HomeMy WebLinkAbout21-2010-1134
IN RE: ESTATE OF
BETTY J. SIPOS
IN THE COURT OF COMMON PLEAS
OF THE NINTH JUDICIAL DISTRICT
ORPHANS’ COURT DIVISION
21-10-1134
IN RE: OBJECTIONS TO FIRST AND SECOND INTERMEDIATE ACCOUNTING OF
EXECUTOR AND FIRST INTERMEDIATE ACCOUNTING OF SECOND EXECUTOR
PLACEY, C.P.J. 30 MARCH 2020
PROCEDURAL HISTORY
Betty J. Sipos (Decedent) died testate on October 7, 2010. Decedent’s Will
appointed her then Husband, Arpad K. Sipos, as Executor (henceforth Executor or
Husband). Executor was directed to file an interim accounting in February 2013, to
which Petitioners (Heckards), two sons of the Decedent named in the Will, filed
objections in April 2013 and a Citation issued to all interested parties in May 2013 as to
why the relief requested by Petitioner’s should not be granted.
In February 2017, Petitioners’ sought to enforce directives of Decedent’s Will and
followed on with Petition to Remove the Executor in April 2017. Citations to both were
issued, Executor brought on new counsel to respond to these Citations, and a petition to
make absolute the request for removal in August 2017 was filed. Ultimately, Executor
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was removed in December 2017, and an Administrator d.b.n.c.t.a., the named alternate
executor (Executor II) in the Will, was granted letters in January 2018.
Executor, upon court directive, filed a second accounting in May 2019, to which
Heckards filed objections. Executor II compelled Executor for a detailed accounting and
inventory information, to include a deposition of Executor. Executor has subsequently
filed claims against the estate in the amounts of $68,575.30 and $121,784.87.
The parties were advised at an enforcement hearing in May 2019 that the court
would consider all the objections, and further, all pending matters were taken under
advisement. In July 2018, Executor II subsequently sold the rental property, as
specifically directed in the Will. Executor II filed his first accounting for the estate in
April 2019, to which now former Executor filed objections in June 2019.
The objections to the first accounting of Executor, filed in April 2013, include
claims for pre-death expenses to the rental property owed to Executor, undocumented
expenses allegedly owed to Executor’s construction company, improper and excessive
attorneys’ fees that were paid from the estate, and unwarranted and unjustified
commission claimed by Executor.
The objections to the second accounting of Executor, filed in June 2019,
incorporate the first continuing objections and add additional objections for
undocumented rental income without credit to the estate and failure to sell the rental
property pursuant to the specific language of the Will.
In June 2019, Executor filed objections to the first accounting of Executor II,
which includes Executor’s protestations to the limited bank reporting and separation of
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funds and limited reporting of the sale of the rental property as evidence only by the
HUD1 form.
FINDINGS OF FACT
In evaluating these objections, based on the representations made in the filings
and in court, it was thought that the estate had become insolvent under Executor. The
court undertook the review to determine the validity of the claim before an auditor would
be engaged. In order to conduct this analysis it was necessary to have Executor’s
accountings broken down into sizes that the county equipment could process and Bates
stamped into smaller exhibits that would facilitate and enable examination. A
spreadsheet of this examination was made and is attached to this decision as court
exhibit 1. The Bates stamped pages, marked as A through G then numbered by the
court equipment, are made part of the record as court exhibit 2, but are not attached.
Additionally reviewed as part of this decision process was the redacted deposition of
Executor Arpad Sipos provided in support of Executor’s response to the objections.
This review was attempted on the submitted quartered notes of testimony pages;
however, it required scanning to facilitate review in full page format. In addition to the
accounting findings made in the spreadsheet found at court exhibit 1, it is found the
following facts are germane in the decisions of the various objections:
1. Betty J. Sipos (Decedent) died testate on October 7, 2010.
2. The Will, dated November 15, 2007, nominated Decedent’s Husband, Arpad K.
Sipos, as executor (Executor), and nominated Decedent’s son, David S.
Heckard, Jr., as executor (Executor II) should Executor not be able to perform
the appointed duty; both were to serve without bond.
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3. The Will specified distribution of a grandfather clock, musical organ, as well as
Decedent’s bank and investment accounts.
4. The Will granted Husband a conditional life estate in the marital residence with
a provision for final distribution of the sale of the marital residence among
Husband’s estate, two of Decedent’s sons, and other extended family
members.
5. The Will further directed Decedent’s rental property be sold and distributed in
nominal value to a son and daughter, with a specific sum to a granddaughter,
and the remaining percentage distributions to Husband, two of her sons
(Heckards), and other extended family members.
6. The residue of the estate, per the Will, is to be distributed to Heckards and
specific grandchildren on specified percentage basis.
