Opinion
No. 3-963 / 03-0851.
July 14, 2004.
Appeal from the Iowa District Court for Page County, James S. Heckerman, Judge.
Robert Baumgarten appeals from an order overruling his objections to the final report by Paul Baumgarten, executor of the estate of Frieda Baumgarten. AFFIRMED.
Anthony Tauke of Porter, Tauke Ebke, Council Bluffs, for appellant.
John Clendenin of Nyemaster, Goode, Voigts, West, Hansell O'Brien, P.C., for appellee.
Considered by Zimmer, P.J., and Miller and Hecht, JJ.
Robert Baumgarten appeals from an order overruling his objections to the final report issued by Paul Baumgarten, executor of the estate of Frieda Baumgarten. Robert argues that Paul breached his fiduciary duties as executor of the estate. We affirm.
I. Background Facts Proceedings
Frieda Baumgarten died testate on February 23, 1988. Under her will, Frieda's property was to be evenly distributed between her two sons, Paul and Robert, with Paul acting as executor of the estate. Robert, now seventy-five years old, resides in Mechlin, Wisconsin, and Paul, now eighty-one years old, resides in Clarinda, Iowa. Paul opened the estate on March 8, 1988. It included liquid assets, and four buildings located on two acres of land in Bethesda, Iowa. The buildings included: Frieda's residence, an old tenant's house, a shop building, and an abandoned grocery store. All buildings were in considerable disrepair when the estate was opened.
On December 21, 1988, Paul distributed a partial inheritance payment to Robert for $14,000, along with a cancelled note worth $6,600, and delivered a check to himself for $20,600. In 1990, Paul ordered the removal of two underground storage tanks from the estate property, and donated the abandoned grocery store building to the Nodaway Historical Society. This donation came without Robert's, or the court's approval.
Paul filed a final report as executor of Frieda's estate on December 3, 2001, and filed a supplemental final report on December 17, 2002, after Robert did not return a receipt and waiver form that had been sent to him. At the time for hearing on the final reports on February 10, 2003, Robert filed objections and requested a continuance. Paul filed a resistance to the objections. The court held a hearing on April 30, 2003. During the hearing Robert sought to amend his objections to request that Paul be liable for any loss incurred by Robert, as purportedly shown by the evidence. In sustaining Robert's motion the court ruled that it would consider any other objections to the final report that were supported by the evidence presented. Following hearing the court overruled Robert's objections. The court found:
[T]he executor has accounted for all the assets of the estate and that he has managed same reasonably, within his fiduciary responsibilities. Although this estate has been on file for approximately fifteen years, a substantial amount of cash was distributed in December of 1988. There was no formal objection made to the conduct of the executor by beneficiary Robert L. Baumgarten prior to the filing of the Final Report.
Frieda's estate was ordered closed on May 20, 2003.
Robert now appeals the court order overruling his objection to the final reports and argues Paul breached his fiduciary duties as executor of the estate. Specifically, he asserts he is entitled to damages for the following: (1) the estate of Frieda M. Baumgarten has been held open too long and is a breach of fiduciary duty; (2) a deterioration and depletion of corpus was a breach of fiduciary duty; and (3) a transfer of property without a court order is a breach of fiduciary duty. Robert further argues that the attorney for the executor failed to properly aid the executor in his duties, constituting a breach of the attorney's duty for which he should be denied compensation.
II. Standard of Review
Our review of rulings on objections to an executor's final report is de novo. In re Estate of Randeris, 523 N.W.2d 600, 604 (Iowa Ct.App. 1994). While we are not bound by the findings of the trial court, we give them weight, especially when the credibility of a witness is involved. Id.
III. Closing the Estate
Paul opened Frieda's estate on March 8, 1988. After fifteen years, on May 20, 2003, the estate was ordered closed. Robert argues Paul breached his fiduciary duty to close the estate within three years as provided by Iowa Code section 633.473 (2001).
A duly appointed executor is a fiduciary, with temporary duties of winding up the estate. In re Estate of Wiese, 257 N.W.2d 1, 3-4 (Iowa 1977). An executor, as a fiduciary, can be held liable and chargeable for the failure to close an estate within the statutory period. Iowa Code § 633.160. According to the Code, "Final settlement [of the estate] shall be made within three years, after the second publication of the notice to creditors, unless otherwise ordered by the court after notice to all interested parties." Iowa Code § 633.473. However, the Iowa Supreme Court, in In re Bourne, 210 Iowa 883, 888, 232 N.W. 169, 171 (1930), found that an objector waived his right to complain about the failure to close the estate in a timely manner because he never demanded the closure of the estate, or filed an application for the same. Furthermore, the probate court never acted on the estate. Bourne, 210 Iowa at 888, 232 N.W. at 171. The court determined the objector's inactivity waived his claim even though it was conceded that the estate would have been better served closing at an earlier date. Id.
