HomeMy WebLinkAbout11-29-11In the Court of Common Pleas for Cumberland County, Pennsylvania
Orphans Court Division
In Re:
The Account of Thomas P. Noonan,
Executor for the Estate of Robert J. Noonan : O. C. No. 2008-00906 ~
Late of Hampden Township, deceased =-~~ _- ;-~-, ~?
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AUDITOR'S REPORT ' = ~~ - ;
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AND NOW comes the undersigned Auditor, pursuant to C.C.O.C.R. 8.2, after a hearing and the
submission of briefs by the parties, and reports his conclusions to the Court as follows:
I. Statement of the Questions Involved
Objections to the Account subject to this audit raise the following issues for adjudication:
a. Whether to surcharge the Executor for Interest and penalty assessed due to late filing
and payment of inheritance taxes;l
b. Whether to surcharge the Executor for the fair rental value of decedent's real estate
during the eleven months that elapsed between the date of death and final settlement;
c. Whether to surcharge the Executor for investment losses incurred upon liquidation by
the beneficiaries of assets held in non-probate retirement and/or "transfer on death"
investment accounts;
d. Whether to reduce the amount of Executor's commissions claimed; and
e. Whether to reduce the amount of Attorney's fees claimed.
1 Objectants had initially sought, in addition, a surcharge for loss of the 5% inheritance tax pre-payment
discount, but withdrew that much of their claim by their post-hearing brief.
II. Findings of Fact:
Robert J. Noonan (the "decedent" or "testator") died July 14, 2008, having first made his
last will and testament dated April 25, 2003.2
Decedent's said will consists of a single-page fill-in-the-blank form, with an added
"supplement" page typed and drafted by the decedent in his own words, both executed
contemporaneously, as a single two-page document. The resulting will, which was not "self-
proving," was witnessed by two employees of PNC Bank in Mechanicsburg, PA. The will names
the decedent's brother, Thomas P. Noonan (the "accountant" or "executor") as executor.
By early August, 2008, the accountant had contacted the law office of Peter J. Russo,
Esquire, for assistance with administration of the decedent's estate. On August 5, 2008,
employees of the Russo law firm began the process of identifying and locating the two PNG
Bank employees who had served as the testator's subscribing witnesses five years earlier. After
letters and follow-up phone calls from Mr. Russo's office, one such subscribing witness
appeared and executed the Oath of Subscribing Witness on August 18 and the other on August
25, 2008. (A's Ex. 6). On September 8, 2008, the decedent's will was admitted to probate and
Letters Testamentary were issued to the accountant.
On October 8, 2008, the accountant executed a listing agreement to sell Decedent's
house with Stephen Walker, a real estate agent of more than thirty years' experience. (Tr. p.
11). Mr. Walker advised the accountant that the decedent's house needed repair work in order
to attract a buyer in a competitive market (three larger properties in the decedent's
z Citations to documents contained in the Register's file, such as the will, grant of letters, inheritance tax
return, etc., are omitted throughout, even though the same documents may also have been formally
entered to the audit hearing record as numbered exhibits.
2
development were also for sale at that time). (Tr. pp. 7-9). The accountant, who had worked
most of his life in the construction trades (Tr. p. 65), performed much of the work himself,
including polishing wood floors, preparing the interior for painting, power-washing and
weather-sealing of the exterior rear deck and railing, painting the entrance door and replacing
its hardware and kick plate, re-grouting the and caulking in both bathrooms, replacing
numerous faulty electrical switches, outlets and lighting fixtures, waterproofing a leaking corner
of garage roof gutter, staging the residence before multiple showings and shoveling snow, as
needed, from the front walk. (A's Ex. 2).