7. Decedent intentionally limited any distribution of her estate to a specified son
(deceased) and daughter to the nominal value.
8. Probate occurred on November 5, 2010, with letters testamentary given to
Executor, who estimated the value of the estate at approximately $402,500.00.
9. An inheritance tax return was recorded by the Register of Wills on January 11,
2013. Notably, that return indicated:
a. Value of the rental property was $195,000.00, in an undated valuation,
and the property was described as a multi-family unit that is Section 8
qualified that when fully rented produces $27,000 yearly revenue with
room for 10 to 15% rental increases.
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b. Cash listed in the estate bank account from Executor notes it is the
balance of a settlement claim from an accident of $42,884.16, without
further supporting documentation.
c. Administrative costs of $25,000.00 and monthly management fees for the
rental unit were claimed by Executor, as well as a claim for $125,300.00 to
reimburse Executor for “rehab rentals 1992-2010” albeit not identified as
one in the same person.
d. A Medicare claim of $3,517.46 is listed as a 2013 estate liability; however,
the spreadsheet at exhibit G, page 13, indicates this claim was paid
through the estate checking account on May 3, 2011.
10. The tax return and inventory were filed only after Heckards obtained a Citation
to show why the Executor had not filed as required.
11. The filed Rule 6.12 status reports indicate that Executor’s new counsel was
said to be “working on it” or that estate would be completed “upon selling the
apartment house.”
12. Objections were made by the Heckards to the First and Intermediate Account of
Executor and a Citation issued in May 2013, without further prosecution.
13. A further Citation was issued in February 2017 to enforce the directive in the
Will to sell the rental property and distribute those proceeds.
14. An additional Citation was issued in July 2017 to show cause why the executor
should not be removed.
15. Heckards request to remove Executor was granted on December 22, 2017,
based on the averments of waste and mismanagement, and after no cause
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being shown by Executor as to why the requested relief should not be granted,
even after additional time was given to find new counsel and respond,
Heckards’ averments were accepted as fact.
16. On January 23, 2018, letters of administration d.b.n.c.t.a. were given to the
second named executor (Executor II).
17. Executor II sold the rental property, pursuant to the Will, at a sales price of
$145,000.00 that netted the estate $102,775.00 on July 27, 2018.
18. This sale was an arm's length transaction.
19. Husband filed a claim against the estate in the amount of $121,784.87 on
January 7, 2019.
20. Husband filed a claim against the estate as the owner of Heckard Construction
in the amount of $68,575.30 on January 7, 2019.
21. Heckard Contractors Inc., a Pennsylvania non-stock corporation, bears the
addresses of the rental apartments and marital home, and was created January
30, 1996. See, https://corporations.pa.gov/search/corpsearch.
22. A marriage license for Arpad Kalman Sipos and Betty Jean Heckard née
Rodkey was issued in 2002, and they were married on November 28, 2002.
See, Application Number 2002-00985.
23. Decedent was a widow, whose first husband died on December 28, 1991. Id.
24. Husband was married three (3) times prior, having last been divorced on May
3, 1995. Id.
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25. The rental property at 2121 Old Hollow Road was purchased by Decedent and
her then husband David Heckard on August 2, 1956, and passed to Decedent
upon his death in 1991. See, Deed book 17-H, page 566.
26. Heckards filed a petition to remove Husband (the now former Executor) from
the life estate in the marital home for tax delinquencies and a Citation issued on
that request in February 2019.
27. Husband was given until June 15, 2019 to pay the delinquencies and avoid tax
sale.
28. After a hearing, both executors were directed to file accountings, and objections
thereto were filed in June 2019, and a response in July 2019.
29. No distributions of the estate have been made at this time, only payments to
Executor, Attorney, and business bills paid by Executor.
DISCUSSION
Statement of Law: The account of a personal representative shall be confirmed
by the court or by the clerk, as local rules shall prescribe, if no objections are presented
within a time fixed by general rule of court. If any party in interest shall object to the
account, or shall request its reference to an auditor, the court, in its discretion, may
appoint an auditor. 20 Pa.C.S. § 3512 Findings of fact by an auditing judge, like verdict
of a jury, will not be disturbed unless clear error is obvious, and if there be sufficient
evidence such findings will stand, even though another judge might have reached
another and different conclusion. In re Christie’s Estate, 71 Pa. D. & C. 209 (1950). “An
absurd, but favourite notion prevails among those who have to do with the settlement of
estates in the Orphans' Court, that it is not only possible, but preferable, to blend a
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distribution account with the administration account; and thus settle the whole estate at
a dash.” In re Yundt’s Estate, 6 Pa. 35, 36 (1847).
