Papers Considered: 1) Notice of Motion for Summary Judgment dated November 25, 2020; Affidavit of Jennifer M. Boll in Support of Petitioner’s Motion for Summary Judgment, dated November 25, 2020 with exhibits; Memorandum of Law in Support of Petitioners’ Motion for Summary Judgment, dated November 25, 2020; 2) Notice of Cross-Motion for Summary Judgment dated February 26, 2021; Affirmation of Livius M. Ilasz, Esq. in opposition to Petitioners Motion for Summary Judgment and in Support of Respondent’s Cross Motion, dated February 26, 2021, with exhibits; Affidavit of Thomas M. Kotulak, CPA, MFS in Support of Respondent’s Cross-Motion for Summary Judgment, dated February 26, 2021, with exhibits; 3) Affidavit of Jennifer M. Boll in Further Support of Petitioners’ Motion for Summary Judgment and in Opposition to Respondent’s Cross Motion dated March 12, 2021, with exhibit; Reply Memorandum of Law in Further Support of Petitioners’ Motion for Summary Judgment and in Opposition to Respondent’s Cross-Motion, dated March 12, 2021; 4) Affirmation of Livius M. Ilasz, Esq., dated March 15, 2021, with exhibit. DECISION AND ORDER Pending before this Court are a motion by petitioners for summary judgment dismissing respondent’s objections and settling petitioners’ account as administrators and a cross-motion by respondent for summary judgment seeking the imposition of sanctions, damages and fees for petitioners’ alleged breach of fiduciary duty and self-dealing in the handling of decedent’s estate. Specifically, respondent alleges that petitioners, with assistance of their counsel, mishandled decedent’s Fidelity IRA to respondent’s detriment while benefiting themselves, and also intend to pay themselves three full commissions on an inflated estate value when they should be entitled to no more than one $37,531.18 commission for all three. Respondent also seeks additional discovery, an award of respondent’s legal fees, and an audit of petitioners’ counsel’s legal fees. Both motions have been submitted for decision. Decedent died intestate a resident of Albany County on October 28, 2017, survived by his sister, Maria Kunze (respondent) and by his nieces and nephew, Maria Bartolini, Anna Hoover and John Spiak (petitioners). Respondent resides in Poland and is a one-half beneficiary of the estate. Petitioners reside in Massachusetts, Texas and New York, respectively, and are each one sixth beneficiaries of the estate. Petitioners were appointed as co-administrators of the estate in February 2018. In February 2019, they commenced a proceeding for judicial settlement of their account. Respondent appeared and filed objections to the account alleging, among other things, that petitioners breached their fiduciary duties and engaged in self-dealing related to the alleged mishandling of decedent’s Fidelity IRA and the calculation of commissions. By way of background, decedent’s sister, Julia Wasienko, was the designated beneficiary of decedent’s Fidelity IRA account, but predeceased him, causing the estate to become the default beneficiary. In an alleged effort to save income taxes, petitioners first created an inherited IRA for the estate, and then transferred the Fidelity IRA, in kind, to the estate’s inherited IRA on July 23, 2018.1 The value of the Fidelity IRA at that time exceeded one million dollars. In October 2018, petitioners then transferred one-half of the value of the estate’s inherited IRA, in kind, into new tax-deferred inherited IRAs for each of the three petitioners as beneficiaries. The remaining one-half of the estate’s inherited IRA, representing respondent’s share, was liquidated and distributed by petitioners outright to the estate in the amount of $362,096.04, and $155,184.01 was ultimately withheld on respondent’s behalf as a foreign person’s US source withholding tax (FATCA). It appears that respondent learned of the outright payment of her one- half share, and also learned of the inherited beneficiary IRAs that petitioners had created for themselves, when the accounting was prepared and her share of decedent’s Fidelity IRA account had already been liquidated.2 In the context of a judicial accounting proceeding, “‘the party submitting the account has the burden of proving that he or she has fully accounted for all the assets of the estate, and this evidentiary burden does not change in the event the account is contested. While the party submitting objections bears the burden of coming forward with evidence to establish that the account is inaccurate or incomplete, upon satisfaction of that showing, the accounting party must prove, by a fair preponderance of the evidence, that his or her account is accurate and complete’” (Matter of Tract, 284 AD2d 543, 543 [2001], quoting Matter of Schnare, 191 AD2d 859, 860 [1993], lv denied 82 NY2d 653 [1993]; accord Matter of Carbone, 101 AD3d 866, 868-869 [2012]). “Where the objectant satisfies the prima facie burden and the fiduciary fails to rebut it, the Surrogate’s Court may impose surcharges and, where appropriate, may also impose interest charges” (Matter of Carbone, 101 AD3d at 869; see Matter of Schnare, 191 AD2d at 861). If factual issues are presented, the matter should be resolved at a hearing (see Matter of Carbone, 101 AD3d at 869; Matter of Schnare, 191 AD2d at 860-861). Here, petitioners have met their initial burden of establishing that they have fully accounted for the assets of the