The accountant paid, in funds from the estate, $1,272.41 to have carpeting replaced,
$700 for interior painting and $100 for cleaning services. The rest of the repair work he
handled himself, working when he could and frequently spending the night in the decedent's
house to enable him to fit in a few hours of work on the house after the end of his regular work
day. Mr. Walker estimated that the cost to have contracted for the work done to prepare the
house for sale would have been approximately $12,000, and he stated that he completed
improvements likely increased the ultimate sale price of the house by twice that amount, or
approximately $24,000. (Tr. pp. 26-29).
The objectants, the decedent's sons, Sean and Patrick Noonan (the "objectants°),
questioned these figures. Patrick Noonan, age 22 years, had experience working to fix up
townhomes before sale or rent, as a summer job in Des Moines, Iowa, and his testimony was
sincere and reasonable. However, Mr. Walker has sold over 700 homes and his real estate
company manages more than ten percent of the rental properties in and around
Mechanicsburg. (Tr. pp. 7-8). His extensive local real estate experience lent his opinion of
reasonable repair cost more weight and his testimony was highly credible.
The house was placed on the local real estate Multi Listing Service on or about
November 13, 2008. While on the market, the house was shown to prospective buyers 50 - 60
times, and a contract was signed with the eventual buyers in April of 2009. After some delays
related to the buyers' financing, settlement took place on July 15, 2009.
The decedent's probate estate consisted of his house (which was valued for tax
purposes at its sale price of $188,000), an investment account with a value on the date of death
of $27,063, a 2002 Subaru automobile, which sold for $5,631.50, bank and credit union
accounts with aggregate value of $16,385.89 and household items, worth $705. The total gross
value of the estate was $237,785.39.
In addition to his probate estate, the decedent owned several non-probate investment
accounts with aggregate value on the date of death of $318,770.55. These accounts were
either. held as individual retirement arrangements under federal law ("IRAs"), with designated
beneficiaries, or were registered as transfer-on-death or "TOD" securities accounts, and-all
were payable to one or both of the decedent's sons.
Between July 14, 2008 and December 31, 2008, these non-probate accounts lost almost
17% of their value, reflecting declines in the value of the underlying investment assets.
The accountant initially claimed executor's commissions of $19,968.683, and for his
counsel, attorney fees of $20,446.68. Both figures were derived by applying one or the other of
s However, when testifying he was unsure how Mr. Russo had arrived at that figure and seemed
to disavow the full amount of his claim. He went on to express his belief that the $12,000 valuation of
his work to prepare the house for sale would be reasonable compensation. (Tr. pp. 53-55).
4
two similar series of declining percentages to the total gross inheritance tax value of all
transfers on decedent's death, including both probate and non-probate assets. These two
series of percentages (the top one is marked "commissions: personal representative") are
found in a schedule or chart attached to the "estate fee agreement" (A's Ex. 4), executed by the
executor and his counsel on September 16, 2008, when the executor formally engaged the Law
Offices of Peter J. Russo, P.C. to represent him "in the probate, handling, presentation and
settlement of any and all claims which client may have resulting from the Estate of Robert
Noonan and to supervise and generally handle same." The agreement further provides that
"[if] the matter is settled to the. benefit of the client, distribution of any amount received shall
be~as follows: 1. The percentage as set forth in the attached schedule based on value of the
estate....."
