Can I object to the estate paying the fiduciary’s legal fees?

There are several grounds to object to the estate paying the fiduciary’s legal fees.  One of the most basic objections is to challenge the reasonableness and necessity of the legal services performed (see Matter of Bradley, 128 Misc 2d 240, 241 [Sur Ct, Nassau County 1985] [reducing the attorney’s fee because “some of the work performed was totally unnecessary and the time spent on the balance excessive and unjustified”]; Matter of Bloomingdale, 172 Misc 218, 228 [Sur Ct, New York County 1939] [reducing the attorney’s fee for charges where most of the work of the attorney “involved was unnecessary and of no advantage to the estate and was a duplication of the work of the attorneys who had represented both the executor and executrix in prior years”]; see also JK Two LLC v Garber, 171 AD3d 496, 496-497 [1st Dept 2019] [reduction of the amount requested to eliminate work that was duplicative or was unnecessarily performed; holding that the determination of a reasonable attorney’s fee can take into account whether a party has engaged in conduct or taken positions resulting in delay or unnecessary litigation]; Matter of Rose BB., 35 AD3d 1044, 1045 [3d Dept 2006]). 

            This may be accomplished by reviewing the billing invoices and considering each time entry individually and collectively.  Also review the attorney affidavit discussing the services performed and consider the following:  the time and labor required, the difficulty of the questions involved, and the skill required to handle the problems presented; the lawyer’s experience, ability and reputation; the amount involved and benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved. 

            You may also challenge the fiduciary’s fee request based on the lack of supporting documentation.  The courts have reduced fees, for example, where the fee request is based upon generalized descriptions of the legal services rendered rather than contemporaneously recorded time charges for the work (see Matter of Phelan, 173 AD2d 621, 621-622 [2d Dept 1991]; Matter of Kelly, 187 AD2d 718, 718-719 [2d Dept 1992] [“We have repeatedly emphasized the importance of contemporaneously-maintained time records as a key component of an attorney’s affirmation of legal services”]; Matter of Quade, 121 AD2d 780, 782 [3d Dept 1986] [acknowledging the importance of time records and holding that the Surrogate’s Court is not obligated to accept unsupported testimony regarding the amount of time claimed to be compensable”]; 22 NYCRR § 207.45 [a] [requiring information regarding “the services rendered, in detail; the time spent; and the method or basis by which the requested compensation was determined”]). 

            Where the fiduciary is guilty of a breach of fiduciary duty or self-dealing, object.  In such cases, the attorney’s fee incurred in defending the illegal acts should not be charged to the estate (see Matter of Hildreth’s Will, 274 AD 611, 615-616 [2d Dept 1949], affd 301 NY 705 [1950]; Matter of Kenney, 64 Misc 3d 1232[A], 2019 NY Slip Op 51389[U], *9 [Sur Ct, Albany County 2019] [holding that inasmuch as the legal fees were incurred to defend petitioner for his wrongdoing, and the associated legal services benefitted him and not the estate, the legal fees were the responsibility of petitioner personally, and not the estate]; see also Matter of Newhoff, 107 AD2d 417, 423 [2d Dept 1985]; Chiesa v Keogh, 23 AD2d 562, 562 [2d Dept 1965] [“the services of counsel to represent an executor against a charge of self-dealing may not be charged to the estate”]).

            Similarly, consider objecting to the payment of attorney’s fees for legal services which were necessitated by the mistake, neglect, and/or misconduct of the fiduciary (see e.g. Matter of Newhoff, 107 AD2d at 423; Chiesa, 23 AD2d at 562 [“Although the erroneous computation of commissions by the executors was the result of an honest mistake, the beneficiaries of the estate should not be penalized by the payment of legal services for defending the executors with respect to such mistake”]; Matter of Hildreth, 274 App Div at 611; Matter of Terranova, NYLJ, July 11, 2012, at 25, col 5 [Sur Ct, Queens County] [denying fee application where found the need for the fiduciary to retain new counsel resulted solely from his own misconduct and holding that the trust should not have to pay for incoming counsel’s learning curve]; 8 Warren’s Heaton on Surrogate’s Court Practice § 106.04 [1] [a] [LexisNexis 2020]). 