estate by filing the petition, account of schedules and affidavits of accounting parties, which are complete on their face. Respondent has raised issues as to the accuracy of the accounting in the context of petitioners’ handling of the estate. The Court must determine whether either side is entitled to summary judgment and determine whether there are factual issues raised that should be resolved at a hearing. On a motion for summary judgment, the proponent bears the initial burden of making “a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact” (Alvarez v. Prospect Hosp., 68 NY2d 320, 324 [1986]). “Once such a showing has been made, the burden shifts to the party opposing the motion to produce admissible evidence sufficient to establish the existence of material issues of fact which require a trial” (Matter of Panebianco, 50 Misc 3d 1203[A], 2015 NY Slip Op 51903[U], *9 [Sur Ct, Westchester County 2015]; see Zuckerman v. City of New York, 49 NY2d 557, 562 [1980]). Fidelity IRA Respondent’s first objection relates to the alleged mishandling of decedent’s Fidelity IRA. Respondent contends that petitioners failed to contact or communicate with respondent about her options with respect to the Fidelity IRA and made no attempt to procure an inherited IRA for respondent while they did so for themselves. Respondent claims that petitioners could have easily procured the same beneficiary IRA for respondent by contacting her, notifying her that she needed to obtain a US ITIN, and transferring her 50 percent of the estate’s inherited IRA to an inherited IRA for respondent as was done for petitioners. In support of petitioners’ motion for summary judgment and in response to respondent’s cross-motion, petitioners claim that respondent’s objection to the payment of respondent’s one half share outright should be dismissed because: (1) they acted in the best interest of the estate and of all beneficiaries; (2) petitioners obtained their own beneficiary accounts in their capacity as beneficiaries, not as co-administrators, and (3) they were informed by Fidelity that they could not have obtained a beneficiary account for petitioner because she is a foreign citizen without a US ITIN. Petitioners claim that they did not have a duty to obtain a US ITIN for respondent and that respondent did not provide them with one. Petitioners further claim that obtaining inherited IRAs for themselves as beneficiaries not only fails to constitute a breach of their fiduciary duties as co-administrators, but was a prudent decision made to defer the tax on their shares of decedent’s IRA. Petitioners’ claim that they could not have obtained a beneficiary account for petitioner because she is a foreign citizen without a US ITIN does not adequately respond to respondent’s contention that they breached their fiduciary duty to the estate and to the beneficiaries. The questionable conduct here, in the Court’s view, is petitioners’ and their counsel’s failure to communicate with respondent about the availability of an inherited IRA. According to a recorded telephone call on September 14, 2018 between J.P Fountain of Bond, Schoeneck and King (petitioners’ counsel) and A.J. Watson in Fidelity’s Inheritor Services Group, petitioners’ counsel was told twice that a non-US Citizen can have an inherited IRA. Mr. Watson explained “that everyone can open an inherited IRA, even a non-citizen” and that this can be done with a foreign ID or passport, a Form W-8 and some research on the IRS website for an IRS form 5173. Mr. Watson then again stated “all four people can establish inherited IRAs — the foreign citizen just takes a few extra steps.” After asking for the information to set up petitioners’ inherited IRAs, Mr. Fountain then stated, “in the event we are unable to work with the Polish citizen, who does not speak English by the way, and if we did need to continue with splitting the IRA in half and distributing to the three US citizen beneficiary IRAs and liquidating the other half of the account making it payable to the estate, what documents do we need?” While, it may be true, as petitioners allege, that a US ITIN was required to transfer the IRA assets to an inherited IRA, it is clear that respondent could have set up an inherited IRA and there is nothing in the papers submitted to suggest that this information was ever communicated to respondent. New York common law “contains an absolute prohibition against self-dealing, in that ‘a fiduciary owes a duty of undivided and undiluted loyalty to those whose interests the fiduciary is to protect’” (Matter of Heller, 6 NY3d 649, 655 [2006], quoting Birnbaum v. Birnbaum, 73 NY2d 461, 466 [1989]; see Matter of Wallens, 9 NY3d 117, 122 [2007]). “This is a sensitive and ‘inflexible’ rule of fidelity, barring not only blatant self-dealing, but also requiring avoidance of situations in which a fiduciary’s personal interest possibly conflicts with the interest of those owed a fiduciary duty” (Matter of Birnbaum, 73 NY2d at 466 [citation omitted]; see Matter of Wallens, 9 NY3d at 122). “The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the [fiduciary], and (3) damages directly caused by the [fiduciary's] misconduct” (Smallwood v. Lupoli, 107 AD3d 782, 784 [2013], lv dismissed and denied 23 NY3d 958 [2014]; see Palmetto Partners, L.P. v. AJW Qualified Partners, LLC, 83 AD3d 804, 807 [2011]). “Self-dealing occurs when an attorney (or other