COMMISSIONS: PERSONAL REPRESENTATIVE
$ 00.01 to $ 100,000.00 S% $ 5,000.00 ($ 5,000.00)
$ IOO,000.OI to $ 200,000.00 4% $ 4,000.00 ($ 9,000.00)
$ 200,000.01 to $1,000,000.00 3% $24,000.00 ($33,000.00)
$1,000,000.01 to $2,000,000.00 2% $20,000.00 ($53,000.00)
$2,000,000.01 to $3,000,000.00 1'/~ % $15,000.00 ($68,000.00)
$3,000,000.01 to $4,000,000.00 1% $10,000.00 ($78,000.00)
$4,000,000.01 to $5,000,000.00 '/:% $5,000.00 ($83,000.00)
1 % Joint accounts
1% P.O.D. Bond
1% Tnutfunds
] % Real Estate specific devise
3% Real Estate converted with the aid of a broker
5% Real Estate: non-converted
$ 00.01 to $ 25,000.00 7% $ 1,750.00 ($ 1,750.00)
$ 25,000.01 to $ 50,000.00 6% $ 1,500.00 ($ 3,250.00)
$ 50,000.01 to $ 100,000.00 S% $ 2,500.00 ($ 5,750.00)
$ 100,0'00.01 to $ 200,000.00 4% $~ 4,000.00 ($ 9,750.00)
$ 200,000:01 to $1,000,000.00 3% $24,000.00 ($33,750.00)
$1,000,000.01 to $2,000,000.00 2% $20,000.00 ($53,750.00)
$2,000,000.01 ~ to $3,000,000.00 1'/:% $15,000.00 ($68,750.00)
$3,000,000.01 to $4,000,OOU.00 I % $ l 0,000.00 ($78,750.00)
$4,000,000.01 to $5,000,000.00 %:% $5,000.00 ($83,750.00)
Procedural History:
The Executor's First and Final Account was filed on January 25, 2011. On February 24,
2011, Sean M. Noonan and Patrick J. Noonan, the residuary beneficiaries of the estate, filed
Objections to the First and Final Account. On March 1, 2011, the Orphans' Court appointed
Thomas E. Flower, to serve as auditor to hear and report upon the Objections to the Final
Account. On September 8, 2011, the Auditor requested an extension of the term of his
appointment, which the Court granted until November 30, 2011. After Notice duly given, a
hearing was conducted with all parties present before the Auditor on October 7, 2011. Prior to
the hearing, the objectants' agent, Jalayne Noonan, through her counsel, moved that her
testimony be admitted by computer video conferencing via SKYPE. The accountant objected
and the parties briefed the issue. On September 12, 2011, the Auditor issued a decision that
Ms. Noonan's testimony by video would be admitted.
III. Discussion and Conclusions of Law:
A. Objectants complain of unnecessary delay in preparing the decedent's house for sale
and placing it on the market. In addition, they ask that the accountant be charged rent for his
alleged use of the decedent's house during this period for his own use. These claims are
without merit. Accountant contacted Mr. Russo's office barely two weeks after decedent's
death. It is hardly surprising that it then took Mr. Russo's office a few weeks to locate the
witnesses to the execution of the will (who were not known to the executor) and to get their
signatures on the Register's form Oaths of Subscribing Witnesses. Two weeks after these
signatures were obtained, the decedent's will was admitted to probate and Letters granted.
Within a month thereafter the accountant had executed a real estate listing contract with Mr.
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Walker. In short, it was clear from the accountant's testimony and that of Mr. Walker that the
house was prepared for sale with appropriate diligence and without undue delay. (Tr. Pp. 12,
19, 25-6, 34, 43, 51). With respect to the objectants' claim for rent, the accountant
persuasively testified that he did not use the decedent's house for his own purposes; rather, he
spent a few nights at the house, from time to time, merely to facilitate his work on the repairs
and improvements specified by his real estate agent as necessary to prepare the house for sale.
(Tr. pp. 47-49).
B. Objectants seek to surcharge the executor for post-death declines in the value of
decedent's non-probate investment assets, which were recognized as investment losses by the
objectants, when they liquidated the IRAs and TOD accounts payable to them during January of
2009. Apparently, none of the parties or their counsel realized the non:-probate nature of these
accounts until the end of October of 2008, at which .time Mr. Russo notified the objectants of
that fact (through their mother, who has acted. throughout as their agent under powers of
attorney). (Os.' Ex. 3 & 4). Nevertheless, even after being notified on October 30, 2008 that
these non-probate accounts were, as of the date of death, legally theirs and beyond any control
or authority of the executor, the objectants and their mother were unable to assert effective
control over these accounts until January of 2009. Objectants now complain of the executor's
failure "to turn over" the non-probate accounts to them and wish to surcharge him for
investment losses incurred when the accounts were liquidated by them in January of 2009.
