorably to the decedent's 2 son, Robert M. Mumma, II. Finally, I have also reviewed the depositions of George W. Hadley, Jr., Barbara McKimmie Mumma, and Lisa M. Morgan. I have been furnished with, and I have reviewed, written requests of Barbara McKimm Mumma requesting payment to her of her annual right to withdraw 5% of the principal from the marital trust. The first request that I reviewed was a written request dated December 30, 1987. There is a written request for every calendar year from 1987 through and including 2008. The last written request is dated January 18, 2008. Upon review of all of these written requests I have found all of the written and signed requests to be in proper order. I have also reviewed the deposition of Robert Mumma, II, the full Helsel appraisal, and valuations prepared by George Hadley for the estate and various corporations as of the date of death. I have reviewed the expert report of Jonathan M. Crist, Esquire dated May 25,2004. I respectfully disagree with the conclusions that Mr. Crist has reached in his expert report. I will therefore review each of the opinions and conclusions that Mr. Crist reached and address these conclusions in the order in which they appear in his report. I. THE PRINCIPAL PORTION OF THE MARITAL TRUST APPEARS TO BE OVER-FUNDED. I disagree with this conclusion. Although Mr. Crist correctly points out that the marital trust is a pecuniary formula trust, and therefore a pecuniary formula determines the dollar amount that is set aside to fund the trust, Mr. Crist reaches some improper conclusions. Those conclusions are not proper because of the nature of the pecuniary formula set forth in Robert Mumma's will. Mr. Crist states that the decedent's will limits funding to 50% of the gross Federal estate with a deduction for the value of all property included in the Federal Estate Return which passes to the widow outside of probate. That is the normal formula that most attorneys place in their pecuniary formula marital trusts. However, an examination of Mr. Mumma's will shows that Mr. Mumma's pecuniary formula differs from the norm. An examination of paragraph th of the will sets aside an amount equal to 50% of the total gross estate as finally determined for Federal estate tax purposes, but then states "and including therein, for computation purposes, my undivided interest in the value of all my interests in property which pass or have passed to my wife under other provisions of this will or otherwise than under this will...." In other words, Mr. Mumma's will, instead of deducting the value of property passing to his widow outside of probate, this pecuniary formula includes that property. In addition Mr. Crist, in discussing pecuniary formula bequests, states at the top of page 5 of his report "A pecuniary formula determines the dollar amount at the time of the testator's death." However 3 examining paragraph 7th ofMr. Mumma's will shows that Mr. Mumma stated "for the purpose of funding the trust, be valued as of the date of its distribution". For reasons stated above, I believe that Mr. Crist has not accurately interpreted Mr. Mumma's last will and testament and has made several incorrect assumptions with regard to the funding of the Marital Trust. First, as noted above, you must begin with the total gross estate for Federal purposes. However that amount is the amount as finally determined by the Internal Revenue Service, and, in the Mumma estate, after audit, the amount as initially shown on the Federal Estate Tax Return (Form 706) was actually increased. The total gross estate per the original Form 706 as filed was $16,645,786.00. Adjustments to stocks and bonds were made pursuant to the Internal Revenue Service agent's report dated June 11, 1990 in the amount of $650,551.00. Accordingly, the total gross estate, including property passing to the widow outside of probate, would have been $17,296,337.00. These are the proper figures that should be used. To determine the amount to be placed in the marital trust you must include, rather than exclude, property that passed to the widow outside of probate because of the unique formula that the testator provided in his will. In addition, the valuation is to be made not on the basis of the date of death values for Federal Estate Tax purposes, but according to the terms of the will which directs, in paragraph SEVENTH, that the funding of the trust is to be valued as of the date of its distribution to the trust. Therefore, I believe that the assumptions that Mr. Crist has reached in his assertion that the dollar amount transferred to the marital trust results in it being over-funded is factually incorrect. II. IMPROPER DISTRIBUTION OF ESTATE INCOME TO BARBARA McK. MUMMA. Mr. Crist recites In Re: Estate of Fike, for the proposition that all income earned by a decedent's estate during administration is to be allocated to the residuary trust. I disagree with Mr. Crist's interpretation onn Re: Estate of Fike, supra. It is the position of the Crist report that all net income earned by the estate during administration should be allocated to and paid over to the residuary trust where it then becomes part of the principal of the residuary trust. On page 8 of the report Mr. Crist goes on to conclude that "Even though she was not an income beneficiary of the estate, the account shows that Barbara McK. Mumma was distributed directly from the estate repetitive cash distributions...." I disagree with this conclusion. This conclusion ignores the direct provisions of paragraph 8th of Mr. Mumma's will. Paragraph 8th directs that the residue "of whatsoever kind" is devised to the trustees named in the will and specifically directs the trustees "to collect the income and pay over or apply the net income to or for the benefit of my wife, Barbara McK. Mumma, at least yearly." Accordingly, the specitic direction of the testator overrules any conclusion that can be reached from In Re: Estate of Fike, supra, that the income becomes part of the principal. 4 III. IMPROPER ACCOUNTING OF PRINCIPAL DISTRIBUTIONS TO BARBARA A. McK. MUMMA. A. The Fulton Bank Building. I would agree with Mr. Crist that on the surface the way in which the Fulton Bank Building was transferred would appear to be questionable. The Fulton Bank Building was an asset of the decedent's estate, and as a real property asset it would normally be a part of the principal of the decedent's estate. However, there is a reason why the marital trust accounting as filed shows that on March 31, 1988 the Fulton Bank Building was transferred to Barbara McK. Mumma as a distribution of income. Mr. Crist and I both agree that the marital trust is a pecuniary formula trust. Under Section 3543 of the Probate, Estates, and Fiduciaries Code, a pecuniary legacy bequeathed in trust shall bear interest at the rate of 5% per annum from the date of death of the decedent until the payment ofthe legacy. Accordingly, the marital trust had to pay income of 5% to the widow in the first year following Mr. Mumma's death. It appears that there was not sufficient income in the marital trust to make a distribution of income. Therefore, the trustees made the distribution of the bank building as income. . Had they not done this fiduciary income tax returns for the trust would have been required to show 5% as income and the trust would have been required to pay fiduciary income taxes on this amount. The transfer of the Fulton Bank building therefore eliminated an unnecessary fiduciary income tax liability. Under normal circumstances it is not prudent for a trust to retain income. There are several reasons why this is not wise. First, a trust is only allowed a statutory exemption of $600 on the Federal Fiduciary Income Tax Return. Second, although fiduciary income is taxed at the same rates as individual income, fiduciary income has different brackets. The brackets for fiduciary income are severely compressed and the rate of tax moves up more rapidly as fiduciary income increases because the brackets are more compressed than for individual income. If the Fulton Bank Building had not been distributed as income to the widow the fiduciary income tax would have been substantial. In addition, Pennsylvania Fiduciary Income Tax would have been incurred. In my opinion the transfer of the Fulton Bank Building to the widow as income in order to comply with the requirements of Section 3531 of the Probate, Estates and Fiduciaries Code was prudent and resulted in a substantial tax savings. Had this transfer not been made in this manner, there certainly would have been objections to the conduct of the trustees in unnecessarily incurring a substantial fiduciary tax liability that could have been avoided. In my opinion the transfer of the Fulton Bank Building to the widow as income in order to avoid this tax liability was prudent and proper. 5 B. IMPROPER ACCOUNTING OF STOCK DISTRIBUTIONS TO BARBARA McK. MUMMA. I believe that Mr. Crist has improperly characterized the distributions that he discusses in this section of his report. He states: "The origin of these shares is unclear but they appear to be stock dividends." This is not correct. What this is, in actuality, is a distribution of 5% ofthe principal ofthe marital trust to the decedent's widow pursuant to her annual right to have distributed to her 5% of the principal of the marital trust. In order to make these distributions from the marital trust, distributions were made by distributing to the widow 5% of the total number of shares of stock in the martial trust. In other words, if there were 100 shares of stock of a particular company, 5% of that was taken and the resulting 5 shares were therefore distributed to the widow. This is a practical way in which to make distributions to the widow when she elects to drawn down 5% of the principal of the marital trust pursuant to her annual right. By distributing 5% of all of the stock in the martial trust the widow is effectively distributed 5% ofthe principal value of the trust. However, when taking 5% of the shares this sometimes results in the distribution of fractional shares. This would make them to appear to be stock dividends when, in fact, they were not. IV. THE ACCOUNT AS FILED FAILES TO ADEQUATEL Y EXPLAIN OR DOCUMENT SIGNIFICANT CHANGES IN CERTAIN MAJOR INVESTMENT HOLD SING OF THE ESTATE. This part of the Crist report is difficult to assess. In reviewing the accountings as filed, I do not find that these accountings deviate from Rule 6.1 of the Pennsylvania Orphans' Court Rules. V . LIQUIDATION OF PENNSYL VANIA SUPPL YCO. STOCK WAS CONTRARY TO THE EXPRESS WISHES OF THE DECEDENT AND APPEARS TO HAVE BEEN UNNECESSARY. A. The Crist report takes the position that the liquidation of the Pennsylvania Supply Company stock was contrary to the express wishes of the decedent. I agree that paragraph 13th of the decedent's will does indicate that the decedent would prefer to have the stock remain a part of his estate and remain in the family. However, this wish of the decedent was not an absolute command. The language of the decedent in paragraph 13th is interesting. It begins using the word "direct", but then later in that paragraph uses the word "desire", and goes on to actually permit a sale of the family stock of the family corporations by the unanimous consent in writing of the trustees that the stock be sold. Basically, when we read all the language of paragraph THIRTEENTH together the decedent is saying that he directs that his stock in privately held corporations not be sold unless all of the trustees, and particularly his individual trustees, agree in writing that the stock shall be sold. He then goes on to state that it is his 6 "desire" that the stock remain under the control and management of the family "if expedient and possible". In my opinion this language does not prohibit a sale of the stock of privately held corporations controlled by the decedent at his death. In fact, it specifically permits a sale if the trustees unanimously agree in writing. In addition, I believe that this portion of the Crist report has been rendered irrelevant as a result of the litigation that resulted in a determination by the Court of Common Pleas of Cumberland County that a sale of the stock was permissible. This determination was affirmed upon appeal. In Re: Estate of Mumma, No. 21 -86 - 398, Cumberland County, affirmed, 437 Pa. Super. 