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Court Seeks to Determine if a Loan was Taken out by Estate

This is a probate case where the decedent died on May 1, 2004, leaving a will which was admitted to probate on July 7, 2004. The decedent was survived by his four children. The will makes pre-residuary cash bequests of $45,000.00 to each of the children. The will further provides that the decedent’s residuary estate be divided equally among his four children. Letters testamentary issued to Executor on July 7, 2004.

The son originally filed a First and Final Accounting of his proceedings covering the period May 1, 2004 through January 31, 2008. Thereafter, he filed a document which covers the period from May 1, 2004 to January 31, 2008, the same period covered by the First and Final Accounting. The Interim Account was verified by the son on February 18, 2009, nearly one year after the First and Final Account.

Another son filed objections to the accounting which raised several issues. The parties stipulated at trial that the estate had the burden of proof on the issue of whether the decedent make a loan to the oppositor In addition, the parties acknowledged that administrator son took an advance payment of commissions in the amount of $10,0000.00, without prior court order and repaid the sum of $10,000.00 to the estate.

Generally, in determining whether a valid loan exists, a court will consider such things as, “whether notes or other written acknowledgments of indebtedness were executed, collateral was given, a method or time for repayment was fixed by agreement and if there exists any evidence of a systematic repayment”. In the absence of an instrument evidencing the transaction, a factual determination must be made as to whether a loan was made. There is no presumption that money, which has been advanced, was advanced as a loan. In fact, it is presumed that the delivery of a check arises from an antecedent debt and is not a loan. The person alleging that a loan was made has the burden of proof.

With respect to the issue of the statute of limitations, “[t]here are two ways in which the statute of limitations may be tolled. One involves part payment and the other a signed acknowledgment”. It is well-settled that an acknowledgment of a debt may be sufficient to toll the statute of limitations. As to an acknowledgment, “it must be a signed written acknowledgment of an existing debt which contains nothing inconsistent with an intention on the part of the debtor to pay it. As to part payment, the statute will be tolled if it is demonstrated that it was “payment of a portion of an admitted debt, made and accepted as such, accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder”. Thus, the circumstances of the part payment must be sufficient from which to infer a promise to pay the remainder.

The parties agree that the burden is on the executor, as the fiduciary of the estate, to establish that the loan existed. Here, there was no evidence of a written note setting forth collateral or a method or time for repayment. Accordingly, in the absence of an instrument evidencing the transaction, a factual determination must be made as to whether a loan was made.

It is well settled that a trier of fact in an evidentiary hearing has the unique ability to make credibility assessments based upon its opportunity to view the witnesses, hear the testimony and observe their demeanor.

In the instant case, the court is presented with two drastically different versions. The executor and his sister argue that their father’s handwritten notes evince a debt which oppositor acknowledged having owed at one point in time but which he now claims to have repaid a significant portion and has receipts proving such repayment. Oppositor disputed their testimony in its entirety. He claims that he has never borrowed money from his father. When confronted with a document signed by him acknowledging that he owed his father $2,700.00, Oppositor stated that he did not owe that amount but, rather, his wife did.

The court finds that oppositor’s testimony was contrived. Oppositor testified in generalities and displayed selective memory and forgetfulness. The court finds the testimony of Executor and Sister to be more credible. Accordingly, the court finds that Executor has met his burden of proof that the decedent loaned Oppositor funds in the amount of $80,627.00 reflected on Exhibit 3. Although Oppositor and Sister’s testimony reflects that there was a mathematical error in Exhibit 3, Exhibit 3 was not admitted as evidence of the amount of the debt, but rather only as to possible admissions by Oppositor regarding the amount owed and repaid. The court has accepted the testimony that Oppositor was confronted with the document and did not dispute that he once owed the amount reflected therein, but rather claimed that he repaid the amount owed less than $3,400.00, which he could prove by the production of receipts. In fact, the court notes that even at the trial Oppositor incredulously stated that he had to go home and look for proof of rental payments. Oppositor is to be credited with a repayment of $3,400.00.

As to the issue of commissions, commissions are not ordinarily payable until the entry of a decree settling a fiduciary’s account. Taking a commission prior to the settlement of an account without securing court approval pursuant to SCPA 2310 or SCPA 2311 exposes the fiduciary to the potential of being surcharged. Ordinarily, the court will allow the commissions but will surcharge the fiduciary the amount of interest the estate lost because of payment, most commonly at the statutory interest rate under CPLR 5004, from the date the unauthorized commissions were taken until the entry of the decree settling the account.

Considering all the circumstances in this case and the above principles, the court surcharges the executor 9% statutory interest on the amount paid of $10,000.00 from the date taken until the date of repayment.

Thus, Executor’s testimony and account show that Executor (i) withdrew $10,000.00 in commissions without prior court order; (ii) made a $20,000.00 distribution to his company, which he ultimately repaid; and (iii) withdrew $66,000.00 of Oppositor’s share as repayment for an alleged loan Executor made to Oppositor and paid it to himself. The record confirms that Executor engaged in misconduct with respect to the administration of the estate. Accordingly, the court denies him commissions, but declines to revoke his letters.

With respect to the issue of attorneys’ fees, the court bears the ultimate responsibility for approving legal fees that are charged to an estate and has the discretion to determine what constitutes reasonable compensation for legal services rendered in the course of an estate. While there is no hard and fast rule to calculate reasonable compensation to an attorney in every case, the Surrogate is required to exercise his or her authority “with reason, proper discretion and not arbitrarily”.

In evaluating the cost of legal services, the court may consider a number of factors. These include: the time spent; the complexity of the questions involved; the nature of the services provided; the amount of litigation required; the amounts involved and the benefit resulting from the execution of such services; the lawyer’s experience and reputation; and the customary fee charged by the Bar for similar services. In discharging this duty to review fees, the court cannot apply a selected few factors which might be more favorable to one position or another but must strike a balance by considering all of the elements set forth in a case, and as re-enunciated in another case. Also, the legal fee must bear a reasonable relationship to the size of the estate. A sizeable estate permits adequate compensation, but nothing beyond that. Moreover, the size of the estate can operate as a limitation on the fees payable, without constituting an adverse reflection on the services provided.

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