This claim is without merit. Although the reason for the objectants' inability to access these
accounts remains somewhat murky, it appears in large measure to have resulted from
procedural rigidity on the part of Fidelity and/or Morgan Stanley, which insisted on completion
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of their own proprietary forms and were reluctant to recognize a valid power of attorney
executed by one of decedent's sons and notarized at the US embassy in Casablanca. (Tr. Pp.
164). As noted, these were non-probate assets beyond the influence and control of the
executor. Once notified of the non-probate nature of the accounts (as IRAs or TOD-registered
accounts), it fell to the objectants and their agent to do with them what they would, and any
reluctance by Fidelity and/or Morgan Stanley to recognize the objectants' or their agent's
authority cannot be laid at the feet of the accountant.
C. Section 3537 of the PEF Code provides for the compensation of executors:
"The court shall allow such compensation to the personal representative as shall in the
circumstances be reasonable and just, and may calculate such compensation on a
graduated percentage." 20 Pa. C.S. §3537.
In the self-drafted portion of the decedent's will appears the following sentence: "I also
bequeath $1,000 to my brother Thomas as executor and guardian." The word "bequeath"
denotes a gift, not compensation. Moreover, $1,000 would not "in the circumstances be
:reasonable and just" compensation that fairly reflects the value of the executor's services to
the estate.
On the other hand, the amount claimed by the accountant can scarcely be justified by
pointing to the percentages set forth in an "estate fee agreement" entered into with his
attorney. No reason appears why an agreement between executor and attorney should have
anything to do with the mode of arriving at an executor's commissions. Moreover, the
$19,968.68 figure claimed by the accountant was, illogically, based upon the value of non-
probate assets, as to which the executor had no duties and his services had no value
whatsoever. Nevertheless, there is no doubt of the considerable value of the executor's
services to the estate, which clearly were far more hands-on than in the ordinary case,
particularly with respect to the repairs and cosmetic improvements made to the house in
preparation for its sale. Mr. Walker testified that he would have expected to pay $12,0004 to
effect the same repairs made by the accountant. On the other hand, strictly limiting the
executor's compensation to the actual work he performed is not a fair reflection of the value of
his services to the estate, which also required his presence at the time of probating the will, at
settlement on sale of the real estate and the inevitable meetings with personnel from Mr.
Russo's office, to review and sign, inter alia, the inheritance tax return and the final account.
The statute does allow the Court to base an executor's commissions on a percentage of the
value of estate assets, and for these purposes, in present circumstances, a figure of 5% of the
estate, or $11,889.27, would seem reasonable. However, that amount must be reduced by a
surcharge of $708.38, the amount assessed as penalty and interest for late filing of the
inheritance tax return, for which the accountant offered no convincing justification. Therefore,
the Courtshould approve compensation for the executor in the net amount of $11,180.89.
D. The accountant claims the amount of $20,446.68 in fees to the Law Firm of Peter J.
Russo, P.C., as counsel to the executor. In support of-this figure, the accountant offers the
above-referenced "estate fee agreement," as well as contemporaneously-maintained time
records, which establish that unspecified employees of the law firm expended 125.89 hours
through February 28, 2011, in assisting the executor to settle the estate, plus an additional
45.87 hours expended to defend the Account during the process of this audit. (A's Ex. 6 & 5).
The law firm's time records certainly establish that a great deal of time was expended by
4 However, from that figure, the cost of installing carpet and painting should be deducted, as Mr. Walker
apparently made no allowances for those jobs being contracted out.