672, 694 A.2d 467 (1994). In this case Judge Sheeley entered an Order on March 8, 1989 and held that under Article THIRTEENTH of the decedent's will the executrices could sell Mumma family stock to non-family members once the executrices unanimously agreed in writing. The Court went on to hold that the language of the second sentence of paragraph THIRTEENTH of the will was precatory and not mandatory. This is dispositive of this issue. B. An allegation is made that there was some type of a "common plan or scheme" by the co-executors to vest blocks of certain stock in the widow free of trust. The Crist report takes issue with a December 1987 transfer to the marital trust of the value of 615 shares of Hummelstown Quarries, Inc., 50 shares of Union Quarries, Inc, 653.5870 shares (common) of . Nine Ninety Nine, Inc. and 829.2340 shares (preferred) of Nine Ninety Nine, Inc. It is apparently suggested that by transferring these shares of stock of closely held corporations to the marital trust to fund the principal of the trust then subjects these shares to the widow's discretionary right to demand a withdrawal of up to 5% of the principal each year. This is true. Mr. Crist notes that no such withdrawal rights are contained in the residuary trust. This is also true. It is true that there are withdrawal rights of principal in the marital trust and no such withdrawal rights in the residuary trust. It is also true that the widow does not have a right to select which assets she wishes to have fund her annual right of withdrawal. However, it is also true that there is absolutely nothing in the will, nor anything in the Probate, Estates and Fiduciaries Code, nor any case law, that dictates exactly what type of assets mayor may not be used in order to fund a marital trust. Again, we must look at the decedent's will. In my opinion Lisa Mumma Morgan, as executor, had the uncontrolled right to decide what assets would be transferred into the marital trust in order to fund that trust, and, furthermore, had unlimited discretion in deciding what assets would be used in order to satisfy the widow's annual right to withdraw 5% of the principal. This section of the Crist report fails to take into consideration necessary actions that the executrices needed to take with regard to estate assets shortly after the death of Mr. Mumma. Mr. Mumma had a substantial amount of personal debt, and in addition to personal debt there was a substantial amount of corporate debt that Mr. Mumma had personally guaranteed. The personal debt of Robert M. Mumma is listed on Schedule K of Form 706 as being $4,614.1 91.00. 7 Because of these factors assets needed to be liquidated in order to raise cash. For reasons that I have stated in this report, the marital trust was larger than the residual trust. Because of the necessity to liquidate assets in order to pay debt, and in order to pay death taxes, both state and federal, there were not a lot of choices of property to allocate to the marital trust after liquidation of assets to pay debts and taxes. Accordingly, the two main assets that remained in the residuary, and then ultimately in the residuary trust, were MRI and MRlI. MRI and MRII are family real estate holdings that have never been productive of excessive amount of income. The testator's will specifically states that assets that are not productive of income are not to be retained in the marital trust. I have been informed by George Hadley that MRI and MRII have never been producing a market rate of return. It would therefore be a violation ofthe provisions of the testator's will to have transferred MRI and MRII to the marital trust. In comparison to MRI and MRII, 9-99 and Pennsy Supply Company had been profitable and earning income. Accordingly, the choice of allocating these assets to the marital trust not only made sense when looking at the total assets available after liquidation to pay debt and taxes, it also was in compliance with the expressed wishes of the decedent in his will. Other aspects of the allocation of assets to the marital trust will be more fully discussed when I address Mr. Crist's conclusions in Article IX of his report, and specifically provisions IX A, 2B, C, D, and E. C. This section of the opinion of Attorney Crist notes that the marital trust liquidated stock holdings in Hummelstown Quarries, Inc. and Nine Ninety Nine, Inc. (common) on or about July 21, 1993, and, according to what Mr. Crist was apparently told by Robert M. Mumma, II, his mother, Barbara McK. Mumma liquidated her personally owned shares in Hummelstown Quarries, Inc. and Nine Ninety Nine, Inc. (common) on or about July 21, 1993 as part of this same transaction. I fail to see the significance of this statement. There is certainly nothing to prohibit the widow, Barbara McK. Mumma, from liquidating her own shares of stock at any time and for any reason as she chooses. VI. THE CO-EXECUTRICES OF THE ESTATE FAILED TO PRESERVE ASSETS CONTAINED IN DECEDENT'S SAFETY DEPOSIT BOX 3332 AT THE DAUPHIN DEPSOIT BANK AT THE TIME OF HIS DEATH AND/OR F AILED TO ADEQUA TEL Y INVESTIGATE THE DISAPPEANCE OF DECEDENT'S ASSETS CONTAINED IN SAID SAFE DEPOSIT BOX. Apparently at the time of his death the decedent was the joint owner of a safety deposit box located at Dauphin Deposit Bank and Trust Company in Harrisburg with his son Robert M. Mumma. 11. Robert M. Mumma, II has alleged that he and his father inventoried the contents of that safety deposit box in August of 1985 and this was the last time the box was entered prior to the decedent's death. Robert M. Mumma, II alleges that the safety deposit box contained corporate records and shareholders agreements relating to the decedent's Pennsylvania Supply Co. stock. He further alleges that 11 days after his father's death he and his mother entered the 8 box to retrieve the decedent's will. He claims at this time the saw various assets owned by the decedent as well as Pennsylvania Supply Co. corporate records and shareholder agreements. As required by regulations of the Pennsylvania Department of Revenue, the decedent's safety deposit box was inventoried on November 2, 1989. It is alleged that this inventory revealed only personal papers and letters of the decedent, and the decedent's shares of stock and other corporate records were not present. Attorney Crist concludes that the co-executrices of the estate failed to properly investigate and/or pursue responsible parties for the loss of the decedent's assets. However, these conclusions by Attorney Crist are obviously based upon self- serving statements by Robert M. Mumma, II, which Mr. Crist has apparently accepted as being true. Mr. Crist states that Robert M. Mumma, II believes that the co-executrices of the estate are either responsible for or complacent in the disappearance of the corporate records. Mr. Crist then complains that, unlike Robert M. Mumma, II, the co-executrices of the estate had not instituted any formal legal action against Dauphin Deposit with regard to estate losses. Without any actual proof, other than the statements of Robert M. Mumma, II, that assets had disappeared from the safety deposit box, and without any proof that the estate in fact suffered losses as a result of assets not being in the box, I fail to find that the co-executrices wouid have any valid grounds for initiating any legal action against Dauphin Deposit. In that regard, it is interesting to note that Mr. Murrima, II pursued his own action against Dauphin Deposit and has not been successful in that action. Given the fact that Robert M. Mumma, II's action against Dauphin Deposit has not proven that there were any missing documents or assets, and has not resulted in a verdict in his favor against Dauphin Deposit, I find no merit in Mr. Crist's conclusions set forth in item VI of his opinion letter. See, Robert M. Mumma, II v. Dauphin Deposit Bank and Trust Company, No. 4753 S 1993 (C.P. Dauphin). Mr. Crist goes on to conclude in subparagraph I. that apparently the estate's attitude is that the missing documents simply cannot be located. This again assumes the truth of Mr. Mumma's assertions. However, personal representatives of the decedent's estate are not safety deposit box detectives. With no more evidence than what Robert M. Mumma, II has produced to date, it is my opinion that the executrices acted properly in not filing a lawsuit against Dauphin Deposit Bank without any probable cause to do so. With regard to item 1. where Mr. Crist comments on shareholders agreements, I agree that shareholders agreements are a widely accepted and effective tool to limit the value of closely held stock upon the death of a shareholder. However. I disagree with his conclusion that one would have expected there to be such an agreement with respect to Pennsylvania Supply Co. Shareholder agreements were in existence decades ago when the shares of Pennsylvania Supply Co. were owned by several different individuals who were not related to each other. Shareholder agreements under these types of circumstances are common in order to prevent the shares of a deceased shareholder being sold by his or her estate to a person or persons who may end up 9 being an unwelcome participant in the company. In the case of the decedent, however, he had acquired and controlled nearly all of the shares of the corporation. The few shares not owned by the decedent at his death were owned by his immediate family. Under these circumstances a shareholders agreement would not have been as common as one would expect when shareholders are not related to each other. In addition, people do not always do what lawyers tell them to do. Clients do not always make prudent choices. As a result, all practitioners who practice corporate law are aware of the fact that there are closely held corporations that do not have shareholder agreements. Accordingly, the suggestion that there was a shareholders agreement which would have effectively blocked the sale of Pennsylvania Supply Co. stock is pure speculation with no factual basis. Furthermore, this issue has been disposed of in the case of Robert M. Mumma, II v. Pennsy Supply Company, Civil Action - Equity, No. 99-2765 Equity Term (Cumberland County 1999). In that case Judge Oller held on May 17,2002, and Ordered and Decreed that Robert M. Mumma, II did not retain