A Strong Offense
A Stronger Defense
The general rule is that a successor personal representative is not liable for the acts of its predecessor absent certain circumstances (e.g., the successor knew of a breach and permitted it to continue, neglected to take proper steps to redress a breach, etc.). So, do these certain circumstances arise when the predecessor and successor personal representatives are partners in the same small law firm? The Wisconsin Court of Appeals recently dealt with that issue and many more in In re Elegreet.
In addition to the successor personal representative liability question, the Court was faced with issues that come up all the time at the trial court level but which don’t often get appellate scrutiny: fees where the executor is also an attorney, attorney’s fees to a successful (or partially successful) beneficiary, and reduction in the personal representative’s fees. So what led to this tangled web?
When Margaret Elegreet died on December 2, 2002, her children promptly began litigating over the disbursement of her personal property. While all of this was going on, her personal representative – an attorney – was failing to pay gift taxes for 2001 and 2002, resulting in significant fees and interest owed to the IRS. In April 2006, the original personal representative died and the court appointed his law partner as successor personal representative. On the day before a hearing in October 2008 to determine why the estate was still open, the successor personal representative notified the court that the tax department in his law firm noticed that the estate had an outstanding gift tax obligation in excess of $100,000.00. The court ordered the successor personal representative to “open a dialogue with the IRS” on the issue. One of the beneficiaries, who had retained a CPA/attorney as an expert witness, offered to provide the CPA/attorney’s assistance on the issue.
After a whole bunch of other hearings on who was responsible for the delinquent taxes, in what amount, and the like, a hearing was held in November 2009 on the successor personal representative’s final accounting. Among the issues decided was (1) that the personal representative’s fees (all of which he calculated at his hourly lawyer rate and not the statutory personal representative rate) were reasonable, except that they would be reduced by the amount of interest incurred by the estate for the delinquent 2001 and 2002 gift taxes while the original personal representative served (the court declined to assess any additional sums against the successor); (2) the estate was to reimburse one of the beneficiaries a portion of the fees and expenses that beneficiary had paid the CPA/attorney who helped out the successor personal representative on the tax issue; and (3) that same beneficiary’s attorney was given a “token” $1,000.00 in attorney’s fees. At a later hearing, the trial court entered final judgment, closed the estate, and discharged the personal representative.
One of the beneficiaries appealed all of these orders. Because the estate had no assets left for the appeal, the probate court ordered all of the beneficiaries to chip in $5,000.00 to fund the appeal.
How did the Court of Appeals sort through this mess?
Rate of Compensation. You see this all the time. An attorney gets appointed as personal representative and he or she charges the hourly lawyer rate to do non-lawyerly stuff. The successor personal representative here billed all of his services at his lawyer rate and none of his services at the Wisconsin statutory personal representative rate. The personal representative’s billing records, however, suggested that he was charging his legal rate for non-legal services. On remand, the Court of Appeals directed the trial court to make specific findings as to which of the personal representative’s services were for legal services and which were for services as personal representative and adjust his compensation accordingly.
Reduction in Compensation. The appealing beneficiary wanted the successor personal representative’s fees reduced by the amount of interest that accrued on the delinquent gift taxes during his term as successor personal representative. The successor personal representative had been serving the estate for approximately 2 years by the time the tax issue was supposedly discovered. Despite the personal representatives having been law partners and despite the successor personal representative’s tax department ultimately uncovering the delinquent taxes, the beneficiary had failed to develop any evidence that the successor personal representative should have been aware of the delinquent tax issue at an earlier date or that he failed to timely address it when it was discovered (he waited 10 months to pay the taxes after the delinquency was confirmed). A “combination of people dropped the ball” on the gift tax issue, but the successor personal representative diligently pursued the issue when he became aware of it.
Reimbursement of Beneficiary’s Attorneys’ Fees. Wisconsin statutes authorize an award of attorney’s fees to prevailing parties in contested will proceedings. The trial court looked at the beneficiary’s attorneys’ billing statements, decided which of those services benefited the estate, and ordered that the estate pay for those services. The beneficiary failed to explain why the additional services performed by her attorneys benefited the estate and, therefore, she was not entitled to further reimbursement.
Perhaps the more important aspect of this portion of the award was out of whose pocket the fees were to be reimbursed. The court decided that the estate pays for the reimbursement, not the personal representative. There was no finding that the successor personal representative breached any duty he owed the estate. Under these circumstances, the applicable Wisconsin statute does not authorize a court to order a personal representative to pay a prevailing party’s attorney’s fees. A prevailing party is to be paid out of the estate. A court can get around this obstacle by reducing the personal representative’s fees, which would have the same effect as forcing a personal representative to personally pay the prevailing party’s fees.
Funding of Appeal. When the appeal was filed, the estate had no remaining assets, so the trial court ordered the beneficiaries to each pay $5,000.00 to fund the appeal. There is no authority or equitable power available for a trial court to order beneficiaries to use their personal funds to finance an appeal. The Court of Appeals, however, found that the trial court had the ability to order the beneficiaries to return disbursements from the estate to fund the appeal. On remand, the trial court was ordered to make factual findings regarding the amount of prior distributions that were made from the estate and exercise its discretion to compel their return to the estate for the financing of the appeal.