            In addition, where the services benefitted only the fiduciary, you may object to them being recoverable against the estate (see Matter of Shambo, 169 AD3d 1201, 1207-1208 [3d Dept 2019] [“Given the minimal, if any, benefit to the estate derived from the years of legal representation …Surrogate’s Court did not abuse its discretion when it denied the payment of counsel fees from the estate”]; Matter of Rodken, 2 AD3d 1008, 1009 [3d Dept 2003] [“An attorney may be compensated from estate funds only for services that benefit the estate”]; Matter of Baxter, 196 AD2d 186, 186 [4th Dept 1994] [reversing attorney’s fee award where the legal services did not benefit the estate but only benefitted the individuals whom the attorney represented];  Matter of Klenk, 151 Misc 2d 863, 863 [Sur Ct, Suffolk County 1991], affd 204 AD2d 640 [2d Dept 1994] [holding that the attorneys who represented the co-fiduciaries in a contested accounting proceeding were not entitled to be paid from the estate since their services were rendered to support the co-fiduciaries in litigation regarding commissions and not to further the interest of the estate]; see also Matter of Gutchess, 117 AD2d 852, 855[3d Dept 1986] [reducing the attorney’s fee and holding that “the evidence does not support the conclusion that petitioner’s representation on [a particular claim] produced significantly favorable results”]; Matter of Schwartz, N.Y.L.J., Oct. 17, 2017, at 22, col. 5, 2017 NY Misc. LEXIS 3890 [Sur Ct, New York County] [holding that the attorney failed to show that the time purportedly spent by him benefited the estate in any way]).

Do I Need to Pay a Bequest if the Beneficiary Owes the Estate Money?

A fiduciary has a legal obligation to make distributions to the beneficiaries of the estate. But what happens when a beneficiary owes the estate money? Does the law permit the fiduciary to offset the bequest with the debt? Or does the fiduciary have to first make a distribution and then sue the same beneficiary to recover the funds to pay the debt?

As a practical matter, one would assume that an offset is permitted. However, at first blush, the EPTL and SCPA do not appear to address the issue. They provide a beneficiary with the right to compel payment. But they do not expressly provide that a fiduciary may assert defenses to payment (see EPTL § 11-1.5; SCPA § 2102 [4] [“A proceeding may be commenced to require a fiduciary … to deliver a specific bequest or property to a person entitled thereto or to pay a legacy…”]). The only defense in the statute appears to be the timing of the payment: under EPTL § 11-1.5(c), a beneficiary generally must wait at least seven months from a fiduciary’s appointment before demanding payment.

The procedural rules of the SCPA and CPLR nevertheless permit a fiduciary to file an answer and assert defenses when the beneficiary commences a proceeding to compel payment. The fiduciary therefore has an opportunity to explain to the court why the legacy a or distributive share should not be paid in whole or in part (see 6 Warren’s Heaton on Surrogate’s Court Practice § 75.03 [LexisNexis 2019]).

In the answer, the fiduciary should therefore explain that the beneficiary owes the debt and assert this as a defense to payment. This is often referred to as the right to equitable retainer and lien (see Matter of Van Nostrand, 177 Misc 1, 7 [Sur Ct, Kings County 1941] [placing equitable lien upon the beneficial interest of a trustee/beneficiary who had embezzled trust property]; Matter of James, 149 Misc 135, 135-138 [Sur Ct, Kings County 1933]).

This defense is well settled under the case law and rests on sound principles of equity (see Matter of Eaton, 282 App Div 32, 34 [3d Dept 1953]). It is based on “a fundamental equitable principle of surrogate law that no beneficiary may claim any distributive rights from an estate until he has satisfied all of his obligations to it” (Matter of Van Nostrand, 177 Misc at 7; Matter of James, 149 Misc at 135-138 [Sur Ct, Kings County 1933]; Matter of Flint, 120 Misc 230, 232 [Sur Ct, Westchester County 1923], affd 206 App Div 778 [2d Dept 1923]; Matter of Foster, 15 Misc 175, 177 [Sur Ct, Orange County 1895] [holding that a debt is considered an asset of the estate in the hands of the legatee and a satisfaction of the legacy to the extent of the debt]).

Do You Trust Your Brother?

The names are different, but the facts are often the same. Unfortunately, more often than not, the outcome is also the same. The outcome does not have to be the same in every case. The maxim: an ounce of prevention is worth a pound of the cure is sadly most fitting.