an ownership interest in Pennsylvania Supply Company and that the transfer of shares in the corporation were not voided by operation of a shareholders agreement that was executed in 1961. In his Opinion Judge Oller further noted that Robert Mumma, II consented to the sale of the stock of family owned businesses to CHR and released his ownership interest for a "consideration of approximately $3,000,000." In the Court's Findings of Fact the Court found that a shareholders agreement dated December 29, 1961 was terminated in 1963. The Court's Findings of Fact also found that on March 17, 1995 Robert . Mumma, II joined in the sale of stock of family owned businesses to CRH and executed an irrevocable consent and joinder. VII. COUNSEL FEES TO MORGAN LEWIS AND BOCKIUS. I disagree with the conclusions set forth by Jonathan M. Crist, Esquire as set forth in item VII, and have the following comments: (1) An estate accounting would not normally enumerate or itemize in detail the nature of the services rendered, the amounts charged for those services, nor the necessity of the services in the tiling of an account. Further, under normal accounting standards only a dollar figure would be necessary. (2) Attorney Crist sets forth no reasons why he concludes that the amounts paid by the marital trust are grossly excessive. (3) Mr. Crist apparently draws some sinister conclusion from the fact that Lisa M. Mumma. now by marriage Lisa M. Morgan, was a member of Morgan Lewis and Bockius at the time that they were employed as counsel for the decedent's estate. Mr. Crist states: "Decedent's will does not contain any provision authorizing the executrices or the trustees to hire or retain themselves;" I tind this statement to be unfounded. First, the decedent's will does not contain any provision prohibiting the executrices to hire the law firm that the decedent's daughter was 10 employed by. Secondly, it has been the long established law of this Commonwealth that the personal representative has an absolute right to hire counsel of their own choosing to represent them as personal representative during the administration of the decedent's estate. Named personal representatives are not required to employ the attorney or law firm who prepared the decedent's will. Personal representatives normally employ counsel who they know and trust. In that regard, I find it quite normal that Lisa Mumma would engage a law firm that she was familiar and comfortable with, and would encourage her mother to join her in doing so. (4) The preparation of the estate accounting by Morgan Lewis and Bockius, in my opinion, was in accordance with the decedent's will and applicable law, for reasons that I have set forth in this report. (5) The conclusion that Morgan Lewis and Bockius breeched their duties to the residuary beneficiaries of both the marital and residuary trusts is based upon false assumptions and a misinterpretation of the decedent's will. I find no such breach of duty to the residuary beneficiaries. This conclusion set forth by Mr. Crist assumes that the liquidation of the Pennsylvania Supply Co. stock was illegal and that there was something improper in the way in which the marital trust was funded and further that there was something improper in the principal that was distributed to the widow when she exercised her right to withdraw 5% of the principal per annum. These assumptions by Mr. Crist have no foundation in fact or law as I have stated in various portions of this opinion letter. (6) This allegation is likewise unsupported. Mr. Crist has supplied no factual basis whatsoever for his assertion that Morgan Lewis and Bockius' fees were personal expenses of the co-executrices and the co-trustees. In review of all of the documents and all of the evidence that I have reviewed I find nothing to support this conclusion. (7) With regard to the amount of counsel fees charged by Morgan Lewis and Bockius, it should be noted that this was a very large estate. Counsel fees would therefore be scrutinized by both the Pennsylvania Department of Revenue and the Internal Revenue Service. It is to be noted that there was an audit of the Federal Estate Tax Return. Neither the Pennsylvania Department of Revenue, nor the Internal Revenue Service, took exception to the attorney fees. Furthermore, fiduciary income tax returns have been filed annually for the marital trust and the residuary trust. These returns would have been a Form 1041 filed with the Internal Revenue Service and a form P A 41 filed with the Pennsylvania Department of Revenue. Upon all of the fiduciary income tax returns I have reviewed attorney's tees have been listed as an itemized deduction. No exception has been taken by either the Internal Revenue Service or the Pennsylvania Department of Revenue to the fees claimed on any of the fiduciary income tax returns. Because both the Pennsylvania Department of Revenue and the Internal Revenue Service have scrutinized all of the fees claimed as deductions on the death tax returns and the II fiduciary income tax returns it cannot be concluded that any attorney fees charged were exceSSIve. VIII. ATTORNEY'S FEES PAID BY THE MARITAL TRUST TO STRADLEY, RONON, STEVENS AND YOUNG. My response to this assertion is the same as my response to VII above. There has been no support provided for this assertion. I have seen no proof to sustain this assumption. IX. Conclusions/recommendations. A. THE COURT SHOULD ORDER THE REMOVAL OF BARBARA McK. MUMMA AND LISA M. MORGAN AS CO-EXECUTRICES OF THE EST A TE AND AS CO-TRUSTEES OF BOTH THE MARITAL AND RESIDUARY TRUSTS AND APPOINT AN INDEPENDENT PARTY TO ACT IN THEIR PLACE AND STEAD. I find simply no basis for this conclusion. This conclusion is based upon several incorrect assumptions; both in law and in fact, as I have previously set forth in this written opinion. However, I will address these conclusions and recommendations as follows: 1. (a). The principal amount that funded the martial trust was in compliance with the pecuniary formula set forth in the decedent's will, because the decedent, in establishing the pecuniary formula, directed that the amount should include, not exclude, property passing to the surviving spouse outside of probate, and for purposes of funding the trust shall be funded with assets valued as of the date of their distribution to the trust. (b). Income earned by the estate was properly distributed to the widow because of the express direction set forth in paragraph 8 to "collect the income and to pay over or apply the net income to or for the benefit of my wife. . .." (c). Capital gains earned by the estate during administration have been properly allocated to the residuary trust. (d). I disagree. The account appears to comply with Supreme Court Orphans' Court Rules. See O.C. Rule 6.1, et. seq. (e). There were no unauthorized income distributions from the estate directly to Barbara McK. Mumma. They do not need to be reversed. In fact, the will specifically, by paragraph ih directs all income from the martial trust to be paid to the widow and by paragraph 8th directs all income from the residuary trust to be paid to the widow. 12 (t). I disagree. Principal was properly distributed to the widow from the marital trust upon execution of her written request to have distributed to her 5% of the principal per year. As previously indicated in this report I have actually reviewed copies of the written requests of the widow and find that in every year from 1987 through and including 2008 there has been a written, signed, request by the widow directed to Lisa Mumma Morgan for distribution of the widow's annual right to a 5% draw down of the principal of the marital trust. The residuary heirs do not have a right to "cherry pick" which assets shall remain in the residuary trust and which shall be distributed to the marital trust. That discretion is vested in the co-executor and co-trustee, Lisa Mumma Morgan. There is no authority whatsoever given by the decedent's will to determine what assets fund the marital trust, nor any authority to determine what assets shall fund the widow's 5% withdrawal right. Robert Mumma, II has no right to "cherry pick" what principal assets of the marital trust are distributed to the widow when she exercises her 5% withdrawal right. 2. I disagree. This is an improper conclusion. Mr. Crist states the general intent of the pecuniary formula marital/residual trust combination was to put a minimal fixed amount in the marital trust. This conclusion is absolutely contrary to the expressed wishes of the testator. F or reasons previously enumerated, the intent of the testator as found in paragraph ih is completely the opposite of this conclusion. It was obviously the testator's intent to maximize the amount placed in the marital trust for the reason that the pecuniary formula directed that you should include assets which pass to the surviving spouse outside of probate in determining the funding amount. Because of this express statement in paragraph 7th of the will, it was the marital trust who was to be the predominate recipient of assets of the estate and not the residuary trust. With regard to the assertions in paragraph A my observations are that there is good reason for funding the marital trust early and the residuary trust later. First, since the marital trust distributes income to the widow you would normally want to fund that trust early so that it would become productive of income that could then be distributed to the widow. Of concern is also Section 3543 of the Pennsylvania Probate, Estates and Fiduciaries Code. Since the marital trust is a pecuniary legacy bequeathed in trust, by virtue of Section 3543 the trust will bear interest at the rate of 5% per annum from the death of the decedent. It is therefore prudent to fund the trust promptly so that income will be produced by the marital trust in order to comply with the requirements of Section 3543. It is noted that no significant assets were assigned to the residuary trust until over 14 years later. However, given the exceptional amount of litigation in which this estate has been embroiled over the past 2 decades I do not find it the least bit unusual that the residuary trust was funded much later. I reach this conclusion for several reasons. First. the outcome of the litigation could change the amount that would be placed in the residuary trust. Second. the ongoing litigation resulted in fees and expenses that were incurred by the estate, which would be paid from the residue, and which has therefore resulted in reducing the amount 13 of the residuary trust. Finally, it must be kept in mind that the residue of the estate and the residuary trust are actually one and the same. B, C, D, and E. I will respond to paragraphs B, C, D, and E collectively, since they all address the same issue. First and foremost I highly disagree with the characterization of the transfer of assets by the fiduciaries from the estate to the marital trust as "cherry picking". Again, we need to examine the last will and testament of the testator. Our appellate courts for centuries have stated that in estate matters where an individual has died testate the "Polar Star" is to ascertain and carry out the intent of the testator. With regard to the allocation of assets to the marital trust, and the principal assets withdrawn by the widow in