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HomeMy WebLinkAbout95-844 orphans (objections)IN RE: IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION ESTATE OF DAVID W. MAGARO, NO. 21-95-844 Deceased IN RE: OBJECTIONS TO AUDITOR'S REPORT Before HOFFER, P.J., OLER and GUIDO, J.J. OPINION OF COURT HOFFER, P.J.: On September 12, 1997, Marie K. Magaro, Administratrix c.t.a. (hereinafter "Accountant") of the Estate of David W. Magaro, Deceased, filed a First and Partial Accounting with this court. On October 13, 1997, intestate heir Tina M. Magaro (f/k/a Tina M. Mestlin, hereinafter "Objector") filed Objections to the First and Partial Accounting. This court appointed an auditor on October 17, 1997, and the auditor held hearings on November 26, 1997 and December 8, 1997. In this opinion we address objections of Objector and the objections of Accountant to the Auditor's Report of May 3, 1999. The facts of the case are as follows: David W. Magaro died on October 10, 1995 at the age of 59, survived by his wife (Accountant), and their 18-year-old son, Antonio W. Magaro. Decedent and Accountant had been married 18 years at the time of Decedent's death. Decedent was also survived by the following five adult children from a prior marriage: David W. Magaro, Jr., Randy L. Magaro, Janasia I. (Magaro) Shay, Tina M. Mestlin (Objector), and Angela K. Magaro. On August 24, 1995, Decedent executed two (2) separate limited powers of attorney; one appointed David W. Magaro and the other appointed Antonio Magaro. Both powers of attorney were limited as authorizing the designee to "sign all necessary papers that require my signature." The powers of attorney did not give the attorneys-in-fact the specific power to make gifts or to engage in banking or financial transactions. On October 4, 1995, by way of the powers of attorney, Accountant was made joint owner with Decedent of a savings account and a $10,000.00 certificate of deposit. Prior to October 4, 1995, only Decedent's name had appeared on the items, both of which were established in 1985. Decedent wrote a holographic Last Will that was neither witnessed nor notarized. Decedent did not tell his wife or children about the existence of the holographic Last Will. Decedent died October 10, 1995, following complications with open-heart surgery. On or about October 11 or 12, 1995, Decedent's son David W. Magaro, Jr., located Decedent's holographic Will in Decedent's desk at 116 East Allen Street, Mechanicsburg, Pennsylvania. The holographic Will states: "My farm at 354 Stumptstown RD- Mech I give to my wife- Marie Magaro & all the farm equipment, & my saving Acct in PNC Bank +stock & Dauphin Bank. All the cars and truck - that are in my name, my hunting camp - in Columbia County to my wife and son, Tony & 2 - lots in Potter County The Business at Variety Amusement: I give to my son's David W. Magaro Jr. & Tony Magaro & the Property at 116 East - 50-5- & 114 East Allen St. /s/David W. Magaro" As Decedent's Will does not dispose of all his assets, the Estate is partially intestate. After locating the holographic Will, the Accountant, along with Antonio W. Magaro and David W. Magaro, Jr. met with Attorney George Douglas. On October 17, 1995, Douglas offered the holographic Will for probate and Accountant petitioned for letters of administration. On November 9, 1995, Letters of Administration c.t.a, were issued to Accountant, Decedent's widow. Afterward, Accountant retained a new attorney on or about December 1, 1995. As Administratrix/Accountant, Marie K. Magaro gave notice of beneficial interest to all beneficiaries, both testate and intestate, except Angela K. Magaro. Angela K. Magaro was not notified of her possible beneficial interest in the estate until October 15, 1997. Between Decedent's death and issuance of letters of administration, Objector made several inquiries to Accountant as to the existence of a will. The Accountant denied the Will's existence, despite her knowledge that 3 a Will existed and that she had offered it for probate. On December 13, 1995, Accountant informed Objector that the Will existed and Accountant requested the presence of Objector, along with David W. Magaro, Jr., Randy Magaro, and Janasia L. (Magaro) Shay, at Attorney Lowell Gates' office for a meeting on December 15, 1995. Accountant did not inform Angela K. Magaro of the meeting, nor was Angela invited to attend. On December 15, 1995, a meeting was held at Attorney Gates' office, at which Accountant provided each of the attendees with a copy of the probated holographic Last Will and an Agreement Not to Contest the Will. At the