Appeal from the Probate Division of the Superior Court of the District of Columbia; (Hon. Eugene N. Hamilton, Trial Judge)
Before Rogers, Chief Judge, King, Associate Judge, and Mack, Senior Judge.
The opinion of the court was delivered by: Rogers
ROGERS, Chief Judge: Appellant, Barbara A. Jones, appeals from an order approving the ninth account for the estate of Theodore R. Hagans, Jr. In that account, a $250,000 certificate of deposit, which had been pledged to a corporation wholly owned by the estate, was transferred to the corporation as a capital contribution, and tax penalties were paid by the estate. On appeal, Ms. Jones contends that the trial Judge abused his discretion by approving the ninth account without ordering the personal representatives to disclose additional information about the transfer of the certificate of deposit. She maintains that she was entitled to a full accounting of the corporation's records and a hearing in order to evaluate the allegations of self-dealing. She also contends that the trial Judge was clearly erroneous in approving the ninth account in view of the conflict of interest arising from the transfer of the certificate of deposit. Finally, she contends that the trial Judge abused his discretion by approving the charge of tax penalties against the estate in the absence of a finding that the personal representatives were not at fault.
We hold, in view of the broad powers granted to the executors under the will, and the nature of the one-third interest in the residuary estate provided in the will for Ms. Jones, that she has failed to demonstrate an abuse of discretion or clear error by the trial Judge in approving the ninth account insofar as the transfer of the certificate of deposit from one part of the residuary estate to another is concerned. However, we conclude that a remand is required regarding the charge of the tax penalties against the estate. Accordingly, we affirm the order approving the ninth account of the estate with the exception of the charges against the estate for tax penalties; on that issue we reverse and remand the case to the trial court to determine whether the personal representatives were without fault in regard to the tax penalties, and if not, to amend the ninth account to delete those charges against the estate.
When Theodore R. Hagans and his son died accidentally in an airplane crash in April 1984, Ms. Jones became a one-third beneficiary of Mr. Hagans' residuary estate under the terms of his will and Mr. Hagans' daughter, Michele, became a two-thirds residuary beneficiary. The will also appointed Mr. Hagans' daughter, Michele, and his friends, Arthur L. Content and Charles I. Bryant, *fn1 as executors of the estate. Under the will the testator gave them broad powers as executors "to pledge any property," and "to take any action with respect to conserving or realizing upon the value of any property" in the estate. The will defined the residuary estate to include both the certificate of deposit at issue and several incorporated businesses, one of which was the Fort Lincoln New Town Corporation (Fort Lincoln). The trial court appointed the three executors named in the will as the personal representatives for the estate.
In December 1984, the certificate of deposit was pledged to a letter of credit held by Crestar Bank in connection with a development contract between the District of Columbia government and the Fort Lincoln corporation that required the corporation to maintain a letter of credit. The current $250,000 letter of credit was issued on behalf of the Fort Lincoln corporation in December 1984, replacing two instruments obtained before the testator's death, a letter of credit issued in 1975 and a bond issued in 1983. The issuing bank of the current letter of credit required collateral to be posted in the form of a certificate of deposit. The estate accordingly placed a certificate of deposit for $250,000 with the bank. In March 1991, the estate transferred the certificate of deposit (which was pledged to Crestar Bank) to the Fort Lincoln corporation as a capital contribution. Ms. Jones does not challenge the propriety of the pledge of the certificate of deposit in 1984, only the subsequent transfer in 1991.
In July 1990, the personal representatives filed the ninth account and a motion for adoption of the plan and distribution for the estate. Ms. Jones filed objections to the account. *fn2 At a hearing in May 1992, Ms. Jones objected to the 1991 transfer of the certificate of deposit to the Fort Lincoln corporation on two grounds. She argued that (1) absent the transfer, the certificate-of-deposit funds would have been available for distribution from the estate and she would have received $83,333.33, rather than minority shares in a closely-held corporation, and (2) she needed information about the corporation's accounts in order to determine whether it was necessary for the Fort Lincoln corporation to be so capitalized or whether the corporation had other funds that could have been used as collateral for the letter of credit. She also maintained that the trial Judge needed this information before he could approve the ninth account. Ms. Jones, therefore, requested the trial Judge to order a further accounting on her behalf from the personal representatives.
The trial Judge approved the account without ordering any further disclosures by the personal representatives. The Judge reasoned that since the money had already been pledged for the corporation's letter of credit, and the corporation was wholly owned by the estate, the transfer of the certificate of deposit was not a significant change in the assets of the estate. The Judge rejected Ms. Jones' arguments that the personal representatives, in transferring the certificate of deposit to the Fort Lincoln corporation, had breached their fiduciary duty to the residuary beneficiaries, and that, in view of Michele Hagans' additional position as president and director of Fort Lincoln, there was a conflict of interest and an inference of self-dealing. The Judge found that Michele Hagans and the two other personal representatives had the authority under the will to transfer the certificate of deposit. In addition, over Ms. Jones' objection, the trial Judge ruled that there was no universal rule prohibiting the charging of tax penalties to the estate, and that the amount at issue was de minimis in relation to the size of the estate and an inquiry into who was at fault would cost more than payment of the $7,616.05.
Appellant, Barbara A. Jones, raises two related claims of error by the trial Judge regarding the transfer of the certificate of deposit to the Fort Lincoln corporation.
First, Ms. Jones contends that the trial Judge abused his discretion by not ordering the personal representatives to disclose the financial records of the Fort Lincoln corporation before approving the ninth account of the estate. At trial, Ms. Jones argued that, "the very threshold . . . should be that we have the right to find out whether or not there is any money . . . in Fort Lincoln New Town Corporation so that they could have put up that Certificate of Deposit to collateralize the Letter of Credit that it owned." Specifically, Ms. Jones stated that she needed a full disclosure of the corporation's operations to determine (1) whether independent security was sought or available, (2) whether the security agreement was still in effect or could be renegotiated, and (3) whether the corporation had sufficient assets of its own to use as security.
"The beneficiary is always entitled to such information as is reasonably necessary to enable him [or her] to enforce his [or her] rights under the trust or to prevent or redress a breach of trust." RESTATEMENT (SECOND) OF TRUSTS § 173 cmt. c (1959). In the instant case, the personal representatives did provide information to Ms. Jones about the transfer of the certificate of deposit, and the question is simply whether it was sufficient. The District of Columbia Probate Reform Act is not particularly enlightening on this point. It requires accounts to contain the value of any assets and to list all transfers or sales that affect the estate, but it does not address whether the financial accounts of a corporation ...