9
unspecified employees of the firm to assist in the administration of the estate, thereby tending
to justify the percentage fee for which the law firm contracted its services. At least to the
extent that the fee agreement works in their favor, the objectants are entitled to the benefit of
that bargain, even though the law firm likely expended far more time in resolving disputes
arising in the administration and settlement of this estate than initially anticipated. Applying
the percentage fee schedule set forth in the attachment to the fee agreement is not as straight
forward as might be wished. Nothing indicates whether the special percentages listed between
the scale for personal representatives commissions and the separately-stated scale for (one can
only presume) attorney fees is applicable in the case of both. Although the fee agreement
refers to "percentages ... based on value of the estate" (emphasis added), the schedule on the
next page refers to "P.O.D. Bonds," a type of non-probate asset. Considering the extensive
amount of time expended, it is reasonable to apply a liberal construction to the agreements
Therefore, the amount of $12,063.76 should be approved as the law firm's compensation,
according to the contract, based upon the following application of the fee agreement's
schedules:
1% of T.O.D & other non-probate assets: $318,770.55 x .01 = $ 3,187.71
3% of Real Estate sold with aid of broker: $188,000.00 x .03 = $ 5,640.00
6.5% of remaining probate assets: $ 49,785.39 x .065 = 3 236.05
Total attorney fees:
$12,063.76
5 Construed liberally, the decedent's IRAs and TOD investment accounts, as non-probate assets, may be
roughly equated with "POD Bonds" under the fee schedule, so that the contracted fee is not based
solely on a percentage of "the estate" (as specified earlier in the agreement), construed in the ordinary
sense to mean the probate estate.
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IV. Recommended Adjustments to Account and Proposed Schedule of Distribution
A. The Court should reduce compensation for the executor to the amount of $11,180.89.
B. The Court should reduce attorney fees to the amount of $12,063.76.
C. The Court should approve the following other items to be disbursed before distribution:
(i) $645 to the Law Office of Peter 1. Russo, P.C., in reimbursement for costs advanced to
Kelly Financial for preparation of the First and Final Account;
(ii) $813.25 to Henderson Kashmere Wetmore, LLC for stenography and transcription of
the hearing testimony; and
(iii) $3,340 to Flower Law, LLC, as Auditor's fees (16.7 hrs. @ $200/hr. _ $3,340).
D. Subject to the foregoing adjustments, the Court should approve the Proposed Schedule
of Distribution to Beneficiaries, asset forth in the Account, with $.5,000 in specific bequests,
and the residue6 in equal shares to Sean M. Noonan and Patrick J. Noonan.
WHEREFORE, the undersigned Auditor hereby respectfully submits his foregoing Report
for approval by the Court.
Dated: November 29, 2011 By:
Thomas E. Flower, Esq., Auditor
Attorney I.D. No. 83993
Flower Law, LLC
10 West High Street
Carlisle, PA 17013
(717) 243-5513
6 Accountant reports holding cash on hand in the amount of $ 81,988.80. Subject to minor adjustment
for prior payment of expenses stated herein that may already be reflected in that figure, each share of
the residue should equal $ 26,972.95.
In the Court of Common Pleas for Cumberland County, Pennsylvania
Orphans Court Division
In Re:
The Account of Thomas P. Noonan,
Executor for the Estate of Robert J. Noonan O. C. No. 2008-00906
Late of Hampden Township, deceased
CERTIFICATE OF SERVICE
On this 29th day of November, 2011, I, Thomas E. Flower, hereby certify that I
served a true and correct copy of the foregoing Auditor's Report, upon counsel for all
parties, by placing a copy of same in the United States Mail, first class, postage prepaid,
addressed as follows:
Peter R. Wilson, Esq.
Latsha Davis & McKenna, P.C.
1700 Bent Creek Blvd., Suite 140
Mechanicsburg, PA 17050
Counsel for the Objectants
Peter J. Russo, Esquire
LAW OFFICES OF PETER J. RUSSO, P.C.
5006 E. Trindle Road, Suite 100
Mechanicsburg, PA 17050
Counsel for the Accountant
Dated: / j o2 / 2a ~ ~
g~~~~~~ -
Y
Thomas E. Flower
S. Ct. #83993
FLOWER LAW, LLC
10 W. High St.
Carlisle, PA 17013
(717) 243-5513
Auditor