meeting Attorney Gates explained that the attendees would get nothing from the Estate per the probated Last Will, and in lieu of "nothing," the attendees would each receive $15,000.00 that day if they signed the Agreement Not to Contest the Will. The Agreement requires those who signed to not contest Decedent's holographic Will in any court or forum; not to appeal the order admitting Decedent's Will to probate; not to object to the inventory to be filed by the Accountant; not to contest any of the proceedings thereunder; not to present any claims under Decedent's estate (whether probate or non-probate); and not to present any claims against Accountant for her administration of Decedent's Estate. All attendees except Objector Tina Magaro (Mestlin) signed the Agreement and received $15,000.00 from the Estate checking account. Objector indicated that she would like to have 4 an attorney review the Agreement, which she did not subsequently sign. Objector did not receive $15,000.00. Approximately four months after the first group meeting at Attorney Gate's office, Accountant and Attomey Gates called another meeting. The invitees were limited to those children who had signed the Agreement Not to Contest the Will. At this meeting, each attendee received an additional $15,000.00 directly from Accountant's personal funds in recognition of the attendee's cooperation. Objector had not been invited, did not attend, and did not receive $15,000.00. Shortly after the second group meeting, the Accountant filed a Petition to Shorten the Time for Appealing the Probate Decree, which was opposed by the Objector. This court denied the Petition, observing that this was a "complex, multi-million dollar estate which did not warrant a shortened time for appeal." On November 8, 1996, Objector filed an appeal from the Probate Decree and the parties then engaged in discovery, at the conclusion of which Objector withdrew her appeal. On September 12, 1997, the Accountant filed her First and Partial Account. Objector filed her objection to the proposed Account on October 13, 1997. In the First and Partial Account, Accountant reported that at Decedent's death, Decedent owned the following real estate: 1) 2.06 acres (improved) and 11.23 acres (unimproved) in Sugarloaf Township, Columbia County, Pennsylvania; 2) 114 East Allen Street, Mechanicsburg, Cumberland County, Pennsylvania; 3) 116 East Allen Street, Mechanicsburg, Cumberland County, Pennsylvania; and 4) 354 Stumpstown Road, Monroe Township, Cumberland County, Pennsylvania. The gross value of the real estate is $1,223,500.00. However, there are two existing blanket purchase money mortgages in favor of PNC Bank, N.A. encumbering both East Allen Street Properties in the amount of $297,503.04. There is also a mortgage on 354 Stumpstown Road property held by Decedent's brother, which results in a net value of $925,996.96 for all the real estate. The Accountant has remained in possession and occupation of the 354 Stumpstown Road property from Decedent's death to date. She has not paid rent to the Estate. She has subsequently paid for changes to the property with Estate funds. Accountant reported that Decedent owned a 7.066 acre farmette at 317 Stumpstown Road, Monroe Township, Cumberland County, Pennsylvania as a joint tenant with right of survivorship with his daughter Janasia I. Shay. This property was valued at $200,000.00, but it is encumbered by a mortgage. Property ownership passed to Janasia I. Shay by operation of law, but the Estate rather than Janasia paid the inheritance tax due on it. At his death, Decedent owned a PNC Bank Checking and Savings Account as well as a Revocable Management Trust through PNC Bank, N.A. with PNC Bank as trustee. The Trust had a date of death value of $333,915.74, consisting of: a PNC Money Market Account worth $97,125.77; 530 shares of Carlisle Co., Inc. worth $22,525.00; 1,518 shares of PNC Intermediate Municipal Fund-PA worth $154,330.51; and 4,626 shares of PNC Value Equity Fund worth $59,934.46. Decedent owned a Dodge diesel pickup truck with a date of death value of $29,850 with a $19,633.07 lien in favor of Chrysler Credit Corporation existing on the truck at the time of Decedent's death. From December 1995 through August 21, 1997, the Accountant paid $8,851.15 from the estate account toward the lien on the pickup truck. Both the Accountant and Antonio Magaro used the truck during this period. Decedent also owned three (3) pickup trucks, one (1) dump truck, and one (1) Hillsboro Trailer at the time of his death; none of which were encumbered with liens and all of which were distributed to