Matter of Witherill

[*1] Matter of Witherill 2005 NY Slip Op 51062(U) Decided on June 13, 2005 Surrogate's Court, Madison County McDermott, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on June 13, 2005
Surrogate's Court, Madison County

In the Matter of the Judicial Settlement of the Final Account of E. Tefft Barker and Dorothy Ritchie as Co-Executors of the Estate of Dorothy C. Witherill, Deceased.



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Hiscock & Barclay, LLP (Robert A. Barrer, Esq. and David B. Liddell, Esq., of counsel), for the Petitioners as Co-Executors;

Melvin & Melvin, PLLC (Kenneth J. Bobrycki, Esq. and Richard M. Storto, Esq., of counsel), for E. Tefft Barker, individually;

Harold I. Silverman, Esq., for the Estate of Dorothy Ritchie, Deceased, individually;

Woods, Oviatt, Gilman, LLP (Gordon S. Dickens, Esq. and William G. Bauer, Esq., of counsel), for the Objectant, Central New York Community Foundation ; and

Hon. Eliot Spitzer, Attorney General of the State of New York (Christopher Wiles, Esq., of counsel).

Dennis K. McDermott, J.

Dorothy C. Witherill died testate at the age of 96 on July 3, 1998 leaving an estate of more than $19 million. The Central New York Community Foundation (hereinafter, "the Foundation") is the sole residuary beneficiary. This Court has granted the Foundation's petition, filed on August 19, 2003, to compel the co-executors to render a final account, and the Foundation has filed objections to that account.

The decedent nominated, and this Court appointed, co-executors: E. Tefft Barker (hereinafter, "Barker"), her long-time friend, attorney and financial advisor, and Dorothy Ritchie (hereinafter, "Ritchie"), Barker's former secretary and the decedent's administrative assistant and attorney-in-fact. [*2]Barker practiced law in the city of Syracuse, specializing in the areas of taxation and estate planning, for nearly fifty years before his retirement in 1984. Since that time, he has resided in Florida and has returned to New York on only rare occasions. He maintained weekly telephone contact with the decedent until approximately three or four months prior to her death. He is presently 90 years of age. Ritchie spent her winters in Arizona but was otherwise present in New York to attend to the decedent's affairs on a daily basis. She signed the final account herein on December 10, 2003 but died shortly thereafter.

In 1995, the decedent created three charitable remainder unitrusts ("CRUTs"), each for the ultimate benefit of the Foundation. The decedent retained the right to the income from each trust during her lifetime and, upon her death, each trust had its own separate intermediate lifetime beneficiaries, Barker (and his wife) and the decedent's two friends, Virginia Denton and Antjke Lemke. Following the decedent's death, the Foundation petitioned this Court to compel Barker to file an intermediate account with respect to the three trusts, but it was eventually ruled that the Surrogate's Court lacked jurisdiction to entertain that application. (See, Matter of Witherill, 306 AD2d 674 [3d Dept 2003]).

The Foundation has filed its objections, claiming thirty-four instances of inaccuracy, incompleteness and/or illegality in the account. The Attorney General supports the Foundation in its objections.

Burden of Proof

In a contested accounting, the proponent has the burden of proof. That burden is initially met by the filing of the account itself to the extent that it at least appears to be accurate and complete. The objectant then has the burden of going forward by introducing evidence sufficient to cast doubt upon the accuracy and completeness of the account. If that occurs, the proponent's burden of proof must then be met by a preponderance of the evidence establishing that the account is, in fact, accurate and complete. Matter of Schnare, 191 AD2d 859 (3d Dept 1993), lv. den. 82 NY2d 653 (1993). If, however, the objectant fails to introduce evidence sufficient to raise some doubt, then the proponent's burden of proof is deemed to be satisfied. Matter of Curtis, 16 AD3d 725 (3d Dept 2005).

"Financial Advisor" Fees: Objection No. 23

In the decedent's final days, Barker kept in daily contact with Ritchie to monitor the decedent's physical condition. Barker testified that, notwithstanding his retirement from the practice of law in 1984, he had been rendering services to the decedent as her "financial advisor" for a monthly fee of $17,000.00. As it became increasingly clear that the decedent's death was imminent, Barker instructed Ritchie, using her power of attorney, to issue a check to him drawn on one of the decedent's bank accounts in the amount of $85,000.00, that being intended as a five-month advance payment for his services as financial advisor. That check was issued on July 2, the day before the decedent died.