exercising her right to claim 5% ofthe principal of the marital trust each year, I believe it is important that we examine the language of the testator as contained in the four comers of his will. On page 4 of the decedent's will, the very last paragraph on that page, the trustees are granted reasonable discretionary powers and are not liable for honest errors in judgment. Further, paragraph 10th of the decedent's will gives trustees various powers and provides that they shall be construed broadly. In addition, paragraph 14th gives the executors the "fullest power and authority in all matters or questions pertaining to the administration of my estate". The allocations of assets to the marital trust are certainly a matter pertaining to the administration of the decedent's estate. Based upon the language of the will there is nothing that limits the executors in any way in allocating assets to the martial trust. This conclusion also fails to address the debts ofthe decedent and the debts of the decedent's corporations which the decedent had personally guaranteed, as well as the need for funds to pay death taxes, as previously discussed in this report. As a result of the need to liquate assets the assets that remained after liquidation and payment of debts and taxes resulted in very few choices remaining in the allocation of income producing assets to the marital trust. Is there any statutory or case law that dictates how a marital trust is to be funded? There is virtually no provision of the Probate, Estates, and Fiduciaries Code, nor any case law that defines or describes what assets are to be used in funding a marital trust. There is therefore nothing improper about the transfer of the particular assets that were transferred into the marital trust. Furthermore, there is nothing in the Probate, Estates, and Fiduciaries Code, nor case law. that makes it improper for assets in the marital trust to be transferred to the widow as part of her 5% annual right of withdrawal of principal that amount to stock in closely held corporations that were previously controlled by her husband. If in fact it was a desire of the widow that assets that were transferred to her as principal in satisfaction of her annual 5% withdrawal right were in fact stocks in closely held family corporations, there is nothing improper about such a transfer. My answer simply is: "So what?" Again. even if there was so called "cherry picking" (I have seen no evidence of this) and as a result a block of the stock of certain subsidiary corporations of Pennsylvania Supply Co passed to Barbara McK. Mumma free of trust, my answer to that is. again, "So what?" Nothing improper has occurred! 14 In subparagraph D it is claimed that after the sale of some of these stocks the widow stopped exercising her withdrawal rights from the marital trust. This does not appear to be the case, but, again, "So what?" The widow had an unqualified right to have distributed to her 5% of the principal of the marital trust each year. She could either exercise this right, or in any particular year, decline to exercise this right. Likewise, the widow had also a right to refuse to accept any of the income that was generated from either the marital trust or the residuary trust. There is absolutely nothing in the will that prohibits the widow from deciding whether she shall elect or not elect these rights. Likewise, there is nothing in the will that prohibits the distribution of particular assets to the widow when she does request a distribution of 5% of the principal of the trust to her. I believe the assertion that the estate incurred in excess of $360,000.00 in Federal and Pennsylvania fiduciary income taxes that could have been avoided does not accurately reflect the reality of the assets held in the estate. This has been discussed previously. The assets that were distributed to the marital trust were the only assets that were income producing that could realistically be used to fund the martial trust. During this time period there would have been a gain in assets retained in the residue as well, so I fail to see any merit in this conclusion. 3. While I do agree the standard for trust fiduciaries in dealing with successive interests is to deal impartially as between the successive beneficiaries and to act with due regard for their respective interests, I find no breach of such duty. Mr. Crist's assumption that this duty has been breached is based upon incorrect assumptions both of fact and law as I have detailed above. From a review of the various accountings that have been filed, I only find distributions of principal to the widow, Barbara McK. Mumma, from the marital trust pursuant to the exercise of her 5% annual withdrawal right. I find no evidence of any distributions of principal to the widow in excess of the withdrawal right contained in the marital trust. There have been no distributions of principal to the widow from the residuary trust. In addition, since both trusts direct the income to be distributed to the widow, I find no evidence of any improper distributions of income to the widow by the executors and trustees. B. THE SALE TO CRH NEEDS TO BE VOIDED BY THE COURT ALONG WITH A COURT ORDERED INVESTIGATION INTO THE DISAPPEARANCE OF DECEDENT'S MISSING ASSETS AND PAPERS. I have seen no proof, other than the assertions of Robert Mumma, II, that any assets are missing. In addition, even if there were any missing assets there is no evidence of their value. The assertion that the decedent's expressed wishes were that his family corporations not be sold is absolutely untrue as previously addressed in this opinion letter. 15 Mr. Crist is apparently unaware of all of the litigation involving this issue that has been adversely decided against Mr. Mumma, II. The sale of the stock of the family corporations to CRH is history. Both the Statute of Limitations and the Doctrine of Res Judicata foreclose any revisiting of this issue. Furthermore, Mr. Crist apparently is unaware of the fact that Robert Mumma, II signed a consent and joinder to the sale of the stock to CRH and accepted approximately $3,000,000.00 representing his share of the proceeds of the price negotiated with the buyer of the family businesses. This issue has been decided by the following cases: Barbara McK Mumma, et. aI. v. Robert M. Mumma, II, et. aI., No. 66 Equity (Cumberland) 1988 ; In Re: Estate of Mumma, No. 21-86-398, Cumberland County, and Robert M. Mumma, II v. Pennsy Supply, Inc., No. 99-2765 Equity Term (Cumberland 1999). C. The conduct of Morgan, Lewis and Bockius/Stradley, Ronon, Stevens and Young. I disagree with this conclusion. This conclusions fails to take into account all of the litigation that Robert Mumma, II has caused this estate to undergo for over 2 decades. Furthermore, the reference to "squeezing out" Robert M. Mumma, II's shares of stock is greatly exaggerated. The implication is that this has some type of sinister implications. However, when the facts are examined the shares of stock owned by Robert M. Mumma, II were less than 1 % of the shares owned by the decedent at the time of his death, and thus owned by the estate and controlled by the executrices after his death. Furthermore, the so called "squeeze out" is further rendered irrelevant by the Consent and Joinder of Robert Mumma, II to the sale of the stock and his acceptance of nearly three million dollars for stock that represented less than a 1 % ownership of the company. In conclusion, I can find no basis for any of the opinions expressed by Mr. Crist in his report. I disagree with all of them. YP' /-' ji~ncerel:~ y~~~~, -; I " / '..J -.:>>, . ' . . ~ t 4 ~ .0o;&"Z::-~ David C. Cleaver DCC:cv 16 KELLER, KELLER AND BECK, LLC ATTORNEYS AT LAW OF COUNSEL DAVID C CLEAVER 1035 WAYNE AVENUE CHAMBERSBURG, PA 17201 TEL (717) 264-1110 FAX (717) 264-5135 E-MAIL law@kkfb.com 343-B SOUTH POTOMAC STREET WAYNESBORO. PA 17268 TEL (717) 7&2-3331 FAX (717) 762-1810 JOHN N. KELLER' DAVID S. KELLER+ J. EDWARD BECK, JR. May 23, 2008 OPINION LETTER - 2 Ivo V. Otto, III, Esquire Martson, Deardorff, Williams, Otto Gilroy & Faller 10 East High Street Carlisle, PAl 70 13 In Re: Estate of Robert M. Mumma Dear Mr. Otto, At your request I have reviewed various documents concerning the Estate of Robert M. Mumma, deceased. The review ofthese documents was undertaken in order to review various matters concerning the administration of the estate of Mr. Mumma and prepare comments concerning two (2) expert reports prepared by Robert C. May, Esquire, of the firm of May & May, P.c. This opinion letter is written in response to the two opinions of Robert C. May dated January 31,2008. This particular letter will respond only to opinion number one which addresses the issue of the existence of a shareholders agreement and the ownership of stock of Pennsylvania Supply Company. In preparing this report I have reviewed all of the documents referenced in Opinion Letter Number 1 to you concerning an expert report of Jonathan M. Crist, Esquire, dated May 25. 2004. In addition, I have reviewed all of the documents which are referenced and attached to the report of Robert C. May in his report of January 31, 2008. With regard to the documents I have examined the inventory filed by the executors in 1987 has particular significance with regard to the shares of stock owned by the decedent and claimed by the executrices as an estate asset. I will address the significance of the inventory in my preliminary observations. I. PRELIi\UNARY OBSERVATIONS. The executrices filed an inventory and appraisement in the estate of Robert M. Mumma in 1987_ The inventory as tiled shows 700 shares of Pennsylvania Supply Company stock as an asset of the decedent" s estate. The filing of the inventory showing 700 shares of Pennsylvania Supply Company as an estate asset has particular significance. Under Pennsylvania la",. the tiling of an inventory raises a presumption that all property set forth therein \-vas owned by the decedent at the time of death. The presumption places the burden of proof on either creditors or other beneficiaries to show that assets set forth in the inventorY were not assets of the decedent at "' . Certified Civil Trial Advocate by National Board of Trial Advocacy +CertHied Criminal Trial Advocate by National Board of Trial Advocacy The ~Jtion.al Board of Tnal Advocacy is a Pennsylvania Supre-me Court Accredited Agency. the time of death. The inventory also serves as constructive notice to both beneficiaries and creditors of the claim of the estate to assets that are set forth and itemized in the inventory. The second item of significance to be noted is that letters testamentary were granted to the executrices by the Register of Wills of Cumberland County, Pennsylvania on June 5, 1986, and the first complete advertisement of the grant of letters occurred on June 20, 1986. The filing of the inventory and appraisement and the advertisement of the grant of letters would put Robert Mumma, II on notice of the estate's claim to 700 shares of Pennsylvania Supply Company as an asset of the decedent owned at the time of death, and which asset is now an asset of the decedent's estate. Since it is apparent that Mr. Mumma has claimed that he in fact was the owner of many of the shares of stock of Pennsylvania Supply Company that have been claimed by the estate, Robert