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HomeMy WebLinkAbout05-27-04 (2) JONATHAN M. CRIST ATTORNEY 8 COUNSELOR AT LAW 226 WEST CHOCOLATE AVENUE TELEPHONE (717) 533-6600 HERSHEY~ PENNSYLVANIA 17033 FAX (717) 533-6244 May 25, 2004 "".--'""l, .-.. -~ .J.~ . '.. d - -P:. Miller Lipsitt, LLC 3: ::J:o' ~. P.O. Box 959 N Camp Hill, P A. 17011 --J ,] ~~A) c' RE: ESTATE OF ROBERT M. MUMMA, DECEASED ~ NO. 21-86-398 (CUMBERLAND COUNTY) ESTATE ACCOUNTING INTERIM ACCOUNTINGS FOR MARIT At TRUST UNDER WILL INTERIM ACCOUNTINGS FOR RESIDUARY TRUST UNDER WILL Gentlemen: You have retained me to review and comment on the Administration of the Estate of Robert M. Mumma, Deceased (hereinafter the "Decedent") and in particular the filed Account for Decedent's probated Estate (the" Account") and the filed interim accountings for both the Marital Trust (the "Marital Trust") and the Residuary Trust (the "Residuary Trust") which were created under the Will of the Decedent. BACKGROUND MATERIAL You provided me for review various documentation which including: (i) the probated Will and Codicil of the Decedent: (ii) the filed Account for the Estate which covers the period from 04/12/1986 up through and including 09/30/2003 (Contained in 4 Volumes); (ii) the filed Interim Accountings for the Miller Lipsitt, LLC May 25,2004 Page 2 of 25 Marital Trust under Decedent's Will which cover the periods from 11/19/1986 up through and including 12/ 31/ 2003 (Contained in 4 Volumes); (iii) the filed Interim Accountings for the Residuary Trust under Decedent's Will which cover the periods from 11/24/1986 up through and including 12/31/2003 (Contained in 2 Volumes); (iv) the Pennsylvania Inventory as filed for the Decedent's Estate; (v) the Federal Form 706 US Federal Estate Tax Return as filed for the Decedent's Estate (with attachments); (vi) the Pennsylvania Inheritance Tax Return as filed for the Decedent's Estate (with attachments); (vii) Appraisal of Helsel Realtors dated January 29, 1987 (includes real estate owned by the Decedent as well as other real estate owned by the various family corporations); (viii) the Federal and Pennsylvania Fiduciary Income Tax returns for the Decedent's Estate for the fiscal years ended March 311987 and March 31,1988; (ix) the Federal and Pennsylvania Fiduciary Income Tax returns for the Marital Trust Under Will for the fiscal years ended December 31, 1987 and December 31, 1988; (x) your litigation file in the matter of Robert M. Mumma vs. Dauphin Deposit Bank and Trust Company docketed to No 4753 S 1993 in the Court of Common Pleas of Dauphin County which includes P A Revenue Department Form 485 (Safety Deposit Box Inventory Form), the pleadings, the depositions of Robert M. Mumma II, Bank Manager Donald Cromwell, the Co-Executrix Barbara Mann Mumma, Barbara Mumma, William Boswell, as well as Dauphin Deposit's Summary Judgment Motion, Summary Judgment Briefs of both parties and the opinion of Lawrence Clark denying Dauphin Deposit's Motion For Summary Judgment; (xi) Internal Memo from David R. Landry of the law firm of Stradley, Ronon, Stevens and Young dated April 27, 1989 relating to the plans of the Co- Executrices of the Estate to "squeeze-out" Robert M. Mumma's shares of the various corporations. I also interviewed and questioned Robert M. Mumma II with regard to his family history, the dynamics among the surviving heirs, and the interplay among Miller Lipsitt, LLC May 25, 2004 Page 3 of 25 the various family holdings and corporations which in which the Estate had an interest. DECEDENT'S WILL AND TRUSTS WiIVCodicil After certain personal property bequests, Decedent's Will gives a certain amount unto a standard pecuniary formula Marital Trust with the rest, residue and remainder to the Residuary Trust. Decedent's Spouse, BARBARA McK. MUMMA and his daughter, LISA M. MORGAN, are together appointed as the Co-executrices of the Will and as Co-Trustees of both the Marital Trust and the Residuary Trust. Marital Trust The Martial Trust amount is limited to 50% of the Gross Estate as finally determined for Federal Estate Tax purposes. The annual net income of the Marital Trust is payable to the wife and Co-Trustee, BARBARA McK. MUMMA at least yearly. Her daughter and Co-Trustee, LISA M. MORGAN is alone given the right to invade principal of the Marital Trust for the benefit of BARBARA McK. MUMMA" for her support, health, welfare, maintenance or comfort, to maintain for her a standard of living which she has during our married life enjoyed, taking into account, however, my wife's income from other sources, including, but not limited to, all income from trusts, estates and business interests, as well as available principal assets." In addition to this aforesaid principal invasion right - for which Decedent expressly requires there must be "a deficiency in other available funds" - BARBARA McK. MUMMA is a given an annual non-cumulative right to withdraw from the principal of the Marital Trust the greater of Five Thousand ($5,000.00) Dollars or up to Five (5%) percent of the then principal of the Marital Trust. Upon the death of BARBARA McK. MUMMA the remaining principal of the Marital Trust is to be divided equally of Decedent's four children, ROBERT Miller Lipsitt, LLC May 25, 2004 Page 4 of 25 M. MUMMA II, BARBARA M. McCLURE, LINDA M. ROTH, and LISA M. MORGAN. The Marital Trust was first funded on November 19, 1986 with $2,500.00 in cash from the Decedent's Estate. By December 31, 1987 the Marital Trust had received additional property totaling $6, 287,308.65 from the Decedent's Estate. Residuary Trust The Residuary