July 2019
IMO the Estate of Helen L. Rose, Folio F01052012HLR-K (July 9, 2019)
In this case, in the context of exceptions to a first and final accounting for an estate, the Court recommended a finding that the executrix breached her fiduciary duties to the estate by engaging in self-dealing in selling assets of the estate to herself. Finally, as a result of this self-dealing, the Master recommended significant fee shifting.
Following the decedent’s death in 2012, pursuant to the decedent’s Last Will and Testament, the executrix attempted to sell certain real property located in Smyrna. The property was originally listed at $129,000, and was identified in the estate’s inventory as having a value of $120,000. Due to a variety of issues, however, it never sold. Ultimately, the executrix sold the property to herself for only $80,000.
The Master reasoned that the executrix had engaged in self-dealing. Under Delaware law, such a transaction is voidable unless the executrix can show (1) the fairness of the transaction and (2) the consent of the other beneficiaries. The executrix here could demonstrate neither. Due to the extremely reduced sale price, the transaction was not fair,. And only one of the other six beneficiaries even knew about the transaction, and therefore consent could not be demonstrated.
The Master granted relief as follows: for Patricia to refund the estate $48,000, or to have the sale of the property voided.
The Master also considered the question of who should pay the attorneys’ fees for each side. Because the Master was recommending a finding that the executrix self-dealt, she was not entitled to reimbursement from the estate—rather, she would be required to pay her own fees. And, the Master recommended that she be required to pay the exceptants’ fees, given the benefit they had produced to the estate.
This case illustrates the importance of executors and executrixes to cautiously exercise their rights in acquiring property—whether real or otherwise—from the estate without first considering their fiduciary duties to all of the beneficiaries under the testamentary documents.
IMO the Estate of Margaret Elaine Clark, Row #163725 (July 9, 2019)
This case involved exceptions taken by a beneficiary to an estate accounting. The decedent died intestate. She was survived by her two children, a son and daughter. The son became the personal representative and the daughter filed this action taking exceptions to his accounting. In short, the daughter sought to disallow a number of entries on the accounting, reimbursement for funds that she spent on behalf of the estate, and a shifting of attorneys’ fees. The son sought approval of the accounting and authority to pay all the listed expenses, make any remaining distributions, and close the estate. After a one-day trial, Master Selena E. Molina found in favor of the daughter on some issues and in favor of son on others.
Applying Chancery Court Rule 198, the Master held that the personal representative bears the initial burden of demonstrating that the accounting was properly prepared and that the burden shifts where the exceptant seeks a surcharge. In the latter case, the exceptant must demonstrate a surcharge is warranted.
The first issue addressed by the Master was the daughter’s exception to the son’s commission of $5,000. The Master found that this “flat rate chosen by the Personal Representative” was unreasonable under the circumstances. First, it represented roughly 13.4% of the total estate. And second, the son admitted to not spending a substantial amount of time on the estate’s administration. The Master also found it relevant that there was no substantial risk or responsibility involved and that there were not any novel or difficult issues involved in administering the estate. It was also relevant that the son did not suffer any loss of business, nor were there any cognizable benefits to the estate from the son’s service. And finally, the Master took into account the fact that estate was not large and was comprised primarily of cash assets. The Master did allow a commission of $1,000, though.
The second issue was the son’s travel expenses which totaled $3,541.67. These travel expenses were the result of the three times he was required to travel to Delaware. The Master found that first two travel expenses, which were subsequently added to an amended accounting, were untimely. Because the son provided no justification for his failure to list those expenses in the first accounting, the Master disallowed those expenses.
The third issue was whether the son’s attorneys’ fees incurred in administering the estate should be disallowed. The Master held that they should be allowed in part and disallowed in part. The Master found that the fees incurred in investigating wrongful death claims, which would benefit the decedent’s heirs and not the estate, are not properly charged to the estate. Conversely, attorneys’ fees incurred in investigating pre-death survival claims (such as personal injury claims) could benefit the estate and are thus allowable. The Master also disallowed attorneys’ fees that related to a proceeding in North Carolina that had no connection to the Delaware estate. The Master further disallowed in part and allowed in part attorneys’ fees associated with this litigation. She found that where the fees benefited the estate, those fees would be allowed. Because some of those fees were incurred while preparing the amended accounting, the Master found that those fees should be disallowed. And lastly, the Master allowed all of the attorneys’ fees related to the administration of the estate’s bank account for the obvious reason that those fees were incurred for the benefit of the estate.
The fourth issue was whether the daughter’s expenses related to the funeral of the decedent should be paid to her from the estate or surcharged to the son personally. The Master found no reason for the funeral expenses to be surcharged to the son personally, but that the expenses should be paid from the estate because the General Assembly and Court have given those expenses the rebuttable presumption of being relevant, reasonable, and timely.
And lastly, the Court found that the daughter’s attorneys’ fees should not be shifted to the son because there was no bad faith exception to the American Rule that dictates that each party is responsible for its own legal fees.
IMO: H.M. Mosher Trust Dated January 14, 1938, C.A. No. 2017-0653 (October 29, 2018)
In this case, in the context of competing motions for judgment on the pleadings, Vice Chancellor Glasscock found that a great-great-grandchild of a settlor was entitled to an equal share of the settlor’s trust as that of the great-grandchildren in that stirpital line. In doing so, the Court applied equitable principles and read the trust instrument as a whole to determine what the settlor would have intended in the distribution of the trust proceeds. As a result, the Court granted respondent’s (the great-great-grandchild’s) motion for judgment on the pleadings and denied petitioners’ (the other great-grandchildren) motion.
Settlor Henry Mosher created the relevant trust in 1938, which provided for equal payment of trust income to each of his four children upon his death. The grandchildren, upon death of the children, came to share in the trust income. Finally, the trust is to terminate upon the death of the last named grandchild and the trust principal is to be distributed at that time amongst the beneficiaries in the percentage share each had been receiving income. One of Mosher’s grandchildren disclaimed her interest in the trust income, and it thus passed to her four children. One of those great-grandchildren, Mark, died, leaving one heir.
The trust managers filed a petition for instructions asking the court to determine how the trust should be distributed. It was the petitioners’ position that Mark’s share should be redistributed to the surviving great-grandchildren, while it was respondent’s position that she is entitled to the entirety of Mark’s share. Interpreting California trust law, the Court looked to the trust instrument as a whole to determine Mr. Mosher’s intent. The Court noted that, while the language of the trust is simple, that language illustrates that “simplicity and clarity are not synonyms.” Upon closely reviewing the trust instrument, the Court found that the trust should be read to dictate that the income is to flow down stirpital lines, rather than being redistributed among surviving members of the preceding generation. As such, Mark’s daughter—his only heir—was entitled to the entirety of Mark’s interest in the trust income.
