Checklist Examination of Executor’s Account

Frank W. Streng, Surrogate’s Court Lawyers

by Frank W. Streng on 11/14/2000

Frank W. Streng, Esq.

Partner

McCarthy, Fingar, Donovan,

Drazen & Smith, L.L.P.

11 Martine Avenue

White Plains, NY 10606-1934

914-946-0134 (fax)

914-946-3817 Ext. 256 (voice)

e-mail: fstreng@mfdds.com

web: www.mfdds.com

The Bank of New York – Issues in Accounting Proceeding – 11/14/00

Checklist Examination of Executor’s Account

· Overview

· Received a “perfect” accounting
· Retained by beneficiary who wants to know if he or she should object to accounting
· What do you do?

· 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
· Inventory
· Federal and New York estate tax returns
· Federal and New York fiduciary tax returns
· Federal and New York income tax returns
· Federal and New York gift tax returns
· Bank/cash/brokerage/mutual fund statements, etc.
· If corporation involved, Federal and local tax returns

· What generally are you looking for:

· Collection of all assets
· Joint assets
· “Gifted” assets
· Totten trusts
· Qualified plans or IRAs
· Designated beneficiaries on insurance policies
· Tangible personal property
· Uninvested cash
· Tax elections and tax matters
· Separate v. joint income tax returns
· Alternate valuation
· Q-Tip elections and other marital deduction issues
· GST tax issues
· Deduction of expense on fiduciary 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
· 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-90
· 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

· 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: do 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
· Real estate brokerage – review closing statement
· Stock brokerage
· Look at increases just as carefully as decreases
· Abandonment of assets

· Schedule A-2

· Look at published dividends records
· Uninvested cash
· Proper allocation between income and principal
· E.g., interest on estate tax refund does not belong to A-2; it belongs to Schedule C
· If business or partnership, consider a full forensic examination

· Schedule C

· Make judgments individually as to each item
· Are there are expenses that should not have been incurred had the estate been administered more efficiently and rapidly, e.g., bank service charges for decedent’s accounts, rent, etc.
· Funeral expenses
· Storage charges and delivery charges for bequests of tangible personal property
· Commissions paid without court approval
· Extra fees for fiduciary – e.g., brokerage fees
· Executorial services – e.g., bookkeeping
· Accounting fees
· Attorney fees
· Estate and other transfer taxes
· Tax elections
· Valuation of assets and proper payment of taxes
· Penalties

· Schedule C-1

· Relationship between C and C-1
· Calculation of commissions – see Schedule I
· Attorneys fee

· Schedule D

· Was a claim barred or unenforceable for any reason
· Statute of limitations
· CPLR 4519 evidentiary problem in proving claim

· Personal claim of fiduciary paid without court approval
· Applies even to bank mortgages
· Allowances for contingent claims?

· Schedule E

· If satisfaction in kind and nonprorata, check values of assets
· Consider interrelated tax issues, e.g., satisfaction of pecuniary legacy in kind results in a gain; no inherited tax basis
· Pro rata distributions; if not, look for adjustments on income side (see EPTL 11-2.1(d)(2)
· Untimely payment of cash bequests; if not, was interest paid; was the amount of interest fair if interest paid
· If charitable and individual residuary interest, were fiduciary taxes charged to individual (see EPTL 11-2.1(d)(2)

· Schedule F

· Uninvested cash
· Investments in appropriate short-term par investments v. improper investment in bonds, stock, etc.
· If business loans, etc., do forensic work on company

· Schedule G

· Are assets segregated in estate
· Should assets have been sold
· Caution: surcharge usually cannot apply when the executor has failed to sell retained assets

· Schedule H

· If there are power of attorneys or assignments on file, determine whether they have any impact on your client’s strategic position in any litigation
· Are proposed distributions correct – consider non-pro rata distribution and Schedule E comments

· Schedule I

· Commissions property computed
· Unsold real estate
· Specifically bequeathed or devised property
· If pledged property, perhaps only entitled to commission on net amount
· If multiple fiduciaries, consider entitlement (SCPA 2313 – limited to 2)
· If attorney-fiduciary, consider entitlement
· Consider whether actions of fiduciary result in deprivation – usually not, unless actions are dramatic – e.g., removed fiduciary
· Corporate fees – review fee schedule and look for problems, e.g., fees on nonprobate assets

· Schedule J

· Usually a rich source of information, e.g., nonprobate assets described here usually in order to prevent liability for a fiduciary accused of hoodwinking court or beneficiaries
· Cash reconciliation
· Warms adjustment
· Holoway adjustment

· Schedule K

· Estate tax apportionment
· Foreign taxes

· If trust involved, see also Schedule E-1 (Distributions of income) and F-1 (Income on Hand)