Trust is given" all the rest, residue and remainder" of the Estate. The annual net income of the Residuary Trust is payable to the wife and Co-Trustee, BARBARA McK. MUMMA at least yearly. Her daughter and Co-Trustee, LISA M. MORGAN is alone given the right to invade principal of the Marital Trust for the benefit of BARBARA McK. MUMMA" for her support, health, welfare, maintenance or comfort, to maintain for her a standard of living which she has during our married life enjoyed, taking into account, however, my wife's income from other sources, including, but not limited to, all income from trusts, estates and business interests, as well as available principal assets." Upon the death of BARBARA McK. MUMMA the remaining principal of the Residuary Trust is to be divided equally of Decedent's four children, ROBERT M. MUMMA II, BARBARA M. McCLURE, LINDA M. ROTH, and LISA M. MORGAN. The Residuary Trust was first funded on November 24, 1986 with $2,500.00 in cash from the Decedent's Estate. However, unlike the Marital Trust, no other property was transferred to the Residuary Trust from the Decedent's Estate until 14 years later in the year 2000. PECUNIARY FORMULA/RESIDUARY TRUST ALLOCATIONS A pecuniary formula bequest entitles a surviving spouse only to a fixed amount of property specified in dollars. However rather than using a set dollar Miller Lipsitt, LLC May 25, 2004 Page 5 of 25 amount, a pecuniary formula determines the dollar amount at the time of the Testator's death. Where there is a pecuniary formula, the marital trust is limited to the calculated fixed dollar amount. All income earned by a decedent's estate during administration is to be allocated to the residuary trust. See, In re: Estate of Fike, 506 A.2d 398 (1986). Likewise all capital gains or capital appreciation in the estate assets during administration is to be allocated to the residuary trust. See, Althouse Estate, 404 Pa. 412, 172 A.2d 146 (1961). SPECIFIC PROBLEMS WITH THE ESTATE & TRUST ACCOUNTINGS I. THE PRINCIPAL PORTION OF THE MARITAL TRUST APPEARS TO BE OVERFUNDED Decedent's Will specifically limits the funding amount to be awarded to the Marital Trust to fifty (50%) of the gross federal estate (as determined on the Federal Estate Tax return) with deduction for the value of all property included in the federal estate which has passed to the wife outside of probate: SEVENTH: lfmy wife, BARBARA McK. MUMMA, suroives me, I give and bequeath to the trustees hereinafter named, an amount equal to fifty (50%) percent of my total gross estate as finally detennined for Federal Estate Tax purposes, taking into account and including therein, for computation purposes, my undivided interest in the value of all my interests in property which pass or which or have passed to my wife under other provisions of this Will, or otherwise than under this Will, but only to the extent that such interests are, for purposes of the Federal Estate Tax, included in detennining my gross estate and allowed as a marital deduction. Prior to the enactment of the Economic Recovery Tax Act of 1981 ("ERT A"), this 50% limitation was the maximum amount which would qualify for a marital deduction under federal estate tax law. ERT A liberalized this area by permitting an unlimited marital deduction. Decedent's Will was executed on May 19, 1982 after the effective date of ERTA. Decedent's Codicil (which did not make any substantive changes to the Will) was executed on October 12, 1984 only Miller Lipsitt, LLC May 25, 2004 Page 6 of 25 18 months prior to his death. I therefore conclude that Decedent expressly intended to limit the principal amount in the Marital Trust to the 50% limitation. The Account as filed fails to compute the amount to be awarded to the Marital Trust with reference to the Federal Estate Tax Return, nor does the Account appear to give credit (for computation purposes) against the amount to be awarded to the Marital Trust for the value of the joint marital and other property which had passed to BARBARA McK. MUMMA under other provisions of the Will or outside of probate (which property was required to be included in the Federal Estate Tax return as filed). Total Gross Estate (Federal) $16,645,786.00 Y2 of Total Gross Fed Estate $ 8,322,893.00 Less: Schedule M Spousal Joint & Other Property Passing Outside Probate (861,018.00) Total Amount Which Should Have Been A warded to Marital Trust 7,461,875.00 Under the Account as filed, the following principal amounts were actually distributed to the Marital Trust: 1986 - 1987 (V 011, Page 60) $6,289,808.65 2001- 2002 (V014, Sch E, Page 1) 2,358,359.85 Total Principal Distributions To Marital Trust $ 8,648,168.50 The principal portion of the Marital Trust is therefore appears to be over funded by $1,186,293.50 calculated as follows: Actual Principal Distributions $ 8,648,168.50 Required Under Will (7,461,875.00) Martial TrustC>verbLnded: 1,186,293.50 Miller Lipsitt, LLC May 25, 2004 Page 7 of 25 I note that the Account as filed shows an 'Estate Tax Adjustment' dated 06/22/90 in the amount of $28,370.00 for additional federal estate taxes paid. I was not provided with the Estate's closing letter from the IRS; therefore I have no way of knowing if any of this additional estate tax resulted from asset valuation adjustments on the federal estate tax return. If any asset valuation adjustments occurred on the federal estate tax return, then the carrying values of those affected assets should have had corresponding adjustments on the Account, as the Will directs that the adjusted amounts for federal estate tax purposes are to be used