fiduciary) takes advantage of his [or her] position in a transaction and acts in his [or her] own interests rather than in the best interests of the client” (Matter of Lawrence, 24 NY3d 320, 344 [2014]). There is no dispute among the parties that petitioners and their counsel failed to inform respondent about the availability of an inherited IRA for her share of the Fidelity IRA. The Court finds, therefore, that petitioners breached their fiduciary duty by not giving respondent the same opportunity to transfer her one-half share of the Fidelity IRA to an inherited IRA as they did for themselves. A fiduciary has a duty of loyalty to all beneficiaries and “must at all times discharge [their] fiduciary duties so that all legatees are treated in like manner and without prejudice or discrimination” (see Matter of Muller, 24 NY2d 336, 341 [1969], mod on other grounds 24 NY2d 1029 [1969]; Matter of Heinrich, 195 Misc 803, 809 [Sur Ct, Monroe County 1949]). Furthermore, a fiduciary has a duty to “minimize the over-all tax burden on the estate and it’s beneficiaries” and to act impartially (Matter of Rappaport, 121 Misc 2d 447, 450 [Sur Ct, Nassau County 1983]). Summary judgment dismissing respondent’s objection as it relates to the mishandling of decedent’s Fidelity IRA is, therefore, denied. Respondent’s cross-motion for summary judgment on the mishandling of the Fidelity IRA is hereby granted. The question for the Court now becomes the measure of damages. According to an affidavit filed by Thomas M. Kotulak, CPA, MFS3 on respondent’s behalf, a transfer to an inherited IRA for respondent to be paid over her life expectancy would have saved her $53,719.00 in taxes.4 In the alternative, respondent claims that petitioners could have saved respondent at least $36,742.00 in income taxes on the IRA distribution by checking a box on a form to take the distribution over five years instead of taking one lump sum.5 Mr. Kotulak also states in his affidavit that respondent is owed an additional $10,763.00, which is the difference between the 30 percent tax withheld for the FATCA withholding ($155,184.01) and the tax liability on her 2019 US federal income tax return ($144,421).6 Accordingly, there is a material issue of fact as to the precise measure of damages that will need to be determined in further proceedings. Commissions Respondent objects to the three commissions sought by petitioners in the amount of $50,413.46 each. Respondent contends that there is nothing in petitioners’ accounting to justify the payment of commissions, as there is no evidence that they performed any work administering the estate. Respondent points out that petitioners Hoover and Bartolini reside in Texas and Massachusetts, respectively, and alleges that petitioners delegated their administrative duties to their counsel and merely signed documents at counsel’s request. Respondent alleges that the discovery produced to date shows that Ms. Hoover and Mr. Spiak performed merely perfunctory roles in the administration of the estate. It is alleged that Ms. Hoover used her Texas address as the principal address on counsel’s invoices to justify her fee, while the same invoices were delivered via email simultaneously to all three petitioners. It is alleged that Mr. Spiak performed only minimal tasks related to decedent’s two tenants by writing a two sentence handwritten note to quit the premises and signing two three day notices to quit on May 2, 2018 — both of which were prepared by counsel. Respondent further contends that when the tenants refused to pay rent or quit the premises, it was counsel who pursued the eviction proceedings, which were billed under separate matter numbers. Respondent admits that it appears that Ms. Bartolini performed some functions of an administrator as there is evidence to suggest that she paid the bills. Petitioners claim that they are not required to demonstrate entitlement to commissions, but that they have “more than earned them with the incredible amount of effort and time expended to defend the litigation,” which petitioners claim was “extravagantly perpetuated by the Objectant.” They contend that petitioners have spent countless hours poring through “[o]bjectant’s irrational and insensitive filings, motions, and accusations against the estate and them as individuals, which has undoubtedly taken a personal toll on them.” Petitioners claim that they have worked with counsel every step of the way and spent substantial time and effort negotiating with the tenants of the estates rental properties, successfully removing tenants from both properties, and selling the properties for full market value. In addition, it is alleged that petitioners spent time and effort recuperating IRS and Massachusetts withholding,7 establishing estate accounts, liquidating and marshalling assets, paying bills and taxes, filing a final income tax return for decedent and preparing a final accounting.8 This Court has the discretion to scrutinize petitioners’ commissions and while they will be allowed by the Court if reasonable, the Court will not award commissions to a fiduciary who has not performed any services for the estate (see Matter of Boddy, 136 Misc 2d 87 [Sur Ct, Monroe County 1987]; Matter of Tucker, 75 Misc 2d 318 [Sur Ct, NY County 1973]). There are material questions of fact as to what duties petitioners did or did not perform as fiduciaries. There is also the possibility