Barker conceded at trial his awareness that his entitlement to his financial advisor's fee would have terminated upon the decedent's death, yet he remained steadfast in his claim to the advance until more than two months after the close of the proof when his attorneys informed the Court that, "(a)fter careful consideration" he would agree to repay the sum with interest. [*3]

Barker had been not only the decedent's attorney and financial advisor for many years, but her close friend as well. She trusted him completely. Rather than acting in an honorable manner worthy of that trust, Barker engaged in what can only be described as a shocking level of self-dealing by taking advantage of the decedent's impending death for his personal benefit and to the detriment of her estate. Barker's concession and offer to repay comes too late to escape notice or consequences.

Barker should be surcharged in the sum of $85,000.00 with interest thereon at 9% per annum from July 2, 1998.

Because there is no proof that Ritchie benefitted from this or that she did anything other than rely in apparent good faith that Barker was acting properly, the Court finds no basis to hold her financially liable in this instance.

"Joint" Account at Key Bank: Objections No. 3, 8 and 11.

The account shows, among the assets of the estate, an account held at Key Bank, characterized as "Legal Fd in Jt. Name w/ E. Teft (sic) Barker", in the amount of $132,936.89, earning interest up to October 16, 1998 in the sum of $1,405.67, and then, in Schedule C (Funeral and Administration Expenses Paid), the account shows payments from that account to Barker amounting to $135,503.65.

Some years before, the decedent had created a trust for the benefit of her nephew and had named Barker the trustee thereof. A dispute over the trust arose between the nephew and Barker and litigation resulted. Barker testified that the decedent wanted to provide him with a source of funds from which he could reimburse himself for the legal expenses he incurred in his defense, so this account was opened on May 1, 1998 for that purpose.

The account was opened with an initial deposit of $92,000.00 transferred from Barker's personal Merrill Lynch account. Additional deposits were made, though the source of those funds was not established.

The account signature card clearly states that the account is "Joint without Right of Survivorship" (emphasis added). Barker was at a loss to explain what that meant, and the proponents concede that this must have been an error. In the absence of some clear and unequivocal designation from which it could be concluded that the decedent intended the account to have the survivorship feature, this oxymoronic description is properly resolved by giving emphasis to the word "without", thereby rendering inapplicable the presumption of survivorship under Banking Law § 675 (b), a point conceded by the proponents.

While it is undisputed that the opening deposit of $92,000.00 came from Barker's personal Merrill Lynch account in Florida, Barker was unable to recall the source of his funds. It is also undisputed that the entire bank account was reported on the federal estate tax return as being solely the decedent's property, and no claim was made therein that Barker had provided any of those funds.

The account was opened just two months before the decedent's death. Barker conceded that he had had little contact with her in the last three, and perhaps six, months of her life. Her physical condition was declining and, as Barker testified, "she definitely showed a decline in comprehensiveness." Asked whether, during the last three months of her life, the decedent would have comprehended the significance of entering into a legal arrangement of any type, Barker answered, "I don't know." The Court finds that, at that time, the decedent would not have [*4]understood the nature and purpose of the account, and was not then capable of stating any particular intent on her part or other purpose for this account. Indeed, there is no credible evidence that the decedent ever expressed any such intent or purpose.

There was evidence adduced sufficient to raise an issue whether the decedent herself had been the source of the $92,000.00 transferred from Barker's account as well as the other deposits to the account, and the proponents have failed to sustain their burden of proof to support their account in this regard. That, coupled with the manner in which the proponents reported the account on the federal estate tax return, is sufficient for this Court to conclude that the full balance of the account was an asset of the estate and that the transfer of all or any part of it to Barker was improper. Matter of Timoshevich, 133 AD2d 1011 (3d Dept 1987); Matter of Donahue, 262 AD2d 840 (3d Dept 1999).

The proponents have failed to establish an intent on the part of the decedent at the time the account was opened that funds on deposit as of the date of her death should pass to Barker or that she otherwise intended to make a gift of those funds to him. It flies in the face of logic and common sense to believe that a separate account was opened so that Barker could "reimburse" himself with his own funds. Moreover, Barker failed to provide any proof as to what legal expenses, if any, he actually incurred and there was no proof that he ever submitted a claim to Ritchie as co-executor pursuant to SCPA Article 18. Barker made no prior application for Court approval for payment of this claim.

Barker should be surcharged in the amount of these improper payments(paid in two installments, $17,960.00 on August 7, 1998 [FN1], and the remaining $117,543.65 on September 8, 1998) with interest thereon at 9% per annum from the date of such payments. There is no basis to conclude that Ritchie benefitted from these transfers or that she knew or reasonably should have known that Barker was acting improperly. Hence, her estate is not surcharged therefor.

Merrill Lynch Floating Rate Bond Fund: Objection No. 10.

Shortly after the decedent's death, her substantial portfolio of securities was liquidated. Some sales resulted in gains while others resulted in losses. This Court believes that the executors acted promptly and prudently in liquidating these assets, and the executors are not to be held liable for losses incurred due to a declining market in the relatively few weeks between the decedent's death and the liquidation.