as the basis for determining the gift to the Marital Trust. The Account as filed thus (i) fails to conform to the express requirements in the Will for calculation of the Marital Trust amount and (ii) fails to provide requisite information necessary to determine the amount to be properly awarded to the Marital Trust. II. IMPROPER ACCOUNTING FOR/DISTRIBUTION OF ESTATE INCOME TO BARBARA McK. MUMMA Under the Superior Court's holding of In re: Estate of Pike, Supra, all net income earned by the Estate during administration (other than required interest on distributive shares under 20 Pa. C.S.A. ~ 3543) should be allocated to and paid over to the Residuary Trust, where such income then becomes part of the principal of the Residuary Trust. Once part of the principal of the residuary trust, these amounts would be then subject to withdrawal and distribution to BARBARA McK. MUMMA only for her health, support etc and at the time of each such withdrawal BARBARA McK. MUMMA must have a "deficiency in other available funds" . Miller Lipsitt, LLC May 25, 2004 Page 8 of25 Even though she was not an income beneficiary of the Estate, the Account as filed shows that BARBARA McK. MUMMA was distributed directly from the Estate repetitive cash distributions totaling $1, 625,620.60 as follows: 06/05/91 150,000.00 03/31/92 150,000.00 11/10/92 25,000.00 02/05/97 500,000.00 12/23/98 400,000.00 10/29/01 400,620.04 01/04/02 7,859.65 TOTAL 1,625,620.69 During the period from April 01, 1991 through December 31,2003 the Martial Trust Accountings show that Marital Trust distributed cash of $4,743,229.80 directly to BARBARA McK. MUMMA while at the same time the Marital Trust continued to retain an additional sums totaling over 2,000,000.00 in earned income which under the terms of the Marital Trust could also have been distributed to BARBARA McK. MUMMA instead of being retained within the Marital Trust. In my opinion there simply does not appear to be any reasonable justification for this taking of $1,625,620.69 cash out of the Estate income especially when at the same time BARBARA McK. MUMMA had undistributed Marital Trust income available to her. III. IMPROPER ACCOUNTING OF PRINCIPAL DISTRIBUTIONS TO BARBARA McK. MUMMA A.) THE FULTON BANK BUILDING The Fulton Bank Building located at 599 Twelfth Street in Lemoyne Pennsylvania (hereinafter the "FBB") is listed on the Estate Account as a principal Miller Lipsitt, LLC May 25,2004 Page 9 of 25 real property asset of the Decedent with a date of death carrying value of $500,000.00. The Estate Account provides that as of March 31,1988 the FBB was transferred to the Marital Trust as a distribution of income in the amount of $500,000.00. Not only is this an improper characterization of this asset, but there is no corresponding credit on principal side of the Estate. The Marital Trust Accounting as filed provides that as of March 31,1988, the FBB was transferred to BARBARA McK. MUMMA as a distribution of income to her in the amount of $500,000.00 (Vol 1, Schedule D-1, Page 86). It is my opinion that the Estate's attempted re-characterization of the Fulton Bank Building as income is improper under fiduciary accounting standards. Furthermore the distribution of this asset by the Marital Trust as an income item directly to BARBARA McK. MUMMA appears to have been designed to circumvent the standards for principal distributions from the Marital Trust (health, support etc and a "deficiency in other available funds") at a time when BARBARA McK. MUMMA had already exhausted her 5% annual right to principal withdrawal (which does not require such a standard for withdrawals). B.) IMPROPER ACCOUNTING OF STOCK DISTRIBUTIONS TO BARBARA McK. MUMMA A.) The Accounting for the Marital Trust (Vol 1, Schedule A-1, Page 34) shows receipt on December 28,1987 of (i) 55.8368 shares of Nine Ninety Nine, Inc. Common with a value of $144,902.36 and (ii) 70.8421 shares of Nine Ninety Nine, Inc 10% Preferred with a value of $104,655.92. The origin of these shares is unclear but they appear to be stock dividends. They are listed on the Marital Trust accounting as "Other Receipts" under the income schedule. R) These same 55.8368 shares of Nine Ninety Nine, Inc. Common with a value of $144,902.36 and) 70.8421 shares of Nine Ninety Nine, Inc 10% Preferred Miller Lipsitt, LLC May 25, 2004 Page 10 of25 with a value of $104,655.92 are listed as distributed as income to BARBARA McK. MUMMA. In the case of the 70.8421 shares of Ninety Nine Inc 10% Preferred, these shares are listed as being distributed to BARBARA McK. MUMMA on November 19,1986 - more than one year before their alleged receipt by the Marital Trust. C.) Under the express direction of Decedent's Will, any stock dividends received by either the Estate or a trust created under the Will are to be treated as principal and not income: IWELFTH: I direct that all dividends upon shares of stock at any time constituting part of my estate or any Trust hereby established payable in stock of the corporation declaring the same shall be deemed to be corpus, except that such dividends paid regularly (i.e. at regular or substantially regular intervals) out of current earnings may, at the discretion of my Executors or trustees be deemed to be income. . .. . D.) It is my opinion that the Estate's attempted re-characterization of these stock dividends as income is improper not only under fiduciary accounting standards but under the express direction of Decedent's Will. Furthermore the distribution of these stock dividends by the Marital Trust as an income item directly to BARBARA McK. MUMMA appears to