Accountant and/or Antonio K. Magaro on December 20, 1995, pursuant to provisions of the probated Will. Decedent owned 100% of the common stock in Variety Machines Inc., a Pennsylvania Corporation with a date of death value of $550,295.00. Variety Machines, Inc., also known as Variety Amusements, rents the 116 East Allen Street property from the Estate for a monthly amount of $2,200.00. The Gingerbreadman Spirit Merchant and Grocer occupies the 114 East Allen Street property and they pay a monthly rental of $1,200.00. Decedent owned 10% common stock in Phelaro of Derry Township, Inc., a Pennsylvania Corporation representing a date of death value of $20,836.70. As a result of this Court's upholding several of the objections to the Accountant's First and Partial Accounting, Decedent's intestate residuary estate will realize more than $340,000.00 in recovery. DISCUSSION A. Should the Auditor's findinq of facts be amended? Objector objects to finding of fact number 17 and Accountant objects to findings of fact 3, 4, 5, 15, 16, 17, 19, 21, 26, 29, 30, 31, 34, 35, 43, 44, 47, 48 and 49. Findings of fact made by the auditor will not be disturbed by the court if the findings accord with testimony and the auditor has not capriciously disbelieved evidence or abused her discretion or committed an error of law. Estate of Allen, 488 Pa. 415, 412 A.2d 833 (1980). We uphold the Auditor's findings of fact as she was present to view the testimony of the witnesses and determine their credibility. Accountant's objections to the legal conclusions in finding of fact numbers 4 and 5 will be discussed in section C of this opinion. B. Is the Trust at PNC Bank classified as a testate or an intestate asset 8 of the Estate? At the time of Decedent's death, his Trust at PNC Bank was valued at $333,915.74. The Trust contained: PNC Money Market worth $96,329.11; Accrued Income from PNC Money Market worth $796.66; 530 shares of Carlisle Companies, Inc. worth $22,525.00; 1,518 shares of PNC Intermediate Municipal Fund - PA worth $154,330.51; and 4,626 shares of PNC Value Equity Fund worth $59,935.46. The Trust Agreement does not name a beneficiary, but reads, in pertinent part: "[t]his TRUST shall terminate upon the settlor's death and any undistributed income and corpus shall be paid to the TRUST of Settlor's Estate." Testimony regarding the classification of the Trust as testate or intestate was taken at the Auditor's Hearing and the issue was briefed by both parties, but the asset was not identified on the Accountant's First and Partial Account and Statement of proposed distribution. Consequently, the issue was not before the Auditor and was not addressed. Objector argues that while the Will identifies Decedent's savings account at PNC Bank to be distributed to his wife, the Will does not specifically bequeath his Trust Account. Accordingly, Objector argues, the Trust Account should be deemed intestate and part of the residuary Estate. In contrast, the Accountant takes the position that by including the symbol and word "+ stock" after the phrase "my savings account in PNC Bank," Decedent meant for his PNC Bank Trust Account to be left to the Accountant. Objector argues that these phrases refer only to Decedent's PNC Bank Savings Account and Decedent's separate stock outside the trust. If a will does not devise all of testator's assets, the residuary is distributed through intestacy. 20 Pa.C.S.A. §2101; In Re Knox's Estate, 328 Pa. 188, 195 A. 34 (1938). As the Will does not specifically devise the Trust, it follows that the Trust falls into the residuary estate. Pa.C.S.A. §2101. Thus, the Trust will be distributed through intestacy. C. Did the Auditor err in determining that Accountant must reimburse the Estate for the Dauphin National Bank Certificate of Deposit, and determining that the CD was specifically bequeathed to Accountant? In her report the Auditor found that the Decedent's two attorneys-in-fact misused their limited form powers of attorney when they placed the Accountant's name on the Decedent's Dauphin National Bank's Certificate of Deposit (CD) six days prior to his death. The Auditor found that the granted authority was clearly limited to the "signing of necessary papers" and did not extend to a gratis signature authorizing the gift of Accountant as co-owner of the CD. Accountant argues that powers which may be given to an attorney-in-fact include the power "to make gifts" and "to engage in banking and financial transaction." 