By March 29, 2001, nearly three years after the decedent's death, all of the decedent's debts and substantially all of the estate's administration expenses had been paid, leaving the estate with more than $4 million in assets. At this point, Barker, apparently without consulting with Ritchie and [*5]without obtaining the prior approval of this Court [FN2], had the lion's share of estate funds invested through Merrill Lynch in Florida where he maintained a personal account.

The investment duties of a fiduciary are codified in the "Prudent Investor Act" (EPTL § 11-2.3). As previously stated herein, Barker considered himself to be an expert in financial matters, whose skills and experience were worth at least $17,000.00 a month, so the Court will hold him to a standard of conduct befitting that level of expertise.

On March 29, 2001, Merrill Lynch transferred $2,189,000.00 (more than half of the remaining funds of the estate) to "ML 92 Senior Floating Fund", an in-house fund of various corporate bonds which, it is undisputed, were largely rated below investment grade (many of these being "junk bonds"). In addition to the poor quality of the bonds themselves, the fund was not readily liquid as it was subject to redemption only quarterly. The investment was, as Barker put it, "a dud".

A confirmation of the trade dated April 10, 2001 was mailed to Barker at his residence with "prospectus enclosed". Barker never reviewed the prospectus. There is nothing to indicate that a duplicate of the trade confirmation or any other account statements were ever sent to Ritchie.

Barker averred that this transfer was made by Merrill Lynch without his authorization. Nevertheless, he left the estate funds so invested, receiving monthly statements, until he wrote to Merrill Lynch on August 6, 2002, characterizing the fund as "completely unsuitable for fiduciary investment" and only then demanding an immediate rescission of the transaction. Merrill Lynch found no basis to rescind the transaction, claiming that the investment was made with Barker's specific authorization, but did redeem the estate's shares in the fund on August 20, 2002 with net sales proceeds of $1,954,616.69, a deficit of $234,383.31. During the time that the fund was held, it generated $148,601.00 in income.

This Court finds that the investment in the floating rate bond fund was authorized by Barker. If there was not a specific authorization prior to the investment, there was at least a ratification upon Barker's receipt of the trade confirmation and repeated ratifications with the delivery to him of each monthly account statement thereafter.

EPTL § 11-2.3 (b) (1) provides that the prudent investor rule requires a standard of conduct, and is not affected by investment outcome or performance. Holding Barker to that standard, and bearing in mind his self-professed level of expertise, the Court finds that it was grossly negligent of him to invest estate funds in this particular bond fund. Once having done so, it was equally negligent to leave the investment in place in view of the dismal market conditions at that time.[FN3] This is all the [*6]more so in view of the limited opportunities to liquidate the holding and Barker's failure to adequately inform himself of the content and characteristics of the bond fund. Matter of Donner, 82 NY2d 574 (1993).

This Court can think of no reason, given the instability of the market at the time, why a prudent investor, bearing fiduciary responsibilities, would gamble such a substantial sum in the market rather than investing in Treasury Bills which are impervious to a declining market. Perhaps the investment might have been deemed "prudent" had Barker sought the consent and approval of the Foundation, but that does not appear to have been the case. There is nothing to indicate that he sought the Foundation's input or provided the Foundation with any information in that regard.

Had the funds been invested modestly in Treasury Bills with an annual yield of 3%, then over the course of the roughly 16¾ months between March 29, 2001 and August 20, 2002, an income of approximately $91,665.00 would have been realized, leaving the estate with $2,280,665.00 as of August 20, 2002. Instead, the estate had the sales proceeds of $1,954,616.69 and realized income of $148,601.00, amounting in all to $2,103,217.69, a difference of $177,447.31.

Barker should be surcharged in that amount with interest at 9% from August 20, 2002. A fiduciary is not permitted to "close his eyes, remain passive or move with unconcern in the face of the obvious loss to be visited upon the estate ... ." Matter of Rothko, 43 NY2d 305, 320 (1977). In the absence of any proof that Ritchie participated in, or was even aware of, this investment, there is no basis to attribute this loss to her or to otherwise hold her liable therefor.

Merrill Lynch Litigation Expenses: Objection No. 15

On February 12, 2003, Barker reimbursed himself (without prior Court approval) for a $10,000.00 fee he paid to have an expert evaluate a claim he proposed to bring against Merrill Lynch for the unauthorized investment in the floating rate bond fund.

In his fiduciary capacity, Barker enlisted the services of Merrill Lynch as his agent for the ultimate benefit of the Foundation. If Barker's agent acted beyond the scope of its authority resulting in a loss to the Foundation, it is Barker, and not Merrill Lynch, who is directly liable to the Foundation. The expense of pursuing a claim against Merrill Lynch (assuming, without deciding, that such a claim would be viable in this case) is personal to Barker and not something for which the estate's sole residuary beneficiary should bear any expense inasmuch as there would be no claim at all in the absence of Barker's gross negligence.