have been designed to circumvent the standards for principal distributions from the Marital Trust (health, support etc and a "deficiency in other available funds") at a time when BARBARA McK. MUMMA had already exhausted her 5% annual right to principal withdrawal which does not require such a standard. IV. THE ACCOUNT AS FILED FAILS TO ADEQUATELY EXPLAIN OR DOCUMENT SIGNIFICANT CHANGES IN CERTAIN MAJOR INVESTMENT HOLDINGS OF THE EST ATE. A.) One of the primary assets of the Decedent's estate was listed as 700 shares of Pennsylvania Supply Company, a closely-held Mumma family corporation, which shares are reported on the Account with a fiduciary Miller Lipsitt, LLC May 25, 2004 Page 11 of25 acquisition/ carrying value of $9,144,473.00. According to the Account as filed, Decedent's shares of Pennsylvania Supply Company were liquidated on or about December 19, 1986. (See Vol 1, Page 15) Although it is not clear from the Account as filed, apparently Decedent's shares of Pennsylvania Supply Company were ultimately exchanged for other investments including: (i) an unknown number of shares of Hummelstown Quarries, Inc. (with a reported Inventory Value of $593, 421.04); (ii) an unknown number of shares of Nine Ninety Nine, Inc (with a reported Inventory Value of $2,495,665.85); (iii) an unknown number of shares of Union Quarries, Inc. (with a reported Inventory Value of $1,050,000.00); (iv) an unspecified interest in a certain real estate listed as Mumma Realty Associates I (with a reported combined Inventory Value in excess of $3,745,211.80); and (v) an unspecified interest in certain real estate listed as Mumma Realty Associates II (with a reported combined Inventory Value in excess of $848,213.85). (See Vol 1, Page 16 & Page 118). The Account as filed is fails to provide any concise or detailed information relating to the exchange of the shares of Pennsylvania Supply Company for the various above-referenced assets including any explanation of for assignment of carrying values. The Account as filed reports alleged capital gains on alleged distributions of the shares of Hummelstown Quarries, Inc, Nine Ninety Nine, Inc and Union Quarries, Inc but there no way to determine or verify the capital gains as there is no explanation of Inventory values for those shares as listed in the Estate accounting. Other assets appear and disappear on the Account as if by magic. For example, the Account shows $487,771.03 of capital gains on July 21,1993 on the sale of the 'Paxton Street Yards', yet where this asset came from and the nature of this asset is never explained. Miller Lipsitt, LLC May 25, 2004 Page 12 of25 This lack of concise and detailed information relating to the exchange of the shares of Pennsylvania Supply Company and the acquisition of substituted assets is directly contrary to the mandate of the Fiduciary Accounting Standards as set forth in the Pennsylvania Orphans Court Rules: A second schedule (entitled "Changes in Investment Holdings") should show all transactions affecting a particular security holding such as purchase of additional shares, partial sales, stock splits, change of corporate name, divestment distributions, etc. This schedule, similar to a ledger account for each holding, will reconcile opening and closing entries for particular holdings, explain changes in carrying value and avoid extensive searches through the account for information scattered among other schedules. (Emphasis Supplied). It appears that much of the Estate Account as well as the Marital Trust Account were prepared by Hadley & Company of Buffalo New York (who had served as the Decedent's accountants before his death). Since Hadley in not in Pennsylvania, this may partially explain the failures of the accountings to comply with the express mandates of the Fiduciary Accounting Standards in the Pennsylvania Orphans Court rules however this should not excuse attorneys Morgan, Lewis and Bockius which seems to have taken Hadley's various accountings and simply added front cover pages and ending verifications. B.) The lack of proper accounting for the exchange of the shares of Pennsylvania Supply Company has makes it impossible to adequately determine if there are any capital gains on the exchange of the Pennsylvania Supply Company shares or if there has been subsequent appreciation in the value of the assets which were received in the exchange. To the extent that the Estate has capital gains on the exchange of the shares of Pennsylvania Supply Company, or has had subsequent appreciation in the value of the assets received for the shares of Pennsylvania Supply Company, then the Account as filed has improperly allocated such capital gains and subsequent increases in value of those exchanged assets to the Marital Trust. Under Althouse Estate, 404 Pa. 412, 172 A.2d 146 (1961) in those instances where Miller Lipsitt, LLC May 25, 2004 Page 13 of25 there is a pecuniary formula Marital Trust all capital gains as well all increases in the value of any estate assets which occur during administration must be allocated solely to the Residuary Trust. V. LIQUIDATION OF THE PENNSYLVANIA SUPPLY COMPANY STOCK WAS CONTRARY TO THE EXPRESS WISHES OF THE DECEDENT AND APPEARS TO HAVE BEEN UNNECESSARY. A.) The express wishes of the Decedent with regard to his holdings in private family held corporations are contained in Paragraph Thirteen of his Will: THIRTEENTH: Notwithstanding the powers herein otherwise given, I direct that my stock in privately held corporations, superoised and administered by me as the Executive or operating officer prior to my decease, or my