20 Pa.C.S. §5602(a). Consequently, Accountant argues that the transaction involving the CD ]0 falls within the {}5602 parameters. The Auditor agrees with Accountant that the CD passes to the Accountant by virtue of specific devise in the Will because a CD is a savings account. The Auditor defined a savings account as "an account that draws interest at a bank." Since no evidence was put forth to show that the CD was not earning interest while the monies were deposited at Dauphin National Bank, the Auditor decided that the CD is a savings account. However, Objector argues that the Will devises only a "savings account. ·. Dauphin Bank" [sic], and that if Decedent had intended to bequeath the CD to his wife, he would have specifically identified the asset in his Will. The Pennsylvania Legislature has defined a CD as an account, "a contract of deposit of funds between depositor and a financial institution," as are checking and savings accounts. 20 Pa.C.S.A. § 6301. Therefore, we uphold the auditor's determination that the CD is a savings account and find that Decedent had bequeathed the CD to the Accountant. D. Did the Auditor err in determining that Accountant should reimburse the Estate for loan payments on the Decedent's Dodge diesel pickup truck? At the time of Decedent's death there was an outstanding lien in the amount of $19,633.07 on the 1995 Dodge diesel pickup truck. Accountant and her son, Antonio, were devised all Decedent's cars and trucks. Accountant and Antonio ]! have had sole possession and unilateral use of the pickup truck since Decedent's death. Pursuant to the Account, nineteen monthly payments from December of 1995 through August of 1997 in the amount of $465.85 each ($8,851.15 total) were disbursed from the Estate as payment on the pickup truck. Accountant stated that she made the payments from the Estate because she could not safely distribute the vehicle while Objector's appeal was pending. The Accountant argues that it would be patently unfair to charge the Accountant with the expense of paying off the loan when she was not certain to receive ownership of the truck. Section 2514 of the Probate, Estates and Fiduciaries Code provides that a specific devise of personal or real property passes the property subject to any security interest existing at the date of the testator's death. 20 Pa.C.S. §2514. Consequently, the payment of the lien on the pickup truck is the responsibility of the specific beneficiary and not the responsibility of the Estate. Auditor determined, and Objector agrees, that allowing the Estate to make the loan payments and then transferring title to Accountant would result in an improper enhancement of the testamentary devise. Accordingly, the Auditor determined that Accountant should reimburse the Estate for monies paid toward the outstanding lien on the 1995 Dodge diesel pickup truck. We affirm the Auditor's determination of this issue. E. Did the Auditor err in determininq that the Accountant must reimburse the Estate for payments made to repair and maintain real property specifically devised to the Accountant? ]2 The Auditor determined that the Accountant must reimburse the Estate for certain expenditures, including: $3,411.33 paid to American Lawn Services for repairing damage done to the Stumpstown Road farm by groundhogs; $358.00 paid to place stone on the driveway at the Stumpstown Road farm; and $560.00 paid to repair the bridge at the Columbia County hunting camp. The Auditor reasoned that the expenditures were improvements to property devised to the Accountant individually or to the Accountant and her son. Auditor's Report, Finding of Fact 48. The Auditor also pointed out that the Accountant and her son were in possession of these properties and had the sole use of the properties without paying any rent for the use and occupation of the properties. See Estate of Rozanski, 356 Pa. Super. 234, 240, 514 A.2d 587, 590 (1986). The Accountant argues that she, as the representative of the Estate, has the right and duty to possess, preserve, maintain and repair estate assets until distribution. 20 Pa.C.S. § 3311;20 Pa.C.S. § 3331, Official Comment- 1949; Estate of Rozanski, 356 Pa. Super. 