If Barker is inclined to pursue his claim against Merrill Lynch, he should do so on his own. The estate is not liable for any expenses in connection therewith, and the claim cannot be assigned to the Foundation without its consent.

Barker should be surcharged in the amount of $10,000.00 with interest thereon at 9% per annum from February 12, 2003. In the absence of any evidence that Ritchie benefitted from this or participated in it in any way (or was even aware of it), there is no basis to hold her or her estate liable with respect to this item.

Lawncare and Landscaping Expenses: Objections No. 16 and 24.

Schedule D (Claims of Creditors) shows payment to Steven Billington, d/b/a Billington Landscaping, on October 13, 1998 in the sum of $5,200.00 for "outstanding statements for work performed" for the decedent. [*7]

Schedule C shows payment on October 13, 1998 to Frank Billington for "Lawn-Shrub Main." in the sum of $18,150.00.

Frank Billington testified that he began the landscaping business which he eventually turned over to his son, Steven. However, he had a long-standing business relationship with the decedent, taking over after her full-time gardener retired, and she preferred to deal with him. For the sake of keeping the account, the elder Billington remained active on this account even in his retirement. (Billington testified, "... Mrs. Witherill was a client that I had had for many years and you just can't pass a lady like that from one person to another.")

Billington would meet with the decedent in the springtime and discuss with her the things that needed to be done around her home which was a single-family residence on a lot of approximately two acres. In addition, there was a cemetery plot in the Oakwood Cemetery where other services were rendered at the decedent's direction. Generally speaking, the lawn was mowed at least weekly and sometimes twice a week, trees and shrubs were trimmed, and the brick driveway needed annual attention at the end of each winter to repair irregularities resulting from ground heave and damage due to snowplowing. The decedent was quite particular about what she wanted done. She preferred to be billed at the end of the season.

Billington testified that the bills for 1998, the year of the decedent's death, were somewhat higher than normal. That was due to the request made by the decedent's daughter and Ritchie to have extensive lawn work done at the home to ready it for sale. Although the decedent had been accustomed to the lawn turning brown in the summer for lack of rain and seeing it return to green in the fall, "... Mrs. Witherill's daughter and Mrs. Ritchie asked me if we could do something to make the lawn look better immediately. The only way we could to that was to remove the dead grass, bring in some topsoil, reseed it, cover it and water it. In other words, we made the lawn look in two weeks, made it look better than it would have taken two months to do." In addition, a tree was removed from the back yard and extra plantings were brought it. From the $18,150.00 invoice, it appears that the charges for this work totaled $2,800.00.

According to the account, the home sold in an arm's-length transfer for $220,000.00. Thus, the combined charges of $23,350.00 for lawncare and landscaping was more than 10% of the property's value. At trial, Barker recalled seeing the invoices but did not question them because to do so "would not be good form."

The invoices themselves are both dated October 12, 1998. The invoice of Steven Billington says simply "Landscape work for 1998: Attend planting and maintaining of plant material, $5,200.00." Frank Billington's invoice refers to "Lawn Maint. for 1998" and is itemized only as follows:

Mowing $7,500.00

Lawn food & weed control 2,100.00

Top soil & seed900.00

Thatch front & rear1,100.00

Remove large tree rear 800.00

Trim all trees & shrubs 1,400.00

Repair driveway 2,200.00

Work at cemetery1,200.00

Fall clean up 1,400.00 [*8]

Total cost$18,150.00

No explanation is given why the proponents chose to treat Steven Billington's invoice as a debt of the decedent and Frank Billington's as an expense of estate administration. Outside of the reference to 1998, neither provides any particular date of service or any significant detail as to the actual work done. Frank Billington testified that the lawn mowing charge reflected thirty mowings at a unit charge of $250.00, but how many times the lawn was mowed prior to decedent's death and how many times thereafter is a matter of speculation. Lawn food and weed control is likely to be in the spring as would be the charges for tree and shrub trimming and driveway repair. The charges for topsoil, thatching and tree removal were all incurred after the decedent's death, and "fall clean up" was clearly after July 3.

SCPA 1803 provides that creditors of the decedent are required to submit their claims in a writing, containing some statement of fact relative to the claim. The executors are required to examine the claims, and they can require the claimant to provide additional detail and proof by affidavit. This procedure properly casts upon the fiduciaries the obligation of determining whether the claim is valid, rather than blithely paying the claim and letting the onus of the inquiry fall upon the estate's beneficiaries. Matter of Taylor, 251 NY 257 (1929).