stock in privately held corporations which otherwise is owned by me at my decease, be not sold unless all of my trustees and particularly my individual trustee or trustees, shall agree in writing that such stock shall be sold. It is my desire that if expedient and possible, the businesses which I have personally directed during my lifetime and of which I have had an interest be continued for the benefit of and under the management and control of my family. According to Decedent's Federal Estate Tax Return as filed, Decedent's total gross estate was valued at $16,645,786.00. Decedent's shares of Pennsylvania Supply Company stock were included at a value of 9,144,473.00. In other words, even with the $861,018.00 of nonprobate property removed from the Federal Estate Tax return calculations, Decedent's Estate had $6,640,295 in assets other than the Pennsylvania Supply Company stock. Most of these other assets were fairly liquid and/ or income producing. According to Decedent's Federal Estate Tax Return as filed, Funeral and Estate Administration Expenses amounted to 560,040.00, and Decedent's Debts/Mortgages amounted to $4,614,191.00. Federal Estate taxes payable were $42,695.00; Pennsylvania Inheritance Tax was $617,480.00. The total of expenses and inheritance/ estate taxes payable by the Estate was $5,834,406.00. Miller Lipsitt, LLC May 25, 2004 Page 14 of25 Other Assets Available $ 6,640,295.00 Estate Expenses/Taxes (5,834,406.00) Balance Available $ 805,889.00 As the above calculations demonstrate, there was no necessity from an estate administration standpoint for the liquidation of the Pennsylvania Supply Company stock. At the time that the Pennsylvania Supply Company stock was liquidated, the surviving spouse, BARBARA McK. MUMMA and each of Decedent's four children, ROBERT M. MUMMA II, BARBARA M. McCLURE, LINDA M. ROTH, and LISA M. MORGAN, all had significant personal assets and/ or income from other sources. There simply were no compelling reasons for the Estate's liquidation of the Pennsylvania Supply Company stock. B.) It appears that liquidation of the Pennsylvania Supply Company stock was part of a common plan or scheme by the Co-executrices, BARBARA McK. MUMMA and LISA A. MORGAN, to vest blocks of certain stock of subsidiary corporations of Pennsylvania Supply Company unto BARBARA McK. MUMMA free of trust. By moving a significant percentage of these shares outside of the Estate, BARBARA McK. MUMMA could help guide a sale to buyer CRH if problems or objections should be raised. CRH was not certain that the Co-executrices had the authority to sell and wanted indemnification in case the sale be challenged. (See Stradley, Ronon, Stevens & Young Memo dated 04/27/89). (1) In December 1987 the Co-executrices, caused the Estate to Transfer to the Marital Trust property having a value of $6,289,808.85 including 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 (10% Preferred) of Nine Ninety Nine, Inc (hereinafter Miller Lipsitt, LLC May 25, 2004 Page 15 of25 collectively referred to as the "Transferred Stock"). The above referenced shares of the Transferred Stock were received by the Estate as part of the liquidation of the Pennsylvania Supply Company stock. (2) The allocation of the aforesaid shares of the Transferred Stock to the Marital Trust is not a decision that a reasonably prudent fiduciary would have made. By allocating the Transferred Stock (instead of cash) to the pecuniary formula Marital Trust, the Estate was needlessly forced to incur capital gains of $1,170.687.90 resulting in the payment of over $360,000.00 in federal and state fiduciary income taxes. Had the Co- executrices allocated the Transferred Stock to the Residuary Trust, such allocation would not have resulted in the payment of any fiduciary income taxes. (3) The Martial Trust grants to BARBARA McK. MUMMA a discretionary, non-cumulative, annual right of withdrawal of up to five (5%) percent of any then existing principal of the Marital Trust. No such withdrawal rights are contained in the Residuary Trust. (4) Although the withdrawal rights granted to BARBARA McK. MUMMA do not vest her with a right to select individual assets of the Marital Trust to fund the withdrawals, beginning in 1987 and continually annually up through 1993 BARBARA McK. MUMMA systematically exercised her 5% withdrawal rights under the Martial Trust to convey various shares of Hummelstown Quarries, Inc. and Nine Ninety Nine, Inc. (both common and preferred) to herself individually. Once the sale to CRH was completed BARBARA McK. MUMMA stopped exercising her withdrawal rights. (5) It does not appear that the systematic withdrawal of the shares of Hummelstown Quarries, Inc. and Nine Ninety Nine, Inc (both common and preferred) by BARBARA McK. MUMMA from the Marital Miller Lipsitt, LLC May 25,2004 Page 16 of25 Trust was financially motivated. During the period from 1987 through 1993 while she was making said systematic withdrawals of shares of Hummelstown Quarries, Inc. and Nine Ninety Nine, Inc (both common and preferred) into her own name, BARBARA McK. MUMMA did not withdraw from the Marital Trust the over One Million ($1,000,000.00) Dollars in accumulated income which was available for distribution to her under the express terms of the Marital Trust. C. According to the Accountings, the Marital Trust liquidated its stock holdings in both Hummelstown Quarries, Inc. and Nine Ninety Nine Inc. (Common) on or about July 21, 1993. According to Robert M. Mumma II, 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 the same transaction as the sale of shares of Hummelstown