234, 240, 514 A.2d 587, 590 (1986). The Accountant argues that if the decree was vacated and she failed to pay the maintenance costs, the estate assets would have been impaired and Objector and the other intestate heirs would have surcharged her for any losses. The Accountant also argues that it would be patently unfair to charge the testate beneficiaries with the expenses of maintaining assets during a time when they 13 were not certain to receive those assets. The Objector agrees with the Auditor that the properties repaired and maintained by the Accountant were specifically devised to the Accountant and that she was in possession of the properties. Objector also argues that the Accountant's personal expenses should not deplete the residuary through improper disbursements because there are four children not identified in the Will. The question of whether the expenses were maintenance or improvements is a determination of fact by the Auditor. This Court will not disturb the Auditor's findings of fact if the findings accord with the testimony submitted at the audit hearing and the auditor has not capriciously disbelieved evidence or abused her discretion or committed an error of law. Estate of Allen, 488 Pa. 415, 412 A.2d 833 (1980). However, the Auditor's finding that the expenses were in the nature of improvements does not accord with testimony submitted at the audit hearing. At the hearing, the Accountant testified as to the $3,411.33 paid to American Lawn Services for work done at the Stumpstown Road property: ·.. I have a problem with groundhogs living on the farm and they dug holes up by my porch, and when I get company there's small children or even adults can trip and twist their ankle in there and then sue you, because everybody is sue happy, so I called in American Lawn Service and I got them fixed. Transcript of Hearing, November 26, 1997, at 125 and 126. The Accountant further testified as to the $358.00 paid for stone on the 14 Stumpstown Road Property: I have a very long lane and through weather and farm wear and tear from running tractors or anything over it constantly, it gets very big holes, and anybody that would come up to the farm in a decent vehicle, it hurts their vehicles. Transcript of Hearing, November 26, 1997, at 127. The Accountant also testified as to the $560.00 paid to repair the bridge at the Columbia County hunting camp: Piers are in, down in the water, and from weather abuse, it started eating away in the concrete and I am responsible if somebody gets hurt up there, so we had to redo the piers so they wouldn't fall... [a pier] holds up a - bridge, a walk bridge. Transcript of Hearing, November 26, 1997, at 128. An accountant has the right and duty to possess and maintain property until distribution. 20 Pa.C.S. {}3311; 20 Pa.C.S. {}3331, Official Comment- 1949; Estate of Rozanski, 356 Pa. Super. 234, 240, 514 A.2d 587, 590 (1986). We find that the above testimony supports the fact that the above expenses were made to maintain the properties, not to improve them. Thus, Accountant need not reimburse the estate for these maintenance expenses. F. Did the Auditor err in determining that the Accountant must reimburse the estate for the $60,000.00 paid to four of the decedent's children in exchange for those children executinq an Agreement Not to Contest the Will? Four of Decedent's six children were paid $60,000.00 ($15,000.00 each), from the estate checking account, in exchange for executing an Agreement not to Contest the Will in which, among other things, the children agreed: not to contest Decedent's Will... or appeal from the order admitting Decedent's Will to probate, or contest any of the proceedings thereunder, or present any claims against Decedent's estate (whether probate or non-probate), or present any claims against Administrator for her administration of Decedent's Estate. Agreement Not to Contest Decedent's Will, paragraph 2. The Auditor determined that these payments did not benefit the estate, rather, the payments benefited the Accountant. The Auditor also determined that Accountant was overreaching any authority given to her to settle controversies under the PEF Code. See 20 Pa.C.S. §§ 3323, 3332. Accordingly, the Auditor directed Administratrix to reimburse the estate for the $60,000.00 payment, plus interest, made to four of the Decedent's six children. Objector agrees with the Auditor's conclusion and argues that the Auditor's conclusion should be upheld. The Accountant argues that if she reimburses the estate the $60,000.00, plus interest, paid in connection with the Agreement Not to Contest Decedent's Will, the four children who signed the agreement will enjoy a windfall if the payments are not treated as advancements against their shares of the estate. Consequently, the Account should be adjusted so that Objector and Angela Magaro are not harmed by the $15,000.00 payments to the four other children. The Accountant proposes that [t]he proper solution is to (a) calculate the shares of Decedent's net ]6 intestate estate which Objector and Angela Magaro would have otherwise received if the $15,000.00 payments had not been made from the Estate to Decedent's four other