Here, as noted above, the claims for lawncare and landscaping were more than 10% of the total value of the decedent's residence. "Good form" or not, some level of inquiry was warranted but none was made. By failing to make any inquiry and remitting payment with respect to these charges which, given their amount both facially and relative to the value of the decedent's residence, virtually cry out for some explanation, the proponents acted negligently, at least to the extent that they are claims against the decedent and not administration expenses (and thus covered under SCPA 1803). None of the parties has made any request that the claimants be required to make repayment to the estate, so the Court will look solely to the proponents to make the beneficiary whole by the imposition of a surcharge (SCPA 1807 [1]).

Credible testimony was received that the decedent was very particular when it came to the appearance of her lawn and grounds. She took a keen interest in this and was accustomed to paying handsomely for top-quality lawncare. It was, after all, her money, and she was entitled to spend it as lavishly as she saw fit. Thus, when it comes to debts knowingly and wilfully incurred by the decedent, the inquiry is generally limited to the validity of the debt, i.e., whether there would be some defense, legal or equitable, to the claim. Fiduciaries, however, do not have that luxury. The expenses they incur in the administration of the decedent's estate must be reasonable and necessary.

The Court is satisfied that the total expenditure for landscaping and lawncare was excessive. The immediate problem is that there was insufficient proof adduced for this Court to determine what portion thereof was incurred pre-death (the Court will not be inclined to disallow that portion unless is it invalid), and what portion was incurred post-death. The Court is satisfied that the $2,800.00 expense in immediately restoring the lawn to verdant splendor was unreasonable, particularly in the absence of any proof that the condition of the lawn affected the market value of the property. Other portions of the charges, to the extent that they were incurred after July 3, 1998, might be unreasonable as well. Further inquiry will be necessary.

Fees for Accounting Services: Objections No. 18 and 21.[*9]

Objections were raised to the fees paid to two accounting firms. These will be reviewed separately.

Suplee & Shea, P.A.

This firm has its office in Sarasota, Florida. Two invoices were rendered, one dated September 29, 1998 for $710.00 and another dated November 30, 1998 for $554.50. In each instance, the fee was for "interest computations". Among the assets of the estate were certain promissory notes. Apparently, no amortization schedules were prepared when the notes were made, so it became necessary to make certain interest calculations. Barker, who lived in Florida, retained these accountants for that purpose.

There was no proof offered to show that these calculations required any level of expertise that exceeded Barker's ability. Barker failed to demonstrate the necessity of having accountants make this calculation, particularly in light of his own 50-year career in taxation and estate planning.

This expense is disallowed and Barker should be surcharged therefor. In the absence of any proof that Ritchie benefitted from this or was even aware of it, no surcharge is made as to her or her estate.

KPMG, LLP.

A partner in this accounting firm testified that the firm had acted as the decedent's accountants for well in excess of twenty years. Following her death, the firm was called upon to perform various accounting services. Invoices were rendered to the estate as follows:

Invoice Date Amount

2/2/99$10,150.00

4/2/9910,000.00

4/13/99 25,475.00

Total$45,625.00

Payment was made on each invoice without further inquiry by the proponents.

At trial, one of KPMG's partners testified that the firm rendered various services encompassed by these invoices including, payroll and quarterly returns with respect to the decedent's household employees, gift tax returns, and both personal and fiduciary income tax returns for calendar year 1998. The partner testified that the invoices to the decedent were higher than for most clients because the nature of the decedent's work was more complicated. Additionally, the work done for 1998 was more complicated yet due to the decedent's death during that year. Normal annual billings to the decedent prior to 1998 were in the range of $25,000.00 - $30,000.00.

Certainly there was value to the work performed by the accountants. However, from the evidence adduced, this Court is unable to determine what reasonable compensation would be. There was no testimony given to explain the basis for the firm's charges, nor were copies of the returns offered into evidence. The total payment was $45,625.00. If the normal hourly rate charged by the firm was as high as $250.00, that would mean that more than 180 billable hours were charged. That seems excessive. In the absence of some contrary proof, it seems that the nature of the work from one year to the next would remain relatively constant. For example, the nature and sources of the decedent's income would not be likely to vary significantly, only the amounts thereof. As Barker's attorneys observed in the brief submitted on his behalf, "(g)iven the familiarity of KPMG with Mrs. [*10]Witherill's financial affairs, it would have made no sense not to employ KPMG for the specific work at hand." Why, then, it would take an accounting firm familiar with the decedent's financial affairs as much as 180 hours to prepare these returns has not been satisfactorily explained. Nor has the Court heard any explanation why the decedent's death would result in a 50% increase over normal billings.

The objectants have satisfied their burden in this regard. The Court will require further hearings to determine the extent to which the invoices were reasonable on a quantum meruit basis.

Delayed Distribution to the Foundation: Objection No. 34.