The court has statutory authority to remove a personal representative when “the
interests of the estate are likely to be jeopardized by his continuation in office.” 20
Pa.C.S. § 3182(5). Our case law has recognized that “removal of a fiduciary is a drastic
action which should be taken only when the estate is endangered and intervention is
necessary to protect the property of the estate.” In re Estate of Pitone, 413 A.2d 1012,
1016 (Pa. 1980) (quoting Scientific Living, Inc. v. Hohensee, 270 A.2d 216, 224 (Pa.
1970)). The reasons for removal of a fiduciary must be clearly proven. However, proof
of a conflict of interest can be inferred from the circumstances. When a conflict of
interest is apparent from the circumstances, bad faith or fraudulent intent on the part of
the fiduciary need not be proven. In re Estate of Westin, 874 A.2d 139, 143 (Pa. Super.
2005)(citations omitted).
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. The amount to be allowed for counsel
fees, as for compensation of fiduciaries, is peculiarly within discretion of court of first
instance, and its judgment will not be disturbed except for manifest abuse of discretion.
In re Davidson’s Estate, 6 A.2d 73, 76 (Pa. 1939). The executor is not entitled to
attorney's fees for defending an accounting action brought by a legatee, where the
action is based on the executor's own mismanagement of the estate assets. Any
objection relating to executor’s compensation and attorney’s fees are sustained where
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the record does not indicate the basis upon which they were charged. In re
Longenecker’s Estate, 54 Dauph. 24 (1943).
Where a Will confers no authority to continue the testator’s business, an
executor, administrator, or trustee may not, as a general rule, properly do so, and, if he
does, any loss to the estate occasioned by such continuation falls upon him. In re
Nagle’s Estate, 156 A. 309, 310 (Pa. 1931).
The personal representative’s duty to settle the estate must be viewed with
reference to the situation of the assets at the time of decedent’s death. Thus, he
has no duty to carry on a business conducted by the decedent. On the contrary,
a personal representative breaches his trust if he continues to operate a trade or
business on behalf of an estate in the absence of testamentary direction, court
order, or the consent of all interested persons. If he does so, he will be liable for
any loss thereby resulting to the estate.
In re Kurkowski's Estate, 409 A.2d 357, 361 (Pa. 1979).
Generally, when a court authorizes an executor to collect and apply rents from
decedent's realty to payment of decedent's debts, the proceeds from the realty should
be accounted for separately and the net only distributed to creditors and legatees. In re
Balok's Estate, 30 A.2d 664, (Pa. Super. 1943). When an executor carries on the
business which decedent conducted, two accounts should be filed, one relating to
affairs of estate, including assets and liabilities at time of decedent's death and other
embracing what was done by fiduciary, itemizing debts incurred and revenues received.
In re Snyder's Estate, 12 Erie 102 (1926); see also, 20 Pa.C.S. § 3314.
Application of Fact to Law: In general, the duty of any estate administrator is to
preserve the estate, so far as is possible, until termination and delivery to the
remaindermen; use the estate assets for no unauthorized purpose and protect the
interests of the remaindermen, as well as the life tenant. All that a court of equity
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requires from an administrator is common skill, prudence, and caution. The measure of
diligence and care required of the administrator is that which a man of ordinary
prudence, acting in good faith, would practice in the case of his own estate, the
common skill and prudence of an investor of money to be safely kept as a good
fiduciary.
In prima facie review it is abundantly clear that Executor has a conflict of interest,
requiring his removal. The conflict interest was created by Executor continuing to run
the rental business of Decedent for years after her death without specific authorization
and in defiance of explicit direction to liquidate the rental property. Thus, in absence of
permission, this personal representative had no right to continue decedent's business
beyond a reasonable period of time; he has done so at his own peril.
In review of the accountings provided by both estate administrators there is clear
and convincing evidence that Executor went beyond his authority and direction. The
court’s own spreadsheet review establishes a pattern of conduct, lack of diligence, and
accounting irregularities on the part of Executor. A glaring irregularity is where did all
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the first reported rental money go? It certainly was not put into the estate bank
account, which was purportedly funded only by proceeds of a settlement for injuries to
Decedent.
The first objections to attorney’s fees and to Executor are well founded. The
basic rule of representation for any attorney is a fee agreement; gone are the days
where the client pays what the service is worth. In this case no agreement can be
found to support the payment of Executor’s first attorney. Combine that with some
unknown settlement as a source of estate funds, presumably also involving an attorney,
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$52,120.00 as calculated from the last unnumbered page of the First Account of Executor.
