Conservatorship of Elmira Phillips

Case Number

19PR00416

Case Type

Hearing Date / Time

Mon, 12/11/2023 - 08:30

Nature of Proceedings

Second and Final Accounting and Report

Tentative Ruling

Probate Notes:

Appearances required.

The following defects must be corrected before the petition may be approved:

Discrepancy no. 1 – Estate on hand at beginning of account does not match the amount on hand at the end of the last account. (Prob. Code, §1061(a).) The estate on hand at end of last accout shows a total estate value of $1,841,894.02.  The property on hand at the beginning of this account shows $1,886,267.99, a difference of $44,373.97.  The property on hand should have reflected the amount in the Final Inventory and Appraisal. (Prob. Code, § 1061(a)(1).)

Discrepancy no. 2 – Schedule A “Reinvested Dividends” is ambiguous and may indicate erroneous calculations that throw off the entire account.  If estate dividend funds are reinvested, the reinvestment is not properly a receipt to be listed in Schedule A, because they are expenditures and changes in the form of assets, which have their own schedules set aside in the Probate Code. As the Fiduciary Accounting Handbook explains:

In a fiduciary accounting, the dividend is a receipt from an entity, the purchase of additional shares is a change in form of asset, and the result of the reinvestment is that the number of shares carried, and the carry value, increases—an increase shown on the schedule Assets on Hand—End of Period.

(Fiduciary Accounting Handbook (C.E.B. 2023), §1.8 “Dividend Reinvestment”.)

If the dividend reinvestment is part of a “DRIP” program of automatic reinvestment by the company:

Many companies that pay dividends offer shareholders the opportunity to reinvest their dividends in additional shares of the company, through a "dividend reinvestment program," or DRIP. As an enticement, these companies usually do not charge shareholders a commission on the shares purchased through reinvestment and a small number of companies even sell shares purchased through reinvestment at a discount.

Broken into its constituent parts, a DRIP transaction is always (1) a receipt, followed by (2) a purchase, that (3) increases the number of shares the shareholder owns. The trustee who participates in a DRIP must account for each step of the transaction, as follows:

Report the dividend as a receipt on the schedule of Receipts;

Report the purchase of additional shares on the schedule Changes in Form of Assets; and Adjust the quantity and carry value of the aggregate shares.

(Fiduciary Accounting Handbook (C.E.B. 2023), §6.44 “Dividend Reinvestment Program”.)

A supplement explaining the entries must be submitted.

Discrepancy no. 3 – Missing Cash/Schedule H errors.  The cash on hand at the beginning of the account was $789,209.56.  The cash on hand at the end of the account was $705,300.29.  This $83,903.27 reduction in cash should be accounted for in either Schedule C (Disbursements) or Schedule H (Change in the Form of Assets).  Since Schedule C only amounts to $11,139, the missing cash is not accounted for there.  The missing cash is also not accounted for in Schedule H, because Schedule H shows $2,214,069.49 cash was reinvested in securities, which is more than the entire stated value of the estate, thus is clearly miscalculated.  A supplement and detailed reconciliation are at least required, if not a full amendment of the accounting.  Petitioner must explain how over two million dollars of cash existed in the first place, or was “reinvested” without any gains or losses of sale.  Nowhere in the accounting does it show securities were sold for cash.

Discrepancy no. 4 – Apparent Breaches of Fiduciary Duties.  The relationship of conservator and conservatee is a fiduciary relationship that is governed by the law of trusts.  Thus, all trustee duties are applicable to conservators. (Prob. Code, § 2101.)  The following fiduciary duties appear to have been breached by the transactions listed beside them:

A.  Failure to preserve estate property (Prob. Code, §16006):

• Brokerage fees are excessive. Conservatee died in September of 2020.  Thus, there are no apparent reasons for the sale or purchase of securities (i.e. a conservatee who passed away has no needs that would require the sale or exchange of securities).  For an accounting period of 13 months, conservator paid over $6,000 for brokerage fees even though the estate lost $78,742 in overall carry value. 

B. Failure to make estate property productive (Prob. Code, §16007.)

• The real property on 1946 Mono Street, Oxnard, CA, was not rented out to generate income. Please explain why this property was not used to generate income, or sold to keep it from being a liability.

C.  Comingling estate property with non-estate property (§16009):

• Schedule H transaction of $29,930.65 on July 15, 2022 shows payment to the Estate of Nathanial Phillips.  This is not only not a change in the form of assets (it is a disbursement that must be accounted for in Schedule C), but there is no evidence of a court order to disburse those funds to that Estate.  A supplement should explain every detail about this transaction, and the accounting will have to be amended to properly account for the transaction.

Recommended reductions to Attorney Becker’s Fee Request. Initial review of Attorney Becker’s fee request reveals two primary issues the Court should take into consideration when determining the reasonableness of the request:

1.  The bulk of the time billed was for work done by a paralegal at $200 per hour.  While this rate is not particularly offensive, most of the tasks performed were not for work that was “legal” in nature, but were for clerical tasks that this Court historically reimburses for at a much lower rate ($35-50/hr). 

2. A hefty portion of the legal work performed by both the attorney and paralegal was for work required to correct the multitude of errors in the previous accounting.  “[I]nefficient or duplicative efforts is not subject to compensation.”  (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1132.)

Therefore, when the current accounting is corrected to the Court’s satisfaction, it is recommended to the Court that the attorney’s fees request be significantly reduced.