Mumma, II is, in fact, a creditor of the estate. As a creditor of the estate he would have had one (1) year from the date of complete advertisement to make this claim known. This requirement is set forth in the Probate, Estates and Fiduciaries Code. It creates a one (1) year Statute of Limitations for creditors to make their claims known to the personal representative. Having failed to make this claim within one (1) year from the date of first complete advertisement his claim against the executrices is barred. See, Section 3532 (a) of the Probate, Estates and Fiduciaries Code. Likewise, the filing of the inventory and advertisement of the grant of letters would put him on notice as a creditor in regard to any civil suit he would file in the Court of Common Pleas. The longest possible Statute of Limitations that could be applicable would be two (2) years. He has failed to file a civil suit within that period of time. Therefore the claims of Mr. Mumma which are referred to in the Robert May report are, in my opinion, barred by the Statute of Limitations. The claims of Robert Mumma, II, as referenced in the May report, are also barred by two other legal doctrines. Those doctrines are Equitable Estoppel and Res Judicata. I will tirst discuss Equitable Estoppel. In July of 1993 the Pennsylvania Supply Company stock was sold to CRHp1c. Robert Mumma, II signed a consent and joinder in that sale and agreed to accept approximately $3,000.000.00 representing his share of the proceeds of the price as negotiated with the buyer of the family business. Robert Mumma, II cannot, legally, consent to the sale of Pennsylvania Supply Company stock, join in its sale, and accept nearly $3,000,000.00 as a part of that transaction, and now claim that the sale should be set aside and that he, in fact, was the owner of shares of stock of Pennsylvania Supply Company which were claimed by the estate. The doctrine of Equitable Estoppel bars this claim. Lastly, the claim of Robert Mumma, II to shares of stock of Pennsylvania Supply Company. as suggested in the report ofMr. May, is barred by the doctrine of Res Judicata. The issues raised in the May report were fully litigated in three (3) actions in Cumberland County 2 that were decided adversely to Robert Mumma, II. See, Barbara McK. Mumma, et. a1. v. Robert M. Mumma, It et. aI., No. 66 Equity 1988, (C.P. Cumberland) affirmed, 433 Pa. Super. 660, 639 A.2d 846 (1993), allocatur denied, 539 Pa. 679,652 A.2d 1324 (1994). See also, In Re: Estate of Mumma, No. 21 - 86- 398, Opinion and Order of Court (Pa. O.c. Cumberland 1993), affirmed, 437 Pa. Super. 672, 649 A.2d 467 (1994); Robert M. Mumma, II v. Pennsy Supply, Inc., No. 99- 2765 Equity Term (C.P. Cumberland 1999). In the last case Judge Oller held on May 17,2002 that Robert Mumma, II had no ownership interest in Pennsylvania Supply Company stock and the transfer of shares in the corporation were not voided by operation of a shareholders agreement in 1961. The Court further held that with regard to the sale of Pennsylvania Supply Company stock to CRH Robert Mumma, II released his ownership interest for a consideration of approximately $3,000,000.00 and that on March 17, 1995 Robert Mumma, II joined in the sale of this stock to CRH and executed an irrevocable consent and joinder. The Court specifically found that a shareholders agreement dated December 29, 1961 had been terminated in 1963. II. REVIEW OF THE MAY REPORT. I will comment upon the expert report of Robert C. May, dated January 31, 2008, and in this Opinion Letter will review conclusions that Mr. May reached in his report dated January 31, 2008. In that report, in paragraph 2 on page 3 Mr. May presents 5 different questions. Although the May report poses 5 questions and several possibilities, Mr. May's report, basically, addresses two issues. Those issues are whether a shareholder's agreement for Pennsylvania Supply Company existed at the time of the death of Robert M. Mumma, and how many shares of stock of that company were owned by the decedent at the time of his death. Mr. May does a very good job in his "chronology of events" which begins on page 4 in tracing the shares of stock of Pennsylvania Supply Company from the time of its incorporation on July 19, 1921. In this regard his expert report is very exhaustive and appears to be accurate. However, the accuracy is based only upon information available to him, and, as he states in his report, much of what he learned was as a result of what he was told by Robert M. Mumma, II. On page 7 he indicates that information is incomplete on the distribution of Isabelle Mumma's 5 shares of stock. It is correctly noted that Isabelle was the former wife of Walter Mumma who apparently ended their marriage in divorce. Mr. May points out that "according to Mr. Mumma, Isabelle gifted 5 shares to Robert M. Mumma, II, which were to be held by Robert M. Mumma:' Mr. May points out that the implication of this assertion is, if the gift was valid, that all 5 of the shares in the estate of Walter Mumma were rightfully the property of Robert Mumma, II. The problem with this assertion, and with much of what is said in Mr. May's report, is that he is basing his conclusions (and his report) upon what he was told by Robert M. Mumma, II. Mr. May fails to comment upon any credible evidence that this assertion by Robert Mumma, II is in fact true. From everything that I have examined it appears that there is no credible evidence to support this supposition. 3 On page 9 of the May report, second paragraph, it is said: "Note: Questions exist as to the validity of the issuances of the additional shares over and above the original shares issued prior to Walter's death. Depending upon the terms and conditions of the supposed Shareholders Agreement or other instrument, and depending upon whether adequate consideration was given to the company in exchange for the shares, it may be that some or all of these later issuances were invalid by reason of the breach of contract.. .." Again, a supposition with no credible evidence to support the supposition. Mr. May points out in his report two very significant facts that must be considered in considering his suppositions. First, he states that the stock certificate book and transfer ledger were not available to him. Secondly, corporate minutes were not available. I do not know how Mr. May can reach conclusions without reviewing the stock certificate book, the stock transfer ledger, and the corporate minutes. On both page 10 and 11, as well as in other portions of Mr. May's report, he frequently states: "As discoverable evidence becomes available" or "If discoverable evidence comes available". With regard to those comments, I suspect that Mr. May was never informed of the litigation involving Robert Mumma, II that I referred to in my Preliminary Observations. I think if Mr. May had been aware of this litigation, and all of the extensive discovery that was undertaken in that litigation, which has occurred over a period in excess of two decades, he would probably realize that there is no discoverable evidence that could support the conclusions and hypothesis which Mr. May sets forth in this expert report. It is also significant to note that on page 17 of the report in the middle of the 6th line from the bottom of page 17 Mr. May states: "unless the actual Shareholders Agreement or other instrument is examined, it is difficult to determine if both consents were needed, or only the consent of the Board of Directors. The other source of this information would be the meeting minutes, but I have no access to these either." Beginning on page 12, item 4, Mr. May gives a technical background regarding Pennsylvania Corporate Law Practice for private corporations. This is an excellent review and I have no issues with this part of this report. However, there is no credible evidence that any of the principals discussed in this portion of his report were adopted by Pennsylvania Supply Company. In this section of his report Mr. May reters to the 1961 agreement and then concludes in the last paragraph on page 19 that "it would be reasonable to assume, on the basis of the 1961 agreement, the Boswell affidavit, the model forms, common Pennsylvania corporate practice. and the limited dispersion of the shares of Pennsylvania Supply Company over a period of many years. that a Shareholders Agreement (or other instrument) existed for Pennsylvania Supply Company which provided both for Mr. Mumma to engage in estate planning transfers as well as rest assured that whatever shares he did not transfer to immediate family members would be repurchased on his death presumably at a stated amount or a certified value. which relatively 4 small amount of money (in comparison to the fair market value of the shares) would transfer to his estate." Unfortunately, there is virtually no demonstrative evidence to support this conclusion. Furthermore, I disagree with this conclusion for reasons that will be stated later in this report. III. WHAT IS THE CONCLUSION MR. MAY IS TRYING TO REACH IN HIS REPORT? In reading all 29 pages of Mr. May's report it is obvious that the Conclusion he is attempting to reach is twofold: 1. There was a Shareholders Agreement in effect at the time of the death of Robert M. Mumma that would have given rights to his son, Robert Mumma, II, to acquire the shares of Pennsylvania Supply Company at a much reduced price. 2. Robert M. Mumma, the decedent, did not own all of the shares of Pennsylvania Supply Company that the estate claims that he owned and, in fact, Robert Mumma, II owned many shares of Pennsylvania Supply Company. There is simply no evidence that has been presented by Mr. May to support either of the above two conclusions, or any of the other statements that he makes in his report. His report is pure speculation. To Mr. May's credit, he does couch his suppositions by saying "If discoverable evidence becomes available", "As I have been told", and "It would be reasonable to assume". There is virtually no factual basis for any of his assumptions. Any conceivable basis for his assumptions and opinions would be based almost entirely upon what Robert Mumma, II told Mr. May. IV. CONCLUSION A. It is my conclusion that it cannot be presumed that a shareholder's agreement was in existence at the time of the death of Robert M. Mumma. I have the following reasons for that conclusion: 1. No shareholders agreement has ever been discovered or produced. 2. If there were such an agreement, reference is typically made to the existence of a shareholders agreement by a notation upon the share certificates. There have been no share certificates produced in any of the litigation, or displayed to the Executors of the estate, showing such a reference to a shareholders agreement on the face of the shares of Pennsylvania Supply Company. 5 3. The 1961 Shareholders Agreement, and its existence, has been litigated. The Court of Common Pleas of Cumberland County held that the 1961 Shareholders Agreement was terminated in 1963. I made reference to this litigation in my Preliminary Observations. Furthermore, the draft High-Spec-Lebanon Rock agreement that Attorney Boswell prepared did not involve Pennsylvania Supply Company. 