The Foundation is, as previously stated, the sole residuary beneficiary of this estate. As observed by the Attorney General in his post-trial memorandum, "(i)t is of primary importance ... that the charities in the case of an estate administration receive their distributions promptly so that the public receives the maximum benefit." Indeed, it is axiomatic that the executors are required to make distribution to the beneficiaries of an estate with reasonable promptness once seven months has elapsed from the issuance of letters and once administration expenses, funeral expenses and claims against the estate have been paid.

Barker testified that he was reluctant to make distributions to the Foundation for two reasons: (1) he was concerned that there might be additional estate tax liability depending on the outcome of certain pending litigation brought by the Foundation against him in a different fiduciary capacity, and (2) he believed that he might need an undetermined amount of funds to pursue litigation against Merrill Lynch.

Here, the estate faced a significant estate tax liability. The estate was both large and complex. On October 25, 2001, more than three years after the decedent's death, the Internal Revenue Service issued a closing letter to the estate. From that time forward, there was little concern for additional estate tax liability that could not have been easily resolved with some discussion with the Foundation.

The Foundation had commenced litigation against Barker in his capacity as trustee of the three charitable remainder unitrusts, first in this Court, and then, after it was ruled that this Court lacked jurisdiction, elsewhere. Barker testified that he was concerned that if it were ultimately determined that the trusts were void, it might result in the principal and accumulated interest being added to the decedent's gross estate with resulting increased estate tax liability.

Assuming for the sake of argument that there was some validity to Barker's concern, Barker could have avoided any problems by simply having the Foundation agree, in consideration for an advance distribution, to indemnify the executors and hold them harmless if such a result did, in fact, occur. With that brought to its attention, the Foundation would have two choices: (1) agree to indemnify the executors and hold them harmless while pursuing its litigation, risking, of course, a pyrrhic victory if the risk Barker perceived came to fruition, or (2) decline to indemnify the executors and hold them harmless and waive its claim for a distribution from the estate until the litigation was resolved. In either event, the executors would have acted reasonably.

Barker's other ostensible concern in withholding any distribution to the Foundation was that he wanted to make sure the estate had sufficient funds on hand to enable it to pursue a claim against Merrill Lynch for the investment of estate funds in the floating rate bond fund. As previously decided herein, of course, the claim was Barker's personally, and not one that should be funded by [*11]the estate. By October of 2001, Barker had not yet registered any complaint to Merrill Lynch's investment of estate funds and would not do so until the following August.

No distribution was made to the Foundation until a series of partial distributions between October 27 and November 3, 2003, in the aggregate sum of $3,310,215.10.

For all of Barker's concerns about retaining sufficient funds to meet additional estate tax liabilities of undetermined amounts, that does not appear to have deterred the executors from taking advances on their commissions in the combined amount of $371,568.00 prior to the IRS's issuance of the closing letter. It is also inconsistent with Barker's willingness to invest more than half of the estate's assets in a risky bond fund.

In fact, Barker's testimony reveals what this Court believes to be the real reason for his failure to make distributions to the Foundation: spite. He was upset over the trust litigation pending against him. The following is an exchange between one of the Foundation's attorneys and Barker:

Q.Would it be your testimony that until that litigation was resolved, that money would not be distributed to the Foundation? Yes or no.

A.I'll answer it this way. I was so disenchanted by the whole position of the Foundation that I didn't want to subject myself to the kind of chicanery the Foundation had played with me.

Q.So you weren't going to give them any of their money until that litigation was over. Is that your testimony, Mr. Barker?

...

A.I felt the Foundation had been so reprehensible in the way it treated me that I didn't want to trust them to do anything while there was any question outstanding.

Q.So you weren't going to give them their money until that litigation was resolved?

A.You heard what my answer was to that question.

Q.Yes or no?

A.Thank you.

MR. BARRER (one of Barker's attorneys): I think he's answered.

THE WITNESS: I've answered the question.

The Court finds that Barker unjustifiably failed to make at least partial distributions to the Foundation from a reasonable time after receipt of the closing letter from the IRS until some [*12]distributions were made beginning on October 27, 2003.

The Foundation has asked that the Court, if it found that there was an unreasonable delay in the distribution of the residuary estate, award interest on the residue at the rate of 16% per annum, that being the rate earned by the Foundation during the applicable period on its own portfolio.

The matter of awarding interest and the amount thereof generally lies within the Court's discretion. Matter of Park-Montgomery, N.Y.L.J., May 19, 1997, at 33, col. 4 (Surr Ct, Nassau County). EPTL § 11-1.5 (d) provides for the payment of interest in certain cases on bequests other than the residuary interest. However, it has been held that a residuary beneficiary is not entitled to interest on its bequest other than the income actually earned by the estate. Matter of Paruch, 161 Misc 2d 526 (Surr Ct, Nassau County, 1994).

