In Re: Estate of Walter, C.

Superior Court of Pennsylvania
191 A.3d 873 (2018)

ELI5:

Rule of Law:

An executor's reliance on the advice of counsel is a factor in determining good faith but does not provide a blanket of immunity from a surcharge for breach of fiduciary duty if the executor's reliance was not reasonably wise and prudent under the circumstances, especially when confronted with warning signs or engaging in self-dealing.

Facts:

Carryl Walter died testate on May 11, 2011, naming her ex-daughter-in-law, Lynn M. Walter, as Executrix of her estate.
A representative from Members 1st Credit Union (MFFCU) orally advised Lynn Walter that several of the decedent's bank accounts, totaling $205,271.33, were payable to her as a beneficiary.
Walter accepted and transferred these funds into her personal account without verifying the existence of signed beneficiary designation forms for those specific accounts.
The decedent's will specifically gifted a valuable coin collection to the National Military Family Association.
Upon the advice of the estate's attorney, Karl Rominger, and without independent verification, Walter sold the coin collection for $92,314 and allowed Rominger to deposit the proceeds into his IOLTA account, from which he later embezzled the funds.
Walter permitted Rominger to be the sole signatory on estate bank accounts, and although she received three overdraft notices for these accounts, she failed to investigate after Rominger assured her they were of no concern.
Rominger embezzled approximately $32,623 from the estate accounts he controlled.
Walter transferred the title of the decedent's mobile home, appraised at $49,900, to her own daughter in exchange for the daughter forgiving a $20,000 bequest from the will.

Procedural Posture:

A Decree of Probate for Carryl Walter's will was entered in the Cumberland County Court of Common Pleas, Orphans' Court Division.
The Commonwealth of Pennsylvania, on behalf of charitable beneficiaries, filed a petition alleging misappropriation of funds.
The Orphans' Court found a conflict of interest and removed Lynn Walter as Executrix.
Nicholas Peters was appointed as the successor Administrator of the Estate.
The Administrator filed objections to Walter's accounting of the estate.
The Orphans' Court held a hearing and entered an order sustaining seven objections and imposing a surcharge against Walter for improper distributions and misappropriations.
Lynn Walter, the former Executrix, appealed the Orphans' Court's order to the Superior Court of Pennsylvania.

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Issue:

Does an executor breach her fiduciary duty, warranting a personal surcharge, by failing to investigate suspicious transactions, ceding all control of assets to an attorney, and engaging in self-dealing, despite her claim that she was acting on the advice of counsel?

Opinions:

Majority - Stevens, P.J.E.

Yes, an executor breaches her fiduciary duty under these circumstances. The court held that reliance on advice of counsel is not an absolute defense against a surcharge. The court applies a two-part test: the initial choice of counsel must be prudent, and the subsequent reliance on that counsel must also be reasonably wise and prudent. Here, while the initial hiring of the attorney was reasonable, Walter's subsequent reliance was not. A prudent fiduciary, particularly one with Walter's professional bookkeeping experience, would have investigated red flags such as overdraft notices. She also failed in her duty by not verifying with the charity its alleged preference for cash over the bequeathed coin collection and by allowing the proceeds to be placed in an account she could not control. Furthermore, Walter engaged in prohibited self-dealing by accepting over $205,000 from bank accounts without documentary proof and by selling an estate asset to her daughter for significantly less than its appraised value. These actions demonstrated a failure to act with the required diligence, prudence, and loyalty, thus justifying the surcharge.

Analysis:

This case reinforces the principle that an executor's fiduciary duty is personal and non-delegable. It clarifies that the 'advice of counsel' defense is limited and will not protect an executor who blindly follows advice without exercising independent, reasonable judgment. The decision serves as a stern warning to fiduciaries that they have an affirmative duty to investigate suspicious activities, question advice that seems too good to be true or is otherwise suspect, and strictly avoid self-dealing. It establishes that courts will hold executors personally liable for losses if they passively cede control to an attorney and fail to protect and preserve estate assets with competence and prudence.

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