4. Mr. May refers to Walter Mumma's will drafted June 18, 1955 which references shareholder agreements in effect with respect to companies he had owned. Based upon this Mr. May concludes that it would be expected that a shareholders agreement existed with respect to Pennsylvania Supply Company. First, I believe this conclusion is reached without being told that in 2002 the Court held that any shareholders agreement in effect had been terminated in August of 1963, and the Court further held that Robert Mumma, II, held no rights under the agreement, and had no interest in the corporation. If nothing else, this Court decision renders the report of Robert C. May moot on this issue. See, Barbara McK. Mumma, et. at v. Robert M. Mumma, II, et. al., No. 66 Equity 1988, (C.P. Cumberland) affirmed, 433 Pa. Super. 660, 639 A.2d 846 (1993), allocatur denied, 539 Pa. 679,652 A.2d 1324 (1994). See also, In Re: Estate of Mumma, No. 21 - 86- 398, Opinion and Order of Court (Pa. O.C. Cumberland 1993), affirmed, 437 Pa. Super. 672, 649 A.2d 467 (1994); Robert M. Mumma, II v. Pennsy Supply, Inc., No. 99-2765 Equity Term (C.P. Cumberland 1999). 5. A shareholders agreement in a closely held corporation is common when the persons holding shares in the corporation are not related to each other. This is significant when we look at Mr. May's review of the ownership of shares in Pennsylvania Supply Company since August 27, 1921. We find shares owned by individuals with the last name of Swett, Winslow, Bowen, Jackson, and Wickenhaus. In addition to these individuals, shares of stock were also owned by Robert M. Mumma and his father, Walter Mumma. When these non-Mumma family individuals owned shares of stock it would be logical to assume that a shareholders agreement would be in effect. Therefore, the existence of shareholders agreement for Pennsylvania Supply Company at this time would not be unusual. In fact, it appears that such an agreement did exist prior to 1963. One problem in presuming that a shareholders agreement for Pennsylvania Supply Company continued to exist until the time of the death of Robert Mumma is that this presumption fails to take into account the change in the ownership of the shares over a period of six decades. As time moved on, the shares of stock in Pennsylvania Supply Company became consolidated in Robert M. Mumma. On page 9 of Mr. May's report he concludes that "If all of the issuances are valid" Robert M. Mumma was the owner of 700 shares, Robert M. Mumma, II was the owner of 3 shares, Lisa Mumma 3 shares, Linda Mumma 3 shares, and Barbara McClure Mumma 3 shares. In this type of situation where Mr. Mumma has absolute control of the corporation, and the few shares which he does not own are owned by his wife and children, there are not as many compelling reasons for a shareholders agreement as would have existed when 6 the owners of the stock of Pennsylvania Supply Company were distributed among the families of Swett, Winslow, Bowen, Jackson, and Wickenhaus, as well as the Mumma family. Under these circumstances the existence of a shareholders' agreement cannot be presumed. One reason for a shareholders agreement is to prevent the estate of a deceased shareholder from selling the decedent's shares to someone who may become a very unwelcome participant in corporate matters. Although it is true that a shareholders agreement is a very effective estate planning device, Mr. May's report overlooks the fact that a shareholders agreement is also intended to keep control in the surviving shareholders upon the death of a shareholder. In my opinion, when Mr. Mumma owned 700 shares and his family collectively owned only an additional 12 shares, there would be no compelling reason for a shareholders agreement. B. It is my conclusion that Robert M. Mumma owned all of the shares of Pennsylvania Supply Company that were sold by the estate to CRH in July 1993. I have the following reasons for that conclusion: 1. This issue was fully litigated in the cases of In re: Estate of Mumma, No. 21-86- 398 (O.c. Cumberland 1993), affd 437 Pa. Super. 672, 649 A.2d 467 (1994); Barbara McK. Mumma, et. at. v. Robert M. Mumma, II, et. aI., No. 66 Equity 1988 (C.P. Cumberland); Robert M. Mumma, II v. Pennsy Supply, Inc., No. 99-2765 Equity Term (C.P. Cumberland 1999). 2. Robert Mumma, II consented to the sale of the estates' shares of stock, and accepted nearly $3,000,000.00 from the sale. 3. As a result of the Court's decision as referenced to number 1 above, any further consideration of this issue is barred by the Doctrine of Res Judicata, and as a result of Robert Mumma, II's consent referenced to number 2 above he is barred by equitable estoppel from revisiting this issue. In addition, even absent number 1 and number 2 above, the Statute of Limitations has long since run on Robert Mumma, II's claims. In conclusion. I can find no basis for the opinions expressed by Mr. May in his report of January 31, 2008. Sincerely yours, yj' /' ~. ,/-l6/-' i / / ' / // ,/~ . '. >k~ t:::. .;:;r;;L:Y~ DaVId C. Cleaver/ DCC:cv 7 KELLER, KELLER AND BECK, LLC ATTORNEYS AT LAW OF COU;\1SEL DAVlO C. CLEAVER 1035 WAYNE AVENUE CHAMBERSBURG, PA 17201 TEL (717) 264-1110 FAX (717) 264-5135 E-MAIL law@kkfb.com 343.8 SOUTH POTOMAC STREET WAYNESBORO, PA 17268 TEL (717) 762-3331 FAX (717) 762-1810 JOHN N. KELLER- DAVID S. KELLER + J. EDWARD BECK, JR. May 23, 2008 OPINION LETTER - 3 Ivo V. Otto, III, Esquire Martson, Deardorff, Williams, Otto Gilroy & Faller 10 East High Street Carlisle, P A 17013 In Re: Estate of Robert M. Mumma Dear Mr. Otto, At your request I have reviewed various documents concerning the Estate of Robert M, Mumma, deceased. The review of these documents was undertaken in order to review various matters concerning the administration of the estate of Mr. Mumma and prepare comments concerning two (2) expert reports prepared by Robert C. May, Esquire, of the firm of May & May, P.C. This opinion letter is written in response to two opinions of Robert C. May dated January 31, 2008. This letter will respond to opinion number two which addresses the issue of whether the shares ofPennsy Supply, Inc. owned by Kim Company, have been transferred into the estate of Robert M. Mumma. In preparing this report I have reviewed all of the documents referenced in my Opinion Letter to you concerning the first opinion report of Robert C. May dated January 31, 2008 which addresses the issue ofthe existence of a shareholders agreement and the ownership of stock in Pennsylvania Supply Company. I. PRELIMINARY OBSERVATIONS: The preliminary observations which I made with regard to Mr. May's first opinion letter are equally applicable to his second opinion letter. Therefore, those preliminary observations are hereby incorporated by reterence. II. CONCLUSION: I totally disagree with the conclusions that Mr. May reaches in this second report. In order to be brief. my reasons are basically the same as those set forth in my opinion Ictter - Certified Civil Trial Advocate by National Board of Trial Advocacy + Certified Criminal Trial Advocate by National Board of Trial Advocacy 'Ine National Board of Trial Advocacy is a Penn~y[van.ia Supreme Court Accredited Agency. regarding the issue of the existence of a shareholders agreement and the ownership of stock of Pennsylvania Supply Company at the time of death of Robert M. Mumma. This second report of Mr. May has the same flaws that are found in the first report. The reasons for my disagreement with the conclusions in this report are as follows: 1. Mr. May relies upon his first opinion/report which, as I outlined in my prior Opinion Letter (No.2), has no factual basis. His entire hypothesis in this second report is based upon the erroneous conclusions he reaches in the first report. In addition, he uses faulty math based upon statements by Robert Mumma, II in order to conclude that the estate did not own the 700 shares the estate claimed. 2. Mr. May completely overlooks (or was not told) of the Court's decision regarding a shareholders agreement. The 1961 agreement and any other alleged agreements, are judicially dead, and any conclusions drawn therefrom are totally irrelevant. See my reference to those decisions in my response to Mr. May's first report. 3. As indicted in the conclusion to my previous opinion letter with regard to Mr. May's opinion dealing with a shareholders agreement and ownership of the stock, the conclusions reached in this report of Mr. May involving Pennsy Supply, Inc. and Kim Company have been rendered irrelevant by the doctrines of res judicata, equitable estoppel, and by the running of the applicable Statute of Limitations. For the reasons above stated, I find virtually no merit whatsoever in Mr. May's report dated January 31, 2008 regarding the shares ofPennsy Supply, Inc. owned by Kim Company. ~. '. cerely ~~urs, , , j " ;/ ~.....: /.../' '. ~~&<e~ David C. Cleaver/ Dce :cv 2 KELLER, KELLER AND BECK, LLC ATTORNEYS AT LAW OF COUNSEL DAVID C. CLEAVER 1035 WAYNE AVENUE CHAMBERSBURG, PA 17201 TEL (717) 264-1110 FAX (717) 264-5135 E-MAIL law@kkfb.com 343-B SO liTH POTO~AC STREET WAYNESBORO, PA li268 TEL (717) 762-3331 FAX (717) 762-1810 JOHN N. KElLER' DAVID S. KELLER~ J. EDWARD BECK. JR. May 23, 2008 OPINION LETTER - 4 Ivo V. Otto, III, Esquire Martson, DeardortI, Williams, Otto Gilroy & Faller 10 East High Street Carlisle, P A 17013 In Re: Estate of Robert M. Mumma Dear Mr. Otto, At your request I have reviewed Objections of Barbara Mann Mumma to the accounts tiled by the executrices/trustees of the Estate and Trust of Robert M. Mumma, deceased. I have reviewed the Last Will and Testament of Robert M. Mumma and the First Codicil to that will as probated in the Office of the Register of Wills of Cumberland C~unty, Pennsylvania on June 5, 1986. In preparing this report I have also reviewed the first and interim account for the estate, the first and interim account for the residual trust, the first and interim account for the marital trust, the second and interim account for the marital trust, the second and interim account for the residual trust. the third and interim account for the marital trust, the third and interim account for the estate. the third and interim account for the residual trust, and the fourth and interim account for the marital trust. In addition I have reviewed the inventory tiled by the executors for the decedent's estate, the Federal Estate Tax Return (Form 706), the Pennsylvania Inheritance Tax Return. the appraisal of Helsel Realtors, Federal and Pennsylvania Fiduciary Income Tax Returns filed for the decedent's estate and the Federal and Pennsylvania Fiduciary Income Tax Returns tiled for the marital trust under the decedent's will. In addition to reviewing the above recited material. I have been made aware of extensive litigation which has been on-going with regard to the estate of Robert M. Mumma since his death. as well as the results of litigation where there was been a final judicial determination. Specifically. I am aware oflitigation known as "In Re: Estate of Robert M. Mumma. deceased. No. 21-86-398 (O.C. Cumberland), civil litigation tiled in Cumberland County to No. 423-94 Civil Term. civil litigation filed in Dauphin County to No. 4753-S-1993. and a Federal suit captioned as R.S.E. Inc. v. Hempt Brothers, Barbara McK. Mumma. et. al. v. Robert M. . Certified Civil Trial Advocate by National Board of Trial Advocacy + Certified Criminal Trial Advocate by National Board of Trial Advocacy Tn€' ~dhonal Bo.ud oi Trial Advocacy is a Pennsylv.:mia Supreme Court Accredit~d Agency. Mumma, II, et. aI., No. 66 Equity 1988 (C.P. Cumberland), Robert M. Mumma, II, et. aI. v. D-E Distribution Corp. et. aI., No. 666 Equity, November Term 1993 (C.P. Philadelphia), and Robert M. Mumma, II v. Dauphin Deposit Bank and Trust Co., No. 4753 S 1993 (C.P. Dauphin). With regard to the above litigation, I noted that in the action of Barbara McK. Mumma, et. aI. v. Robert M. Mumma, II, et. aI., No. 66 Equity, (Cumberland) 1988, this case was decided adversely to Robert M. Mumma, II, and the decision of the Cumberland County Common Pleas Court was affirmed by the Superior Court at 433 Pa. Super. 