Therefore, the Court concludes that there is no authority to award any interest to a residuary beneficiary where there has been an unreasonable delay in distribution. The residuary beneficiary is limited to the income actually earned.

Payment of Bond Premiums: Objection No. 20.

Payment of $3,716.00 was made by the proponents from estate funds for bond premiums upon the advance payment of commissions to them. The proponents concede that they are personally liable for such expenditures and that the estate should not bear the cost.

Therefore, the proponents (both Barker and Ritchie's estate) are directed to reimburse the estate for their respective shares of the bond premiums, with interest thereon at 9% per annum.

Executors' Commissions: Objections No. 14, 17, 22 and 33.

Executors are generally entitled to a commission as compensation for the services they render in their fiduciary capacity to the estate. SCPA 2307. And where, as here, the estate is of sufficient size, two executors are normally entitled to a full commission each. SCPA 2307 (5). The executor's commissions may not be denied "unless the fiduciary is 'derelict in the performance of his or her duties' (Matter of Smith, 91 AD2d 789, 791 ...), guilty of 'complete indifference' (Matter of Schaich, 55 AD2d 914, 915 ..., lv. den. 42 NY2d 802 ...) or 'otherwise acts improperly' (Matter of Campbell, 138 AD2d 827, 828 ...)." Matter of Farone, 162 AD2d 828, 829 (3d Dept 1990).

The Court will consider the entitlement of the co-executors to their respective commissions separately.

(Estate of) Dorothy Ritchie

As previously stated, Ritchie signed the final account herein on December 10, 2003 but died thereafter. She had spent many years as Barker's secretary and was presumably accustomed to taking direction from him and deferring to his judgment on legal matters. Although the Foundation, through its attorney, has argued strongly that she was as derelict in her duties as Barker, there has been no direct proof of this establishing, to the Court's satisfaction, that she acted in bad faith, maliciously or in any other manner that would warrant the denial of her commission to the extent that it has been earned. Matter of Drier, 245 AD2d 787 (3d Dept 1997).

However, Ritchie died prior to the completion of her fiduciary duties. In such cases, a deceased fiduciary's estate is not entitled, as a matter of right, to her commission, but the Surrogate's Court has the discretion to make an award, not to exceed the amount of the statutory commission, that adequately compensates her estate for the value of the services she rendered. Matter of Rodken, [*13]2 AD3d 1008 (3d Dept 2003), citing Matter of Barker, 230 NY 364 (1921).

The Court finds that Ritchie was entitled to compensation for receiving the assets, increases and income of the estate as would be computed under SCPA 2307 (1). She is entitled to be compensated for paying out all actual payments made prior to December 10, 2003, excluding, however, the payments made (1) to Barker from the "joint" account in the amount of $135,503.65, (2) to assess the viability of litigation against Merrill Lynch in the amount of $10,000.00,(3) to Supplee and Shea, PA to make interest computation in the sum of $1,264.50, and (4) in payment of bond premiums in the sum of $3,716.00. The Court having determined that those payments were improper, they shall not be deemed to have been paid out for purposes of this computation. Likewise, such sums as the Court may hereafter determine to have been excessive payments for lawncare and accounting services shall also not be factored into that computation.

After the amount of compensation due is calculated, there shall be deducted therefrom Ritchie's share of the bond premiums that were paid to secure advance payment of her commission to her together with her share of the interest herein directed to be payable thereon.

E. Tefft Barker

The Court finds that Barker has engaged in serious misconduct and should forfeit all commissions, whether previously paid to him or to which he would otherwise be entitled. He is surcharged with the amount of commissions advanced to him with interest thereon at 9% per annum.

Other Objections

Other objections raised by the Foundation but not specifically addressed herein were either not pursued by the Foundation or not supported by sufficient evidence to meet the Foundation's burden of going forward. They are, therefore, dismissed. Matter of Curtis, supra.

Removal of Executor

E. Tefft Barker converted $85,000.00 of the decedent's funds by causing it to be paid to himself as an advance for his "financial advisor's fees", wrongfully withholding that sum from her estate. He has wrongfully had paid to himself $135,503.65 from a bank account in the decedent's name which bank account was opened without her actual knowledge or understanding and was funded with money obtained solely from her. He has made an imprudent and improper investment of estate funds which has resulted in a substantial loss to the estate. Those funds were invested outside the State of New York without prior authorization from this Court. He has expended $10,000.00 of estate funds to pursue litigation in connection with that investment when the cost of such litigation is solely his personal liability. He has expended funds of the estate needlessly to perform tasks which he, himself, was capable of performing without additional expense to the estate. He has paid various claims against the estate without properly investigating the validity of such claims, all at substantial cost to the estate. Lastly, he has wilfully delayed distribution of the residue of the estate to the Foundation without proper cause. Such misconduct constitutes ample cause, under SCPA 711 (2), (7) and (8), for his removal as executor and for the revocation of Letters Testamentary previously issued to him.