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perhaps the same one, and it cannot be found that these fees appear reasonable. The
claim made by the attorney against the estate would have remained, and if deemed
valid paid as part of an approved distribution; however, this did not occur. Likewise, the
compensation paid to Executor is equally unreasonable as paid. While the math is
easy, (five (5) percent of $500,000.00 is $25,000.00) this calculation of what the estate
might be worth is not due Executor until after the estate work is done. Thus, this
premature compensation to Executor is deemed unreasonable and both objections are
sustained.
Executor II’s objections arising from payments made to Heckard Contractors, Inc.
are well founded. This incorporated business, set up prior to the marriage to Executor,
at a time when then-widowed Decedent solely owned and operated the rental property
by herself, is recognized as a suitable vehicle to reduce taxable income. In this way,
the purchase of a lawn tractor to cut the grass, as shown in exhibit 1(B), line 48, could
be a business tax deduction, and not charged as an estate expense. It is recognized
that Executor is now listed as all the officers of the corporate entity, but that does not
change the character of the business as being originally formed, owned and operated
by Decedent.
A review of the receipts supplied as part of the accounting shows numerous
inconsistencies and or downright fraud. Purchases were made, charged to estate, or
passed through to estate by Heckard Contractors, at big box stores in locations such as
Hamburg and Easton Pennsylvania, which are hours away from the rental unit in
Mechanicsburg and the closer, same local big box stores. Further, items not useable at
the rental property were charged to the estate. Items such as pool chemicals were
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purchased and billed to the estate, when the estate’s rental property has no pools,
ponds, or other water features so common in Section 8 housing. Moreover, at various
points Executor was charging the estate for trash bills that exceeded the monthly rental
income of the property. Additionally, the receipts from the big box stores lack any detail
customary in contractor work, such as purchase order number, job number, customer
name, work location, or other descriptor that would allow accounting identification.
Thus, in light of the finding of an inherent conflict of interest by Executor, the
unauthorized continuation of the business, along with the multiple accounting
irregularities, the objections to all payments made to Heckard Contractors, Inc. are
sustained. In similar calculus, the $125,300.00 liability listed by Executor in his
accounting to Heckard Contractors that is now a $121,784.87 claim made by Husband
for the pre-death Heckard Contractors work on the rental property is dismissed.
The objection that Executor did not follow the explicit directions of the Will and
sell the rental property is also well founded; the Will is clear. Based on this finding, the
next issue for inquiry becomes at what point was the Will violated? Heckards would
argue from the outset Executor had only paid lip service to the sale. Executor II took six
months to sell what had become, in charitable words, an unkempt property under
Executor. This sale by Executor II was an arm’s length transaction, as described on the
face of the supplied HUD form, it appears both parties acted in their own self-interest
and were not subject to pressure from the other party. In order to be reasonable to
Executor, the sale time utilized by Executor II is doubled to provide the time in which
Executor had to complete the sale of the rental. The objection to the failure to sell the
rental property is sustained beginning at twelve (12) months from the probate of the
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Will, and all rental property claims after that period, although initially appearing to be
valid on their face and labeled so in first review as overruled in the court’s spreadsheet,
upon further review, these rental property claims exist at the peril of Executor for his
failure to sell the property as directed.
The objections of Husband to Executor II’s accounting are tit-for-tat; however, on
their face they do not raise to a level that warrants sustaining the objections. Executor II
has accounted for all the money received but for minimal bank costs, which may require
future review. Indeed, the estate bank account has not been touched let alone depleted
as Executor had done during his tenure. The lack of identification of the source of
approximately $200.00 that was deposited into the estate account is of no moment as
all the money is deposited. The bank account being in the name of both Heckard
brothers, as opposed to the estate, is a misnomer. It is unknown how or why the
account reflects the brothers’ names on the bank statements but there is no prima facie
irregularity in the accounting itself. Thus, the objections to Executor II’s first accounting
are overruled. Future audits of Executor II’s accountings will be referred to an auditor
now that it is clear the estate is solvent; however, a surcharge is a viable option for
frivolous objections.
ORDER OF COURT
th
AND NOW, this 30 day of March 2020, upon consideration of the Objections to
the first and second accounts of Executor Arpad Sipos, review of the records and
creation of a spreadsheet attached as court exhibit 1, the objections are SUSTAINED
as detailed in the accompanying Opinion.
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Further, in consideration of the Objections to the First Account of Administrator
David Heckard, and in review of records, the Objections are OVERRULED as detailed
in the accompanying Opinion.
Finally, the claims against the Estate by Arpad Sipos and Heckard Contractors,
Inc. are DISMISSED for the reasons set forth in the accompanying Opinion.
By the Court,
_________________________
Thomas A. Placey C.P.J.
Distribution:
Hannah R. Shur, Esq.
Christopher J. Gleeson, Esq.
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