660, 639 A.2d 846 (1993), with allocatur denied, 539 Pa. 679, 652 A.2d 1324 (1994). Likewise, in the action styled as In Re: Estate of Mumma, No. 21-86-398, Cumberland County, this action was decided adversely against Robert Mumma, II, and the decision of the Cumberland County Orphans' Court was affirmed by the Superior Court at 437 Pa. Super. 672, 649 A2d 467 (1994). In addition to the above litigation, I have also been made aware the case of Robert M. Mumma, II v. Pennsy Supply, Inc., No. 99-2765 Equity, which action was decided adversely against Robert Mumma, II, and was affirmed by the Superior Court at 833 A.2d 1156, with allocatur denied at 577 Pa. 723, 847 A.2d 1287 (2004). It is my further understanding that two other actions instituted by Robert M. Mumma, II were decided adversely to Mr. Mumma, being Robert M. Mumma, II v. Harry G. Lake, Jr., et. aI., No. 2004 - CB- 1540 (C.P. Dauphin) affirmed, 895 A.2d 657 CPa. Super. 2006), allocatur denied, 588 Pa. 759, 903 A.2d 538 (2006), and Robert M. Mumma, II v. Commonwealth of Pennsylvania, et. aI., No. 477 M.D. 2004 CPa. Commonwealth), affirmed 585 Pa. 9, 887 A.2d 1217 (2005). From my review of all of the multiple lawsuits that have ensued since the death of Robert M. Mumma I have found, nor have I been made aware of, any litigation which has been decided favorably to Mr. Mumma's son, Robert M. Mumma, II. For a detailed review of all of the material that I have examined with regard to the Mumma Estate, there is a more detailed list contained in Opinion Letter No.1. After reviewing all of the above recited material, I have the following comments to make with regard to the Objections of Barbara Mann Mumma. I will address these comments in the numbered ordered in which the Objections appear. 1. I would both agree and disagree with this Objection. I would agree that the choice of assets may have the potential for unnecessary estate tax liability upon the death of Barbara Mumma. However, I disagree that the will prohibits the selection of assets that were chosen to be allocated to the marital trust. The only specific directions in the will regarding funding of the marital trust are as follows: A. The property allocated must qualify for the marital deduction; 2 B. The Trust may not be funded with property that would be subject to death tax by a foreign country; C. The marital trust shall not retain in the trust beyond a reasonable time property which is unproductive; D. The property shall be valued as of the date of distribution to the trust. It should be noted, however, that following this direction is the statement that the values shall be as finally determined for Federal Estate Tax purposes and those values control. In addition to the above provisions of the will you must add in provisions of the will that provide for "reasonable discretionary powers - for which they are not liable for any error of judgment honestly made" - and the provisions of paragraph NINTH which grant powers to the Trustee and provides that the Trustee's powers "shall be construed broadly".... "as in their discretion they deem advisable". It is my conclusion that from.the specific language of the testator in his will, as noted above, the executrices have a right to select which assets they wish to use in order to fund the marital trust. It appears that both Robert Mumma, II and Barbara Mann Mumma take exception to stock of family owned businesses being used to fund the martial trust. In that regard I think it is important to note that the testator expressed his intent with regard to family business stock in paragraph THIRTEENTH of his will. If the testator desired that the stock of family businesses remain in the residuary trust he certainly could have done so, but he did not. Instead, the testator follows paragraph THIRTEENTH with paragraph FOURTEENTH, and in that paragraph gives the executrices "the fullest power and authority in all matters or questions pertaining to the administration of my estate, executing the provisions of . . . my will, including but not by way of limitation, the power and authority to determine all doubtful questions which may arise in the construction of . . . my will and the trust hereunder". From the above noted provisions of the testator's will it is easy to determine that there are absolutely no limitations whatsoever placed upon either the executrices or the trustees with regard to what assets shall be placed in the marital trust and which assets shall remain in the residuary trust. Thus, in considering what assets are to be distributed to the marital trust in order to fund that trust. it appears that the testator has given broad discretion to his executrices in this regard. There is virtually no provision that can be found anywhere in the four corners of the testator's will that would support this objection. I have reviewed the deposition of George Hadley, the certitied public accountant employed by the decedent prior to his death. I also had an opportunity to speak on the telephone with Mr. Hadley on Tuesday, May 13,2008. From his deposition and the conversation which I 3 had with him I can tind no fault with the selection of assets that were transferred to the marital trust. This objection by Barbara Mann Mumma fails to take into account the fact that Mr. Mumma had a substantial amount of personal debt at the time of his death, and in addition to his personal debt there was a substantial amount of corporate debt that Mr. Mumma had personally guaranteed. The Federal Estate Tax Return shows personal debt of Mr. Mumma of $4,614,191.00. It was therefore necessary to liquidate assets in order to pay debt, and also to pay death taxes and costs of administration. As a result of the requirement of liquidation of assets in order to generate cash, the executrices were not left with a lot of choices in the property that would be selected to fund the marital trust. In funding that marital rust it was necessary to transfer assets that would be productive of income. Two (2) of the main assets that remained in the residuary were real estate holdings designated as MRI and MRII. These were family real estate holdings that had never been productive of excessive amounts of income. The testator's will specifically states that assets that are not productive of income are not to be retained in the marital trust. Therefore these two (2) real estate holdings would not be proper transfers to the marital trust. George Hadley informed me that MRI and MRII have never been producing a market rate of return. In comparison to MRI and MRII, 9-99 and Pennsy Supply Company had been profitable and earning income. Accordingly, the choice of allocating these assets to the marital trust not only made sense when looking at total assets available after liquidation to pay debts and taxes, it was also in compliance with the expressed wishes of the decedent as set forth in his will. 2. This Objection questions the valuation of assets distributed to the decedent's widow as income. Specific reference is made to the Fulton Bank property. First, the Fulton Bank property was transferred to the widow, Barbara McK. Mumma as income on March 31, 1988. The distribution ofthis real estate to the widow as income was made because of the provisions of Section 3543 of the Probate, Estate and Fiduciaries Code. The marital trust was a pecuniary legacy devised in trust. Under this Section of the PEF Code, a pecuniary legacy bequeathed in trust shall bear interest at the rate of 5% per annum from the date of death of the decedent until the payment of the legacy. Accordingly, the marital trust had to pay income of 5% to the widow in the first year following Mr. Mumma's death. It appears that there was not sufficient income in the marital trust to make a distribution of actual income and therefore the Trustees made the distribution of the bank building as income. I believe this is prudent because had they not done this tiduciary income tax returns would have been due and would have required the Trustees to show 5% as income and the trust would have been required to pay tiduciary income taxes on that amount. The transfer of the Fulton Bank building avoided this tiduciary income tax liability. With regard to the assertion that this asset was undervalued, I would like to know the basis upon which the objector feels that the Fulton Bank property, or any other properties, were under valued. I have reviewed the Helsel real estate appraisals. I have serious reservations about 4 whether or not you could consider the Fulton Bank property to be undervalued. Robert M. Mumma died April 12, 1986. The Fulton Bank building was transferred less than two years after the date of his death. This was a federally taxable estate and a Federal Tax Return (Form 706) was filed with the Internal Revenue Service as well as a Pennsylvania Inheritance Tax Return. In an estate of this size, the values of the decedent's assets, particularly real estate and stock held in closely held corporations, would be subject to considerable scrutiny by the Internal Revenue Service. In fact, the Federal Estate Tax Return was audited by the Internal Revenue Service. The value of the Fulton Bank building would have been reviewed and finally ascertained by the Internal Revenue Service as a result of that audit. I have reviewed the estate tax closing letter from the Internal Revenue Service dated June 11, 1990 and reviewed the report of the estate tax examination changes. A review of that report shows that the valuation of stocks and bonds was increased by $650,551.00. The Internal Revenue audit shows absolutely no change in the real estate values as determined in the Helsel real estate appraisals and as reported initially on the Federal Estate Tax Return. Accordingly, assuming that the Fulton Bank building, as well as other assets, were transferred to Barbara McKim Mumma at the value as finally determined for Federal Estate Tax purposes, I do not see any merit in the allegation that the property was undervalued. This objection also fails to take into account the nature of the Fulton Bank Building and the lease that was in existence at the time of the decedent's death. From George Hadley I have learned that the Fulton Bank Building was on a long term lease and the value of that building was held down because of the terms of the lease. The actual underlying value of the Fulton Bank building was really the value of the lease, not the value of the real estate for sale purposes. Accordingly, the value of the Fulton Bank building would actually be fixed until the expiration of the lease and on that basis I can see no legitimate reason for making an objection to the value that was placed upon it. Because of the long term lease the value of the Fulton bank building would not have changed from the value reviewed by the Internal Revenue Service. 