Quarries, Inc. and Nine Ninety Nine, Inc. by the Marital Trust. VI. THE CO-EXECUTRICES OF THE ESTATE FAILED TO PRESERVE ASSETS CONTAINED IN DECEDENT'S SAFETY DEPOSIT BOX 3332 AT THE DAUPHIN DEPOSIT BANK AT THE TIME OF HIS DEATH AND/OR FAILED TO ADEQUATELY INVESTIGATE THE DISAPPEARANCE OF DECEDENT'S ASSETS CONTAINED IN SAID SAFETY DEPOSIT BOX. A.) On the date of his death Decedent was the joint owner (with Robert M. Mumma II) of Safe Deposit Box 3332 located at the Dauphin Deposit Bank and Trust Company in Harrisburg, Pennsylvania (hereinafter "SDB 3332"). This was the largest safe deposit box that Dauphin Deposit rented and was the size of a small foot locker. Miller Lipsitt, LLC May 25, 2004 Page 17 of25 B.) In August of 1985 ROBERT M. MUMMA, II and his father inventoried the contents of SDB 3332. This August 1985 visit was the last time that SDB 3332 was entered prior to Decedent's death. At the time of this August 1985 inventory SDB 3332 contained various assets belonging to or titled in the name of the Decedent, including his share certificates for Pennsylvania Supply Company (and its subsidiaries) as well as corporate records and shareholder agreements relating to Decedent's Pennsylvania Supply Company stock. e.) On April 23, 1986, eleven days after Decedent's death, ROBERT M. MUMMA, II and his mother, BARBARA McK. MUMMA, entered SDB 3332 to recover Decedent's will. At the time of recovery of Decedent's will Objector saw various assets owned by the Decedent as well as the Pennsylvania Supply Company corporate records and shareholder agreements referred to in Subparagraph B above present in SDB 3332. ROBERT M. MUMMA II and BARBARA McK. MUMMA were informed at this time that SDB 3332 would be sealed pending inventory by the Pennsylvania Department Of Revenue. D.) On November 2, 1989 a formal inventory of SDB 3332 by an officer of the Pennsylvania Department of Revenue in the presence of BARBARA McK. MUMMA revealed only personal papers and letters of the Decedent; neither Decedent's shares or other assets nor any corporate records or shareholders agreements relating to the Pennsylvania Supply Company were present. E) The Co-executrices of the Estate have failed to properly investigate and/ or pursue responsible parties for the loss of Decedent's assets in SDB3332. F.) According to ROBERT M. MUMMA, II the missing corporate records of Pennsylvania Supply Company contained shareholders buy/sell agreements which (a) would have limited the value of the Pennsylvania Supply Company stock and (b) given ROBERT M. MUMMA II and the other children who were the remaining shareholders of Pennsylvania Supply Company either Miller Lipsitt, LLC May 25, 2004 Page 18 of25 the right of first refusal to purchase said shares of Pennsylvania Company Stock or to have Pennsylvania Supply Company itself re-purchase its own stock which would increase the value of the remaining outstanding shares in the hands of the family members including ROBERT M. MUUMMA, II. G.) ROBERT M. MUMMA II believes that the Co-executrices of the Estate are either responsible for or complicit in the disappearance of the corporate records of the Pennsylvania Supply Company as well as other items from SDB 3332. H.) I note that unlike ROBERT M. MUMMA II the Co-executrices of the Estate have not instituted any formal legal action against Dauphin Deposit with regard to the estate losses from SDB 3332. ROBERT M. MUMMA II filed his own action against Dauphin Deposit after a certificate for 314 shares of 999, Inc. (a subsidiary company of the Pennsylvania Supply Company) which was issued solely in ROBERT M. MUMMA II'S own name and which ROBERT M. MUMMA II believed might have been contained in SDB 3332 turned up in the offices of legal counsel for CRH in San Francisco as part of CRH's due diligence for its purchase of the Pennsylvania Supply Company. I) In reviewing the extensive discovery in Mumma's on-going action against Dauphin Deposit, it appears that no one disputes that various corporate records, including those of Pennsylvania Supply Company, are "missing". BARABRA McK. MUMMA admits is her deposition (PP 84 - 91) that there were more items in SDB 3332 when the will search was performed then when the inventory and closeout of the box occurred. Form REV 485 which is the inventory of Box 3332 on file with the Pennsylvania Department of Revenue states the box had "no items of value". Apparently the Estate's attitude is that the missing documents simply cannot be located. J.) Shareholders Agreements of the type described by ROBERT M. MUMMA II as having been in existence for the Pennsylvania Supply Company Miller Lipsitt, LLC May 25, 2004 Page 19 of25 are a widely accepted and effective tool to limit the value of closely held stock upon the death of a shareholder. One would have expected there to be such an agreement with respect to the shares of Pennsylvania Supply Company, especially considering the value of the enterprise and the express desire of the Decedent's Will that his closely held businesses not be sold. Since the Co- Executrices desired to and subsequently did sell certain portions of the Pennsylvania Supply Company over the objections of ROBERT M. MUMMA, the disappearance of a Shareholder's Agreement which would have effectively blocked this sale and the failure of the Co-executrices to aggressively pursue the agreement's disappearance in my opinion raises an irreconcilable conflict of interest. VII. COUNSEL FEES TO MORGAN, LEWIS & BOCKIUS The Estate Account as filed show that for the period 1986 to 2003 Decedent's Estate paid Morgan Lewis and Bockius (hereinafter "MLB") attorney fees for representing the Estate totaling $114,587.58. The Marital Trust Accountings as filed show that for the period from 1986 to 2003 the Marital Trust has paid MLB attorney fees for representing the Martial Trust totaling $1,511,417.70. Together the fees to MLB total $1,626,005.30. I am of the opinion that a portion of the total counsel fees paid by the Estate and the Marital Trust to MLB should be disallowed for the following reasons: (1) Neither the nature of the services rendered, the amounts charged for those services, nor the necessity for such services are enumerated in either the Estate Account or the Trust Accountings; (2) The amounts paid by the Marital Trust are grossly excessive; Miller Lipsitt, LLC May 25, 2004 Page 20 of 25 (3) Co-executrix, Lisa M. Morgan was a member of MLB; Decedent's will does not contain any provision authorizing the executrices or the trustees to hire or retain themselves; (4) MLB preparation of the Estate Accounting was not in accordance with Decedent's will and applicable law as evidenced above; (5) MLB breached its duties to the residuary beneficiaries of both the Martial and Residuary trusts by failing to act impartially for the benefit of all beneficiaries and instead aligning itself with BARBARA McK. MUMMA in her plan or scheme to liquidate the Pennsylvania Supply Company and failing to prevent BARBARA McK. MUMMA from improperly diverting funds from the Estate. (6) A portion of the MLB fees were personal expenses of the Co- executrices and Co-Trustees including as part of their personal scheme to "squeeze out" ROBERT M. MUMMA II'S interests in certain family corporations. (See Stradley, Ronan, Stevens & Young Memo dated 04/27/89). VIII. ATTORNEY FEES PAID BY THE MARITAL TRUST TO STRADLEY, RONON, STEVENS & YOUNG It is my opinion that a portion of the attorney fees paid by the Marital Trust to Stradley, Ronon, Stevens & Young were personal expenses of the Co- Trustees as part of their personal scheme to "squeeze out" ROBERT M. MUMMMA II's interests in certain family corporations and therefore are not proper expenses of the Marital Trust. (See Stradley, Ronon, Stevens & Young Memo dated 04/27/89). Miller Lipsitt, LLC May 25, 2004 Page 21 of25 IX. CONCLUSIONS/RECOMMENDA TIONS A.) THE COURT SHOULD ORDER THE REMOV AL OF BARBARA McK. MUMMA AND LISA M. MORGAN AS CO-EXCUTRICES OF THE ESTATE AND AS CO-TRUSTEES OF BOTH THE MARITAL AND RESIDUARY TRUSTS AND APPOINT AN INDPENDENT PARTY TO ACT IN THEIR PLACE AND STEAD. 1.) The accountings for the Estate, the Marital Trust, and the Residuary Trust will need to be substantially redone: a.) The principal amount awarded to the Marital Trust under the Account as filed does not comply with the pecuniary formula set forth in Decedent's Will. b.) Income earned by the Estate during administration has not been properly allocated to the Residuary Trust. c.) Capital gains earned by the Estate during administration have not been properly allocated to the Residuary Trust. d.) Significant changes in major investment holdings have not been documented and accounted in accordance with the Fiduciary Accounting Standards in the Pennsylvania Orphans Court Rules. e.) The unauthorized income distributions from the Estate directly to BARBARA McK. MUMMA need to be reversed. f.) The items of principal and capital gains which were transferred to BARBARA McK. MUMMA need to be reversed. 2.) The general intent of the pecuniary formula marital/residual trust combination as found in Decedent's Willis to put a minimal fixed amount in the marital trust portion with everything else over into the residuary trust - with the Miller Lipsitt, LLC May 25, 2004 Page 22 of 25 Residuary Trust being the predominant recipient. However the various accountings as filed by the current fiduciaries have effectively reversed this intent and instead have favored the Marital Trust over the Residuary Trust. a.) By December 31,1987 the fiduciaries has assigned assets to the Marital Trust - primarily stock of the subsidiary corporations of the Pennsylvania Supply Company that the fiduciaries wished to sell to CRH -totaling $6,287,308.65,. However no significant assets were assigned to the Residuary Trust until over 14 years later in 2002- 2003 when the Residuary Trust received $3,686,315.38 of comprising those assets which the Estate at that time had left remaining. b.) The Will of the Decedent did not authorize the sort of 'cherry picking' of assets between the Marital and the Residuary Trust which occurred under the accounts as filed. Generally in the absence of an express direction in the Will, both the Marital and Residuary Trusts are to be awarded a proportionate share of each of the assets. c.) It appears that the' cherry picking' and transfer of assets by the fiduciaries of the Estate to the Marital Trust was part of a common plan or scheme to vest a block of the stock of certain subsidiary corporations of Pennsylvania Supply Company unto BARBARA McK. MUMMA free of trust. d.) BARBARA McK. MUMMA had an annual five (5%) percent principal withdrawal right from the Marital Trust which right was not contained in the Residuary Trust. These withdrawal rights were used solely upon the stocks in question. After the sale to CRH, BARBARA McK. MUMMA stopped exercising her rights of withdrawal. During the time that these principal withdrawal Miller Lipsitt, LLC May 25, 2004 Page 23 of 25 rights were being exercised BARBRA McK. MUMMA had available to her over One Million ($1,000,000.00) Dollars of Marital Trust income which she could have requested from the Marital Trust yet she did not do so. e.) This' cherry picking' of assets caused the Estate to incur in excess of $360,000.00 in federal and Pennsylvania fiduciary income taxes all or a significant portion of which income taxes could have been avoided. The fiduciaries should be surcharged for the Estate's payment of these unnecessary fiduciary income taxes. 