Illness / Rely on family

Floyd W. Fisher was diagnosed with stage IV lung cancer in July 2015. Shortly after his diagnosis Floyd named his brother Larry Duane Fisher as his agent under a durable power of attorney. This document, which is very common, gave Larry complete control over his brother’s affairs. Presumably this was a sound decision. Larry had been a deputy for the Kit Carson Sheriff’s office. Larry told Floyd’s daughter not to worry and promised her that when her father died, he would handle the estate and file a probate case with the court. Certainly, the family was relieved that Floyd’s affairs would be handled in a competent trustworthy manner by a family member with a law enforcement background.

Death / Suspicion

Later that year in December, Floyd died. With no probate having been filed by Larry, Floyd’s daughter petitioned the court to handle his estate. After her appointment she found out the truth.

The truth

Larry stole from his deceased brother’s estate. He drained a bank account with more than $200,000, established for his brother’s care and treatment, down to $13.59.

He sold a piece of real property that had been in his brother’s wife’s family for generations to obtain funds for Floyd’s care. Almost $200,000 from that sale was earmarked for “the sole purpose of Floyd’s care and benefit and to pay his medical bills”. Larry changed the address on the account to his home and began to transfer the funds to several different accounts, including one for his teenage son.

Larry bought a Toyota truck for about $45,000 and purchased multiple guns with his brother’s money.

The outcome

In the end, the total amount spent from the account on Floyd’s care was $13,192.15, which included the cost of his funeral, $4,870.

In May 2017, Floyd’s daughter filed a criminal complaint against her uncle Larry. On December 6, 2018, Larry was found guilty by a jury in Denver Colorado of felony theft.

While the outcome may be just, it is unfair to the victims and leaves the family of the decedent with no real remedy if they cannot cover the assets.

What can be done to prevent this?

Prevention

The outlook and suggestions presented on prevention is based upon experience in litigation of this nature.

Retain a respected and experienced lawyer knowledgeable in the planning practice area. Great resources for referrals to those professionals are other lawyers, CPA’s, bankers and asset or investment advisors.

Do not make the decision to grant a power of attorney to anyone lightly – including family and particularly, “friends”. In many instances, friends and family are unsuitable agents due to conflicts, family animosity, jealousy and insatiable temptation. Professional advice concerning suitability of the intended agent is highly beneficial and can prevent a bad outcome. Using a professional can allow for a background check, credit check or other appropriate inquiry into the proposed agent – before the documents are signed.

Consider appointment of a disinterested person. Family members often are willing to serve for free. Why? Indeed, in many instances the principal does get what he pays for. When family members or friends offer to serve for free the professed altruism must be critically assessed. An agent can be compensated by the principal. Fair, but nevertheless relatively modest compensation has the potential to expand the class of persons suitable to serve as an agent.

Consider utilizing more than one person. New York law allows for more than one agent to be nominated and for the principal to decline to allow them to act separately. At the outset two individuals may be appointed to act together. Consider checks and balances and perhaps a monitor to review and supervise the actions of the agent. Any agent suitable for consideration for appointment must be a person absolutely trusted.

Split the duties among a small number of trusted people or create some redundancy so that more than one person has knowledge of the finances and the transactions as they occur. An easy measure that affords a lot of potential protection is requiring that more than one account statement be issued each month and that they be mailed to different persons. For example, the agent and the principal’s accountant.

Do not appoint a person susceptible to creditors, predators, greed or temptation.

Avoid new “friends” who are merely acquaintances. For example, a new home health aide, handyperson or other similar service provider or helper.

Involve professionals. Consider utilization of a banker, lawyer, CPA or other similar professionals who are regulated, supervised or licensed, and often insured.

Another option to consider is a springing power of attorney instead of a present grant of total control. The benefit of this technique is that the power is not granted to the agent until the happening of an event – often a medical or capacity related decline.

Conclusion

With counsel, Floyd might have been better advised to establish a trust. There was no indication that he lacked the capacity to do so. He certainly had sufficient assets to justify the effort and the work. A trust for his benefit during his life might well have prevented all of the harm. He could have nominated a local bank to act as the trustee during his life. This approach would have almost certainly prevented the outcome here.