of denial of some or all of commissions due to the finding that petitioners breached their fiduciary duties. Therefore, a hearing is required to determine commissions. Respondent also contends that, because petitioners’ 50 percent of the Fidelity IRA did not go through the estate, but rather was transferred to inherited IRAs, it should not be commissionable. Respondent states that, if that amount were not included in the estate value in the accounting, the computation for one commission would be $37,531.18, not $50,423.78. Petitioners claim that the full value of the Fidelity IRA, including the amounts paid into their own inherited IRAs, was a sum received and paid out by the estate and is, therefore, commissionable. They do not explain why it was necessary to pay their share into an estate inherited IRA before then transferring it to their individual inherited IRAs, other than to argue that it is commissionable. Petitioners rely on Matter of Parkinson, 138 Misc 2d 1069, 1071 [Sur Ct, Nassau County 1988]). In Parkinson, the question for the court was whether the property of an inter vivos trust that reverted to decedent’s estate upon his death was commissionable. The court explained that if the property comes into a fiduciary’s hands, as in that case, the property would commissionable. More on point with the case at hand is Matter of Staud, (140 Misc 2d 195 [Sur Ct, Monroe County 1988]). In Staud, the executor decided to defer payment in the decedent’s employee compensation plan for ten yearly installments which were to be paid to directly to the trustee under the will. The executor’s decision to defer payment significantly reduced the estate’s income and estate tax liability. The issue for the court was whether the deferred compensation plan was commissionable. The court compared this to a life insurance policy payable to a trustee, and while those proceeds are includable in the gross estate for estate tax purposes, they are not commissionable. The court held that it was sympathetic to the work done by the fiduciary and acknowledged it was his duty to make a tax efficient decision, but that “[i]t has been long held that commissions are not payable on property passing directly to a trustee and bypassing the executor” (id. at 198; relying on Matter of Del Monte, 66 Misc 2d 458,460 [Sur Ct, New York County 1971]). The court also held that it was the executor’s duty to determine the assets of the estate and that includes the formulation of decisions to benefit the estate. Had the executor requested and received a lump sum payment causing an additional tax to the estate, the court could have entertained a surcharge proceeding. In addition, the court held that if such actions were taken solely to obtain additional commissions, they would be denied. The Court finds that commissions in this matter should not have been computed on the amounts paid into respondents’ own inherited IRAs. As to the amount of the commissions, if any, payable to one or more of the fiduciaries, such determination shall be made in further proceedings, as there are material issues of fact to be determined. Both petitioners’ and respondent’s motions for summary judgment as to the amount of commissions are denied. Additional Matters Respondent has asked for an order for sanctions against petitioners and their counsel for alleged willful misconduct and discovery violations, fees and an audit of petitioners’ counsel’s legal fees. As for discovery, it appears that respondent seeks ongoing information as to the management of the estate, which is relevant to the settlement of the account and her one-half interest in the remainder of the estate. Petitioners are directed to continue to provide respondent with bank statements and updated information until this matter is settled, and petitioners are also directed to file with the Court, within 30 days of the date of this decision and order, a complete set of unredacted, itemized attorney billing statements from the commencement of their representation to the present, including fees paid since the accounting was first filed. No sanctions or preclusions are granted at this time, but the Court may do so in the future, depending on the findings of fact to be made. Any remaining contentions, to the extent not specifically addressed, have been considered and found to be lacking in merit or not ripe for determination. While the Court finds that both sides to this litigation have continuously approached the limits of civility, it cautions the parties and their counsel to proceed respectfully in future filings and appearances in this Court. There will be a mandatory settlement conference held by the Court on Microsoft Teams at which all counsel shall be present virtually. Counsel is directed to be ready for such conference with appropriate authority from their clients to discuss specific settlement figures. It is hereby ORDERED that petitioners’ motion for summary judgment is denied; and it is further ORDERED that respondent’s cross-motion is granted in part, as to the finding that petitioners breached their fiduciary duty in the handling of respondent’s share of decedent’s Fidelity IRA, and as to the finding that commissions may not be computed on the portion of decedent’s Fidelity IRA paid into petitioners’ inherited IRAs, and the cross motion is denied in all other parts pending a hearing on the issues. Dated and Entered: May 13, 2021
