Gail M. Boggio, Esq. Partner McCarthy Fingar LLP 11 Martine Avenue White Plains, NY 10606-1934 914-946-3817 ext. 256 (voice) 914‑946‑0134 (fax) e‑mail: gboggio@mccarthyfingar.com web: www.mccarthyfingar.com www.mfdds.com	Kevin H. Cohen, Esq. The Law Offices of Kevin H. Cohen, P.C. 30 Glenn Street 2nd Floor White Plains, NY 10603 (914) 949-3411 (voice) (914) 949-3444 (fax) e‑mail: kcohen@estatelawny.com
Michael Hausler Accounting Clerk Surrogate's Court 851 Grand Concourse Bronx, NY 10451

Westchester County Bar Association – Trusts & Estates Section

Everything You Wanted to Know About Preparing Surrogate Court Accountings (but was afraid to ask)

November 13, 2007

· Introduction:

· Surrogate’s Court accountings are the least understood amongst litigants and the lay public

· Full receipts and disbursement accountings prepared pursuant to the rules of the Court

· Compare with financial statements prepared for businesses/corporations

· In this seminar we will offer:

· the perspective of the petitioner [the executor/trustee/accounting party];

· the perspective of the objectants/beneficiaries of estate/trust

· Duty to Account:

· Need for finality – statute of limitations generally does not run. The statute of limitations to compel an accounting is six years (CPLR 213(1)) and will begin to run on the date the executor/trustee openly and unequivocally repudiates his obligation to administer the estate (Matter of Barabash, 31 N.Y.2d 76 (1972)

· Why do you account:

· Bottom line: executor/trustee needs to be properly discharged before final distributions are made in estate or trust.

· Examples of need to have judicial accounting:

· Creditor’s rights not resolved without accounting

· Can’t work out “informal” settlement of accounting by receipt and release agreement

· Minors or others under disability

· Other issues impacted, such as elective share notice that cannot be settled

· Voluntary accounting proceedings

· Prerequisites to commencement of proceeding (SCPA 2208)

· Period for claims expired (SCPA 1802)

· Fiduciary’s letters revoked

· Sale of real estate to pay debts, taxes, expenses or distributive shares

· In the case of intermediate accountings, at least one year passes, if court entertains proceedings

· Consequences for Failing to Account

· Compulsory accounting proceeding under SCPA 2205

· Change in SCPA 2205 and 2206, effective 11/1/2002

· Court may:

· Direct the accounting

· Suspend a fiduciary who defaults on return date of application or who fails to file accounting

· Fix a trial date for removal of fiduciary whose letters are suspended

· Fix a trial date to take and state an accounting

· Practical effect of new statute: gives courage to Surrogates in some counties that were reluctant to grant broad relief against an errant fiduciary

· Petitioner’s strategy:

· Comply with new statute and request all the relief permitted under the statute

· Prepare citation in form that complies with new statute

· Usually, on the return date of the proceeding, the only issue for the court is the timing for filing the accounting

· Petitioner’s perspective: wants a court order compelling an accounting within specified time period: as short as a “30 day order” or as long as a 90 or 120 day order

· Executor/Trustee: want to adjourn proceeding or wants maximum time

• Necessary Parties in Voluntary Accounting Proceeding

· Unpaid claimants

· Surety

· Non joining co-fiduciaries

· Successor fiduciary

· Att. Gen. for charities, unknowns, or known beneficiaries who can’t be found

· Distributees, for beneficiaries where beneficiary died intestate

· Devisees; trustees; legatees

· Guardian ad litem

· SCPA 2210(7) and (10) – conflict of interests

· Consider conflicts of even co-trustee who is not a co-executor where there is a conflict of interest, in fact, for some other reason

· Virtual representation – SCPA 315; SCPA 2210(14)

· Fiduciary of deceased fiduciary’s estate

• Pleadings and other Necessary Documents

· Petition

· Use approved Surrogate’s Court forms

· Consider purchasing HotDocs for Surrogate’s Court forms, approved by the Surrogate’s Court and the Bar

· Interested parties – list everyone, even fiduciaries and those who have consented; the list of interested parties is a checklist for court personnel to make sure everyone’s interest is protected in proceeding. For infants, get appropriate information

· Statement of relief requested

· Remember, the petition is a formal pleading; and unless you request relief, you may not get it. Seek:

· Approval of accounting

· Fixation of fees

· Fixation of compensation of pre-deceased fiduciary

· Construction

· Disallowance of claims

· Other unusual items

• Citation

· The relief sought in the petition is also recited in the citation

· The Surrogate’s Court has also always been a filing jurisdiction, with the Court (and not the attorneys) issuing the process

· Affidavits for virtual representation of lateral interest (SCPA 315(5)) (Court rule 207.18)

· Claims of fiduciary against estate

· SCPA 1805

· Service of citation

· Personal, for in state people – 10 days

· By cmrrr, for out of state people – 20 days, within US; 30 days outside US

· For infants

· Under 14

· Over 14

· Alternatives to Service of Citation

Waiver and Consent – see Rule 207.40(f)

· Be careful

o See Matter of Hunter, 194 Misc. 2d 364 (Surr. Ct., Westchester 2002) [ineffectiveness of waiver and consent on accounting proceeding when there appears to be overreaching by executor in obtaining consent]

· Appearance in the proceeding

· Acknowledgement of service

· Dispensing with service for interest less than $500

· Issues to be Resolved as Part of Accounting Proceeding

· Approval of executor’s actions

· Direction as to Payment of Claims and Expenses

· Disallowance of creditor’s claims

· Allowance of fiduciary’s claims

· Legal fees that are unpaid

· If paid on Schedule C, then no reason to seek payment

· Filing of affidavit of legal services – in Westchester, it must be filed before the Court issues the citation

· Issues Concerning the distribution of Assets; Construction

· Construction

· Estate tax apportionment

· Measures to take when you are first retained to review an estate accounting: Perspective of beneficiaries’ counsel

· Perform Due diligence

· Review will/trust

· Dispositive plan

· Construction or tax apportionment issue

· Investment directives

· Limitations on fiduciaries – e.g., commissions

· Review Court file

· If litigation, review pleadings and other papers in litigation

· Review potential liabilities of estate

· Review:

· Inventory of Assets filed with court

· Federal and New York estate tax returns

· Federal and New York fiduciary income tax returns

· Federal and New York personal income tax returns

· Federal gift tax returns

· Bank/cash/brokerage/mutual fund statements, etc.

· If corporation involved, Federal and state tax returns

· What generally are you looking for:

· Collection of all assets

· Joint assets

· Bank accounts: convenience accounts v. survivorship accounts

· Other joint assets

· Gifted assets

· Gifts beyond gift tax exclusions

· “Medicaid” planning and “extra” legal estate planning

· Totten trusts

· Qualified plans or IRAs

· Insurance policies

· Tangible personal property

· Uninvested cash

· Tax elections and tax matters

· Separate v. joint income tax returns

· Alternate valuation

· Q-Tip Property (Q-TIP)

· Generation Skipping Tax (GST)

· Deduction of expense on fiduciary income v. estate tax return

· Proper funding of pecuniary trusts, such as credit shelter trusts

· Possible refund claims

· Penalty and/or interest for failure to timely file return or pay tax

· Transactions of attorney-in-fact

· Gifting issues and authority to make gifts

· Other transactions

· Neutrality as to beneficiaries

· E.g., non-pro rata distributions

· Timing of payment of pecuniary bequests/cash legacies

· Attorney/Fiduciaries

· Commissions

· Legal fees

· Claims of creditors

· Examination of Accounting Schedules

· Schedule A

· Review 706/ET-706

· Review individual tax returns and backup – look for 1099s and indication of other assets

· If collection on law suits, investigate further

· If businesses, look for buy-sell or other agreements affecting company and possible sale; if businesses, consider possible forensic examination of company; consider need for separate accounting for wholly-owned business

· Joint and other nonprobate assets

· Possible ancillary assets in other jurisdiction

· Note: Surrogate’s Court limited jurisdiction as to assets in other jurisdiction

· Schedules B/A-1

· If decreases, consider a forensic examination of reasons for losses

· You do not get surcharged for losses; you get surcharged for imprudent losses

· You do not get surcharged for “lost opportunity” for a premature sale of stock that boomed

· You might get surcharged for poor decision making module and loss, or even no loss – e.g., real estate sold without an appraisal and a quick sale

· Look for accurate schedule

· If there are investments after date of death in stocks, examine losses very carefully

· Practical point: executors should not invest in anything but short term investments, such as CDs, money market, T Bills – no T Notes, stocks, bonds, mutual funds or reinvestment of mutual funds

· Timely disposition of improper investments

· Personal benefit to a fiduciary from an expense of sale

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