3. The third objection again objects to an inadequate valuation of certain assets distributed to Barbara McKim Mumma pursuant to her power to receive an annual distribution of 5% of the principal of the Martial Trust. My first observation of this objection is the same as I posed in the answer to number 2 above. These assets would have had their value initially determined by the Internal Revenue Service audit of the Federal Estate Tax Return. With regard to subsequent transfers, I have been informed by George Hadley that there was actually an annual valuation of the assets of the Marital Trust by him in order to ascertain the gross value of the trust annually. I have been informed that each year when the widow requested her right to receive 5% of the principal, the valuation of the marital trust for that year was used, and she was transferred 5% ofthat annual valuation. Accordingly, assuming that each time the widow was distributed 5% of the principal subject to her annual withdrawal right, the transfer was 5% of the annual valuation. I find no merit to this objection. Further, in some years the widow was transferred 5% of the stock held in the trust. In this regard no valuation would have been 5 necessary. Transferring 5% of the stock would be transferring 5% of the principal value of this stock. 4. Objection number 4 questions discretionary distributions that were made to Barbara McKim Mumma from the marital trust. The actual objection as stated in number 4 is not clear as to the basis of the objection. I am assuming that the discretionary distribution that Barbara Mann Mumma is objecting to would be the annual distribution of 5% of the principal to which the widow is entitled under the provisions of the marital trust. Each time that a discretionary distribution of 5% of the principal of the marital trust was made to Barbara McKim Mumma, it was done so upon the written request of Barbara McKim Mumma, which written request was transferred to Lisa Mumma Morgan, as an individual trustee of the marital trust. I have been furnished with, and have reviewed, written requests of Barbara McKimm Mumma requesting payment to her of her annual right to withdraw 5% of the principal of the marital trust. The first request is dated December 30, 1987. There is a written request for every calendar year from 1987 through and including 2008. The last written request was dated January 18, 2008. All of these written requests were signed by the widow. I find all of these written and signed requests to be in proper order. Accordingly, any discretionary distributions made to Barbara McKim Mumma from the marital trust that were made pursuant to her written request would not in any way violate any provisions of the marital trust, nor would such transfers prejudice any beneficiaries or create the potential for unnecessary estate tax liability. Such directions would be pursuant to the express provisions of the marital trust as set forth by the testator and therefore this objection would have no merit. With regard to these transfers it should be noted that these are not discretionary distributions. These are mandatory distributions if a request is made by the widow. There is no discretion, since the will grants to the surviving spouse a discretionary right to withdraw 5% of the principal annually. Once Lisa Mumma Morgan was presented with the widow's written request for her 5% annual draw down of the principal of the marital trust, Lisa Mumma Morgan had no discretion. These withdrawals, upon presentation of the signed written request by the widow, became mandatory distributions to the widow pursuant to the terms of the testator's will. 5. This Objection appears to be aimed primarily at an estate asset known as Bobali. If there are other assets the objectors have in mind such assets are not stated. I have been informed that Bobali is a corporation that owns real estate. There is apparently land located within the City of Harrisburg in the area where the farm show property is located that was owned by this corporation. This land has not been developed. I have been informed that the only asset that Bobali owns is this real estate, and that Bobali has no money, nor does it have any ability to produce income. It just owns land. Accordingly, with land as the only asset. and no income to pay expenses, there would be no income generated to pay taxes. I have also been informed that the estate owned only a 15% interest in this corporation. 6 The basis of this objection appears to be that this asset could have been better managed. However, if this corporation produced no income to pay real estate taxes, the estate would have no alternative except to use estate income or assets to pay the real estate taxes. The only other alternative would be to not pay the real estate taxes, in which case the property would have been subjected to tax sale and lost. Had that occurred, an objection would have been made that the executrices failed to preserve estate assets. Accordingly, I think the executrices found themselves in a "catch-22" situation with regard to this asset. The estate only had a 15% interest in Bobali. Holding only a 15% interest the personal representatives had no realistic ability to control this corporation. They would have had, in their capacity as executrices and trustees of the Mumma Estate, no power to manage Bobali or make decisions regarding payment of Bobali real estate taxes. This objection is aimed at Barbara McKim Mumma and Lisa Mumma Morgan in their capacity as executrices and trustees. However, the complaint about management of Bobali is directed to the wrong entity. If there would be any merit to this objection the objection should be in the form of an action against Bobali as a corporation, not against the executrices in their capacity as personal representatives and trustees. 6 - 7. I will address Objections 6 and 7 together because they both deal with basically the same issue. I would agree that the estate was not wound up promptly. With regard to the period of time within which a decedent's estate should (or could) be concluded, there is virtually no provision whatsoever in the Probate, Estates, or Fiduciaries Code that makes any provision whatsoever for the amount of time that would be necessary to complete the administration of a decedent's estate. Likewise, no Pennsylvania case law prescribes any defined period of time within which a decedent's estate should be promptly and efficiently concluded. There is, however, appellate case law which provides that "generally" a decedent's estate should be completed in approximately one year from the date of death. This is a general provision, and even this statement I do not find applicable to an estate where there is a Federal Estate Tax Return. Both the Federal Estate Tax Return and the Pennsylvania Inheritance Tax Return are due nine months from the date of death. In an estate of the size of Robert M. Mumma, and with the amount of real estate owned, and all ofthe stock of closely held corporations, this is the type of an estate which is almost universally subject to audit. In fact, this estate was subjected to an audit by the Internal Revenue Service. Under those provisions, it is not conceivable that Mr. Mumma's estate could have been concluded within one year from the date of death. I have been made aware of litigation that the estate has been engaged in over the past t\\70 decades. I have referred to that litigation in Opinion Letters 1 and 2. This litigation is certainly a factor that has prolonged the administration of this estate. I fail to find any credible evidence that the executrices failed to effectuate the intent of the testator, as claimed in Exception number 7. Neither exception 6 or 7 are specific as to the factual basis for these objections. I am assuming that the objection in number 7 that the executrices failed to efTectuate the intent of the testator is related to the sale of the family owned 7 businesses. I find no merit in this objection. This objection is resolved by the litigation I referred to in Opinion Letter No.1. Although paragraph THIRTEENTH of the testator's will expresses a "desire" that the family businesses be retained and not sold, this desire was not turned into an absolute unconditional direction. In paragraph THIRTEENTH the testator did "direct" that the stock in family owned businesses not be sold, but then went on to say "unless all of my trustees shall agree in writing that the stock be sold." Accordingly, the direction is not absolute. The trustees may sell family owned business stock if the unanimously agree. In fact they did unanimously agree and this issue was litigated, and the decision of the Court was in favor of the executrices. In Barbara McK. Mumma v. Robert M. Mumma, II, et. al. No. 21-86-389, Judge Sheely on March 8, 1989 held that under paragraph THIRTEENTH of the decedent's will the executrices had the right to sell the Mumma family stock to non-family members once the executrices unanimously agreed in writing. The Court held that the second sentence of paragraph THIRTEENTH of the decedent's will was precatory and not mandatory. In conclusion, based upon the documents that I have examined and the information that I have been supplied regarding estate assets and their administration by the executrices, I do not find any merit to any of the 7 objections of Barbara Mann Mumma. Finally, these objections fail to take into effect the fact that even if this estate were closed earlier, an earlier conclusion of the estate would have virtually no impact upon the residuary beneficiaries. Even if the estate had been concluded 20 years ago, the residuary beneficiaries of both the marital trust and the residuary trust have no right whatsoever to any distributions to them until the death of Barbara McKim Mumma. Therefore, even upon the confirmation of the final accounts of the estate, marital trust, and residuary trust, the beneficiaries have no rights to either income or principal until the death of the decedent's widow, Barbara McKim Mumma. ~. ...s'n.c.ere.lY~o.urs,... .... ( / 1/>./ / r I//J ./' J/'.' . '-- h (/:cd ( __-/ C:..'('t~ 'Cz . 7 L-- ,--::>.,....:::---.. ----.... / David C. CleaveF-"/ DCC:cv 8 CERTIFICATE OF SERVICE I, Tricia D. Eckenroad, an authorized agent of Marts on Law Offices hereby certify that a copy of the foregoing Praecipe was served this date by depositing same in the Post Office at Carlisle, P A, first class mail, postage prepaid, addressed as follows: Mr. Robert M. Mumma, II Box 58 Bowmansdale, P A 17008 Mr. Robert M. Mumma, II 6880 S.E. Harbor Circle Stuart, FL 34996-1968 Mr. Robert M. Mumma, II 840 Market Street, Suite 164 Lemoyne, PA 17043 Ralph A. Jacobs, Esquire JACOBS & SINGER, LLC 1515 Market Street, Suite 705 Philadelphia, P A 19102 (Attorney for Barbara Mann Mumma) Brady L. Green, Esquire MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philadelphia, PA 19103-2921 (Attorney for Estate and Executrixes) Ms. Linda Mumma Roth P.O. Box 480 Mechanicsburg, P A 17055 Taylor P. Andrews, Esquire ANDREWS & JOHNSON 78 West Pomfret Street Carlisle, P A 17013 (Court-Appointed Auditor) MARTSON LAW OFFICES Date: May 30, 2008