3.) The standard for trust fiduciaries dealing with successive interests has remained unchanged since its original promulgation in Section 232 of the Restatement of Trusts (1935): 11 [T]o deal impartially as between the successive beneficiaries and to act with due regard to their respective interests. 11 Under the express terms of Decedent's Will, all distributions of principal to BARBARA McK. MUMMA from either the Marital or the Residuary Trust (other than the aforesaid 5% withdrawal right) are subject not only to the rather traditional health, maintenance etc. standard but also to the express requirement that BARBARA McK. MUMMA have 11 a deficiency in other available funds" available to her. This indicates the Decedent's clear intent that the principal of both the Marital and Residuary trusts is not be invaded unless absolutely necessary - in order to preserve funds for the residuary beneficiaries. Given the repeated instances where the trust fiduciaries have ignored the express directions of Decedent's Will and have manipulated the Marital Trust for their own gains, they have repeatedly demonstrated their inability to act with impartiality to the residuary beneficiaries. I therefore believe that BARBARA Miller Lipsitt, LLC May 25, 2004 Page 24 of 25 McK. MUMMA and LISA M. MORGAN should be removed as co-executrices of the Estate and co-trustees of both the Marital and Residuary Trusts with an independent fiduciary appointed in their place and stead. B. THE SALE TO CRH NEEDS TO BE VOIDED BY THE COURT ALONG WITH A COURT ORDERED AN INVESTIGATION ORDERED INTO THE DISAPPEARANCE OF DECEDENT'S MISSING ASSETS AND PAPERS 1.) Although the Decedent's express wishes were that his family corporations not be sold, it appears that sale of a major portion of the assets of the Pennsylvania Supply Company became an almost immediate goal of the Co- Executrices soon after their appointment. Since Decedent's Estate had more than enough assets to satisfy creditors and pay applicable Federal Estate and Pennsylvania Inheritance Taxes without the sale of any portion of the Pennsylvania Supply Company assets, the motives behind the sale are clearly suspect. 2.) I am particularly disturbed by the sequence of events surrounding Decedent's missing assets and papers which were contained in Decedent's Safe Deposit Box 3332 at the Dauphin Deposit Bank. As BARBARA McK. MUMMA admitted in her deposition, there were a lot more items contained SDB3332 at the time she conducted the Will search then when she closed this safety deposit box. As SDB3332 was held jointly by the Decedent and his son ROBERT M. MUMMA II, no one should have been permitted to enter or close SDB3332 without the physical presence of ROBERT M. MUMMMA II. Since the representatives of the Estate were pushing for a sale of the Pennsylvania Supply Company assets to CRH and ROBERT M. MUMMA II was opposing such a sale, the loss (or rather failure to find) the shareholders agreement which ROBERT M. MUMMA II claims existed and which he indicated would have prevented the proposed sale Miller Lipsitt, LLC May 25,2004 Page 25 of 25 to CRH the conduct of the representative of the Estate demands an independent and impartial court ordered investigation. C. THE CONDUCT OF MORGAN, LEWIS AND BOCKIUS/STRADLEY, RONON, STEVENS AND YOUNG An attomey that serves as counsel to an estate or trust owes a duty to see that the administration of the estate and/ or trust protects the interest of all who share in the estate or the trust (creditors, fiduciaries, present as well as future beneficiaries) . As the memo from David Landrey of Stradley. Ronon, Stevens and Young dated 04/27/1989 makes clear both Morgan, Lewis and Bockius and Stradley, Ronon, Stevens and Young seemed more concerned with the sale of assets to CRH and II squeezing out" ROBERT M. MUMMA II's shares then they were in protecting his interests as a beneficiary of both the Marital and Residuary Trusts. This is exactly the sort of conduct which reinforces the negative connotations that so many have of our profession. As a result of their conduct, I believe that compensation to both firms for their services which were paid from the Marital Trust should be denied by the Court. \ (Taxation) CIRRICULUM VITAE FOR JONATHAN M. CRIST Education St. Bonaventure University Grad: May 1972 St. Bonaventure, N.Y. B.S (Bus Admin) Cum Laude Dickinson School of Law Grad: June 1979 Carlisle, PA. Juris Doctor Temple University Grad: May 1983 Philadelphia, PA. L.L.M. (Taxation) EmplovmentIWork History Professional Associations Solo Practice American Bar Association 226 West Chocolate Ave. Pennsylvania Bar Association Hershey, PA. 17033 Dauphin County Bar Association (Mar 2004 through Present) Latsha, Davis & Yohe, P.C. Mechanicsburg, PA. 17055 Senior Associate (Mar 1999 - Mar 2004) Solo Practice 226 West Chocolate Ave. Hershey, PA. 17033 (Oct 1992 - Mar 1999) Partner Hedger & Hedger 801 E. Park Drive Harrisburg, PA 17111 (Sept 1989 - Oct 1992) Skarlatos & Zona rich Harrisburg, PA Associate (May 1983- Sept 1989) Beckley & Madden Harrisburg, PA. Associate (Sept 1979 - May 1983) Admitted To Practice Before Pennsylvania Supreme Court (1979) US District Court - Middle District of Pennsylvania (1979) US Tax Court (1983) US Supreme Court (1985)