Barker should be directed to remit payment forthwith as follows:

1. To Hiscock & Barclay, LLP in the sum of $96,009.53 as shown in Schedule C-1 (Unpaid Administration Expenses), which sum shall be held by said attorneys in their IOLA account [*14]pending such further review and adjustments as this Court might hereafter make, and said attorneys shall comply with any further order or direction hereafter made herein with respect to such funds; and

2. All remaining funds are to be paid over to the Foundation, and such funds shall be subject to the further review and order of this Court.

Barker should be further directed to notify each payor of interest and/or dividend income to the estate that he no longer serves as executor and that all future statements, including Forms 1099 and similar income-reporting notices, should be delivered to the Foundation so that it can prepare and file necessary fiduciary income tax returns.

Proof of such payments and copies of such notifications shall be promptly provided by Barker to the Clerk of this Court, upon receipt of which Letters Testamentary previously issued to him shall be deemed to be revoked. Pending his compliance with this direction, his authority as the sole surviving executor of the estate is restricted and limited to remitting the payments and providing the notifications as above directed and taking all steps reasonably incident thereto.

The question of whether to remove an executor lies in the discretion of the Surrogate. It is a dramatic remedy and should be used sparingly. Cooper v. Jones, 78 AD2d 423 (4th Dept 1981). However, where it is demonstrated that the executor has sought "personal advantage and gain at the expense of and to the detriment of the estate, that will be sufficient to establish the propriety of his removal." Matter of Israel, 64 Misc 2d 1035, 1043 (Surr Ct, Nassau County, 1970).

The oft-quoted words of Chief Judge Cardozo are particularly apt here: Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A (fiduciary) is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the "disintegrating erosion" of particular exceptions. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court. Meinhard v. Salmon, 249 NY 458, 464 (1928).

Barker's misconduct is of such seriousness as to shock the conscience of this Court. It is particularly appalling that this sorry record should be the work of an attorney duly admitted to the Bar. The Court's findings are in no way intended to be any reflection on the integrity or the capability of the attorneys who have zealously represented him herein, nor should it reflect adversely on his former law firm. Barker's conduct is a gross deviation from the well-deserved reputation and abilities of that respected firm.

Further Hearings

The record, to the extent it has been developed, does not provide the Court with sufficient evidence to determine the reasonableness of the expenditures for lawncare and the accounting services rendered by KPMG. While it is true that the Court enjoys broad discretionary power to meet its obligation to "make such order or decree as justice may require" (SCPA 2206 [4]; Matter of [*15]Everhart, 226 AD2d 892 [3d Dept 1996]), there is insufficient proof in the record to resolve these issues without resort to speculation.

Therefore, the Clerk shall schedule further hearings on the issue of the reasonableness of those expenditures and/or the remaining fees payable to the proponents' attorneys for legal services rendered to the estate as well as on the issue of the imposition of costs and allowances, including reasonable attorney's fees, under SCPA Article 23. Final computation of the compensation payable to the Ritchie estate will be made once such hearings are complete.

Submission of Preliminary Decree

Counsel for the Foundation should submit a Preliminary Decree consistent with the findings contained in this Decision.

Dated: June 13, 2005.

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Surrogate, Madison County Footnotes

Footnote 1: In the account, $1,500.00 of this was shown as being for "legal services" while the other $16,460.00 was for "legal expenses". Barker had been retired from the practice of law, so he was not rendering legal services to the decedent. In the absence of any proof to the contrary, the Court deems this to have been paid to Barker for purported reimbursement for legal expenses allegedly incurred by him in defense of the trust litigation commenced by decedent's nephew. If, on the other hand, Barker had actually been performing legal services for the decedent, his deposit of her funds in his Merrill Lynch account may have been an impermissible commingling under DR 9-102 of the Lawyer's Code of Professional Responsibility (22 NYCRR § 1200.46).

Footnote 2: Absent express authorization in the decedent's will or a strong implication that such was the testatrix's intent, a request for leave to remove assets to a site outside New York State will not be granted unless it can be shown that such removal will benefit the administration of the estate or that it will somehow be advantageous, or at least not unduly burdensome, to the holder of the beneficial interest in such assets. Matter of Hudson, 29 AD2d 145 (3d Dept 1968), affd. 23 NY2d 834 (1969). Letters may be revoked where the fiduciary has removed assets from the State without prior approval of the Court. SCPA 711 (7).

Footnote 3: In his Post-Trial Memorandum, Barker's attorneys describe this as "one of the worst bear markets that this country ... has ever seen."