The record shows that Robert was well aware that Frieda's estate remained open but made no objections before the final report was filed. He made several trips to Iowa before and up to 1995, and he remained in contact with Paul. Moreover, the probate court took no action toward closure of Frieda's estate. While Paul concededly failed to close the estate within the statutory time frame, we find that, as in In re Bourne, Robert has waived this claim by never demanding closure or filing an application seeking closure.
IV. Deterioration of Estate Property
Robert further argues that Paul breached his fiduciary duty by allowing the deterioration and depletion of estate property. He asserts the resale value of the real estate has greatly diminished since 1988 due to Paul's improper upkeep and failure to offer the property for sale, and that Paul has wasted liquid assets of approximately $10,000 for "no good and necessary purpose."
"The standard of care generally applicable to executors is that degree of prudence and diligence which a person of ordinary judgment would be expected to bestow upon his own affairs of a like nature." Estate of Wiese, 257 N.W.2d at 6. The burden of proof to surcharge a fiduciary for his wrongful conduct is upon those so asserting. Id. at 7.
After viewing evidence and testimony at a hearing on the objection, the trial court determined Paul reasonably managed the assets of the estate. We agree. When the estate was opened all of the buildings on the two-acre tract were in a state of considerable disrepair and would have required substantial investments to place the property in a sellable, or even rentable, condition. Moreover, despite his age and ailing health, Paul spent significant time and energy, and some money, personally maintaining the cleanliness and appearance of the estate property, and did so without any compensation as executor or otherwise. Paul testified that after investigating the possibility of selling the property he found sale would be cost prohibitive because of the expenses that would necessarily be incurred to meet the requirements of the Iowa Department of Natural Resources and to repair and rehabilitate the dilapidated buildings. He therefore chose to distribute the property to Robert and himself rather than use estate assets in what would likely be a wasteful attempt to place the property in a sellable or rentable condition. Any decrease in property value that occurred during administration of the estate would in all likelihood have nevertheless occurred if Paul had earlier distributed the property to Robert and himself and closed the estate. Similarly, expenses incurred by the estate for electric service to one building, insurance on the property, real estate taxes, etc., are in whole or large part expenses that Robert and Paul would have individually incurred if Paul had earlier distributed the property and closed the estate. We find Robert has failed to meet his burden to prove Paul should be liable for any decrease in property value or assets expended in maintaining the estate property.
V. Property Gift
Robert next argues Paul breached his fiduciary duty when he gifted the abandoned grocery store building to the Nodaway Historic Society without his permission, or a court order. Paul, however, maintains the gift was appropriate because the building was without plumbing, needed a new roof, and was thus not useable and not rentable without prohibitive expense. He asserts that instead of incurring considerable expense or watching the building fall into further disrepair, he gave the building to the historic society in both Robert's and his name.
Any interested person may contest acts of the fiduciary done without prior court approval after notice. Iowa Code § 633.122. While it is true that a court order is not required for an executor to make a distribution,
[a] personal representative acts at his or her peril with respect to distributions made without court approval. This peril pertains to the dangers presented by creditors, costs of administration, and claims of other beneficiaries. If a particular distribution so depletes the estate that those interests suffer, then, of course, the personal representative may be surcharged.
In re Estate of Boyd, 634 N.W.2d 630, 639-40 (Iowa 2001) (emphases omitted).
"The burden to show wrongful conduct which suffices to surcharge a fiduciary is upon those so asserting." Estate of Weise, 257 N.W.2d at 7. Paul and Robert's mother had tried to sell the two acres and buildings from about 1975 to 1979, with no success. From 1979 until the mother's death in 1988 the property was neither rented nor occupied, except for a period of about five months in 1979 when Paul's daughter and son-in-law resided in the house. The grocery store was unoccupied, unrented, and unused after 1974 or 1975. It had no restroom and no water supply. It had a deteriorated and leaking roof that needed replacement if the building were to continue to exist. Considerable time and expense would have been required to make the grocery store useable. Even then it is questionable if the store could be rented. Without deciding the propriety or wisdom of Paul's disposition of the store without court order or Robert's approval, we find Robert has not shown that the disposition caused him any monetary damage.
VI. Attorney Fees
Finally, Robert argues the attorney for the estate is not entitled to compensation. He claims Paul's attorney failed to ensure timely closure and proper management of Frieda's estate. We note that the trial court did not expressly address or rule on the issue of fees for the executor's attorney, but pass the question of error preservation and address the merits.
Reasonable attorney fees are allowed and taxed as part of the costs of administering the estate. Iowa Code § 633.198. Considerable discretion is given to the probate court in its allowance or nonallowance of attorneys' fees. In re Estate of Bass, 196 N.W.2d 433, 435 (Iowa 1972). Finding no abuse, we affirm the probate court's allowance of attorney fees to Paul's attorney for services provided to Frieda's estate.