FIDUCIARY COMPENSATION

//FIDUCIARY COMPENSATION

“We don’t pay taxes, only the little people pay taxes.” Leona Helmsley

 

This is what Leona Helmsley’s summer house keeper testified that Mrs. Helmsley had previously said, during a 1989 tax evasion trial that resulted in Mrs. Helmsley serving 19 months in jail.  At trial, her own lawyer described her as a “tough bitch”.  Leona Helmsley was known as the “Queen of Mean” for her heaping cruelty meted out toward her employees in her real estate empire worth billions.  She was legendary in penny pinching her employees, returning used shoes to stores for refund and gipping contractors that worked on her properties.  When her only child died she served his widow with an eviction notice shortly after the funeral and took judgment against his estate for a debt and property that she claimed he had borrowed from her.  It seems that while she was alive she paid no one fairly.

 

Mrs. Helmsley died in 2007.  Her husband (number three) Harry, predeceased her in 1997.  Fortunately for Mrs. Helmsley, she got what she wanted:  he left her his entire estate estimated to be well over $5 billion.

 

Her estate plan was what one would expect under the circumstances.  It cut out certain family members and manifest some rough edges.  Mrs. Helmsley’s estate in large part was left to a charitable trust.  Her Maltese dog, Trouble, was benefitted by a $12 million trust fund.  It was reduced by the court as excessive based upon litigation and alleged lack of capacity.  The court determination included providing benefit for some relatives.

 

In August 2019, the New York County Surrogate made a final determination on the application for judicial settlement of the final account of Mrs. Helmsley’s executors (See In re Judicial Settlement of the Final Account of Proceedings of Panzirer, 2019 N.Y. Misc. Lexis 4512).  Ironically, the focus of the court’s attention was the matter of determining reasonable compensation for the fiduciaries.

 

Mrs. Helmsley’s will stated that her executors were not to receive statutory commissions.  Instead, her will stated:

 

“Any one or more executors…may render services to the Estate…as an officer, manager or employee of the Estate…, or in any other capacity, notwithstanding the fact that they may appoint themselves to serve in such capacities, and they shall be entitled to receive reasonable compensation for such services.  No such person shall be required to furnish any bond in connection with such employment.”

 

The executors commenced a proceeding to be paid and filed their account.  The executors asserted that the estate was mammoth and highly complex and that they were responsible for enormous risk and potentially exposed to personal liability.  Thus, they sought $100 million ($25 million each).  This was based on well settled law in New York, concerning established factors on which reasonable compensation is to be determined (See In re Estate of Freeman, 34 N.Y.2d 1, 311 N.E.2d 480, 355 N.Y.S.2d 336 [1974]; In re Potts’ Estate, 213 A.D. 59, 209 N.Y.S. 655 [4th Dept 1925], affd 241 NY 593, 150 N.E. 568 [1925]). 

 

The Attorney General objected.  The Attorney General did not allege impropriety, but instead claimed that the amount sought was not “reasonable compensation.”

The argument made was that a proposed methodology akin to quantum meruit should apply.  Only time spent should be considered, rather than the long standing law favoring multi factor analysis.  According to the Attorney General, her theoretical time and rate based formula should determine the result.

 

In a well reasoned and thoughtful determination the Surrogate crushed the opposition of the Attorney General, rejecting it entirely, as “misguided at best” and “simply wrong.”  The Attorney General argued that the compensation “should be based on a simple arithmetic formula which considers only the reasonable amount of time spent multiplied by an appropriate hourly rate.”  Incredibly, the Attorney General further argued that the court should appoint an expert to advise on the reasonable value of each executor’s contribution to the estate, based upon services actually rendered and based on the individual knowledge of and skills of each.

 

The position taken by the Attorney General was baseless and incredibly wrong.  The determination of the court reflects a displeasure with the arguments lacking any legal support.  The court stated that the Attorney General herself, self promulgated certain “guidelines” that the court found to simply be “unworkable”, and “which would foist an unwieldly time consuming and costly process onto the parties and the estate.”  Further, rejecting the notion of appointment of an expert, the court found that would involve the retention of additional professionals to help the expert, necessitate more discovery, and possibly a hearing – all at the additional expense of the estate.  Finally, the court reminded the Attorney General that the Surrogate is uniquely qualified to determine fiduciary compensation based upon the reasonable compensation standard.  The court does that routinely in these cases.  The Legislature conferred that authority to the court (see SCPA 1412(7) re preliminary executors, 2312 re corporate trustees, and 2110 re attorneys).

 

Despite the efforts of the Attorney General, Leona Helmsley’s fiduciaries will be fairly compensated after all.

 

 

By |2020-01-03T10:27:13-05:00January 2nd, 2020|Categories: TRK Blog|0 Comments