children, and (b) require that the Accountant and the other testate beneficiaries reimburse the intestate estate to the extent necessary to pay Objector and Angela Magaro their respective shares so calculated. Brief in Support of Objections of Administratrix c.t.a, to Auditor's Report on First and Partial Account, at 20 and 21. To preclude the unjust enrichment of the children who received $15,000.00 each for signing the agreement, while also ensuring the fair treatment of the children who did not sign and thus did not receive $15,000.00, the payments shall each be treated as an advance upon the receiver's respective share of the estate. An advancement consists of a gift made to an heir in anticipation of the share to accrue to that heir from the decedent's estate. In Re Houston's Estate, 383 Pa. 466, 469, 119 A.2d 304, 306 (1956). The value of advancement shall be charged against the share of the person who received it; the total share shall not exceed the share received by each of the other persons who take equally from the decedent. 20 Pa.C.S.A. 2109(a). Thus, the children who have already received $15,000.00 from the Accountant will now receive a distribution of $15,000.00 less than what their total share from the Estate would have been. The second set of $15,000.00 payments made to the four children from Accountant's personal funds was not objected to and will not be discussed. G. Did the Auditor properly determine that the Estate pay for Obiector's attorney's fees and expenses? 17 As a general rule, a party objecting to a personal representative's account must pay her own costs and attorney's fees, and she will be awarded such expenses from the estate only in exceptional cases where the objections result in a substantial benefit or where the personal representative is guilty of bad faith. In Re Lux Estate, 480 Pa. 256, 272, 389 A.2d 1053, 1061 (1978). The Auditor concluded that the Accountant did not act in bad faith, but through the efforts of the Objector, certain monies were to be reimbursed to the residual estate totaling $78,773.64. The Auditor determined this recovery to the residuary estate to be a significant benefit to the intestate heirs. Given the issues involved in the objections and the favorable outcome of some of those objections, it is factually supportable that a portion of the Objector's attorney's fees be reimbursed. Accountant did not raise objection to the reasonableness of Objector's legal fees. The Auditor recommends that one half of the $8,255 attorneys' fees paid by the Objector be reimbursed by the Estate. Accountant argues that Objector is not entitled to have her attorneys' fees paid by the Estate because the objections have primarily benefited Objector rather than the Estate. Additionally, the objections to the account and Objector's aborted will contest have cost the Estate more in time and expense than Objector could hope to recover on its behalf. Accordingly, Accountant argues that the Court should overturn the portion of the Auditor's Report awarding Objector attorneys' fees from the Estate. VVe find that the $78,773.64 which will be reimbursed to the Estate as a result of Objector's efforts is a substantial benefit to the Estate. Thus we affirm the Auditor's recommendation that one half of the sum of $8,255.00 in attorneys' fees paid by the Objector shall be reimbursed by the Estate. H. Should the Auditor's fees be reduced due to the delay in filinq her report? The Auditor requested payment from the Estate in the amount of $6,000.00 for 80 hours at $75.00/hour. Accountant objects to the amount of the Auditor's fee and requests that the fee be reasonably reduced to compensate the estate for the Auditor's delay in filing the Report. "An auditor or master shall file his report within ninety days after his appointment, unless, upon application, the court extends the time; and, in default thereof, his appointment may be vacated and compensation and reimbursement for services denied." Pa. O.C.R. 8.2. Since fifteen months passed between the filing of the last brief and the filing of the Report, Accountant argues that the Auditor's fee should be reduced. VVe find that although the Auditor was late in completing her report, her fee shall not be reduced due to the complexity of this case. By the Court, 19 Lisa M. Coyne, Esquire 3901 Market Street Camp Hill, PA 17011-4227 Auditor Mark E. Halbruner, Esquire Gates & Associates, P.C. 1013 Mumma Road, Suite 100 Lemoyne, PA 17043 For the Estate of David W. Magaro Jill M. Wineka, Esquire Purcell, Krug & Hailer 1719 North Front Street Harrisburg, PA 17102-2392 For Tina M. Magaro 20