Aug. 14, 2017 – A state appeals court recently ruled that the nonfamily beneficiaries in a will are entitled to attorney fees and costs because they prevailed on an appealable contested matter, despite an argument that the parties had reached a settlement.

Wis. Stat. section 879.37 says that a court may order reasonable attorney fees out of the estate “to the prevailing party in all appealable contested matters. …”

In Hartshorne v. Hurkman, 2016AP387 (Aug. 9, 2017), a three-judge panel for the District 2 Wisconsin Court of Appeals acknowledged that there are no appealable contested matters when parties settle, but there was no settlement in this case.

“Where a party concedes nothing and an opposing party capitulates before the court to the very best outcome the first party could have achieved if the matter had proceeded to trial, the first party has prevailed. That is what happened here,” wrote Mark Gundrum.

The Appraisal

Harold Hartshorne Jr. died with a will and three codicils, leaving portions of real property near Geneva Lake to three nonfamily beneficiaries. Hartshorne bequeathed the rest of the real property and the estate’s residue to family beneficiaries.

Two family members were the personal representatives. They objected to a third codicil that left 10 acres outright to Richard McGeehan, a nonfamily beneficiary.

McGeehan argued that the personal representatives, Kim Hartshorne Troy and Thomas Hartshorne, had a conflict of interest and should be removed as personal representatives. The probate court held a hearing, and Thomas and Kim testified.

Both said they hired an appraiser to value the property. The appraiser, with Thomas’s participation, valued the third codicil property at $13,900 per acre. But there was evidence that the property was more valuable than that, including recent sales.

Only a couple years before his death, Hartshorne had sold parcels of his property at around $73,000 per acre, and had received an offer (which he declined) to purchase all the estate’s real property for $6.5 million, which amounted to $75,000 per acre.

The current appraisal only valued the entire property at $3 million. The personal representatives acknowledged that the lower valuation would allow the estate to pay $1.4 million less in federal estate tax, which would come from the estate’s residue.

On the flip side, the lower valuation would potentially require the nonfamily beneficiaries to pay more in capital gains tax if they sold the property received from the estate.

Date-of-Death Valuation

The probate court ruled that Thomas and Kim could not serve as personal representatives, given the personal stake they had in the outcome of litigation. Before removal, they filed an inventory using the appraisal values as date-of-death values and filed the federal estate taxes that were due, which the court allowed them to do.

Around the same time, the nonfamily beneficiaries sold their codicil parcels to a neighbor for amounts much greater than the previously appraised values, and filed a petition that objected to the date-of-death values in the estate’s inventory filing.

The nonfamily beneficiaries argued that the sale prices should be used to determine the date-of-death value of the codicil properties. They requested an amended inventory, accounting, and federal estate tax return that used the sale price valuations.

They also requested that the estate pay their attorney’s fees and costs. Before trial to determine date-of-death valuation, the residual family beneficiaries moved to dismiss but the judge denied the motion. Ultimately, the family beneficiaries relented.

They no longer objected to an amended inventory, accounting, and federal estate tax return that used the recent sale prices as date-of-death valuations, and filed a petition for an order that would substitute the sale prices for the appraisal valuations.

But they also asked the judge to rule that both sides were responsible for their own attorney fees and costs, and the nonfamily beneficiaries objected to this.

However, the judge denied the nonfamily beneficiaries’ request for attorney’s fees and costs, concluding they had not prevailed on an "appealable contested matter.”

Attorney Fees

The appeals court reversed course, concluding the nonfamily beneficiaries did prevail on an “appealable contested matter” and were entitled to attorney’s fees and costs.

The three-judge panel explained that a party prevails “if he or she achieves some significant benefit in litigation involving a claim against the estate.” Although a trial was never held, the panel noted that a trial is not required in order for a party to prevail.

And the panel rejected the claim the case settled or the parties agreed, thereby negating any claim for attorney’s fees by a prevailing party. The nonfamily beneficiaries had received what they originally wanted: date-of-death valuation based on sale price.

“The nonfamily beneficiaries ‘made no concessions or compromises’ to achieve their desired result and ‘there was no agreement or settlement,’” Judge Gundrum wrote.