In re Estate of Heiman , 235 N.C. App. 53 ( 2014 )

NO. COA13-1339
NORTH CAROLINA COURT OF APPEALS
Filed: 15 July 2014
IN THE MATTER OF THE Orange County
ESTATE OF PETER HEIMAN, No. 09 E 388
Appeal by Executrix from Order entered 28 June 2013 by
Judge Robert H. Hobgood in Superior Court, Orange County. Heard
in the Court of Appeals 10 April 2014.
Richard Bircher and Russell J. Hollers III, for petitioner-
appellee.
Levine & Stewart, by James E. Tanner III, for respondent-
appellant.
STROUD, Judge.
Heidi Venier, executrix of Peter Heiman’s estate, appeals
from an order entered 28 June 2013 by the superior court
affirming an order of the Orange County Clerk of Superior Court
and concluding that Audrey Layden, Mr. Heiman’s wife, was
entitled to an elective share of $25,970.35 from the estate. We
reverse.
I. Background
Peter Heiman (“decedent”) passed away on 7 July 2009.
Prior to his death, he had executed a will naming Heidi Venier,
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his only child, the sole beneficiary and executrix of his
estate. Mr. Heiman was survived by his wife, Ms. Layden, and
Ms. Venier, his daughter from a prior marriage. Ms. Venier
applied for and received letters testamentary on 3 August 2009.
As the surviving spouse, Ms. Layden petitioned for a year’s
allowance of $10,000 and an elective share of Mr. Heiman’s
assets.
On 20 October 2009, Ms. Venier, as executrix, filed a
complaint for declaratory judgment against Fidelity Investments.
She sought to have the estate designated as beneficiary for two
accounts, an individual retirement account (IRA) and another
investment account. Mr. Heiman had designated as beneficiary for
these accounts a trust which was mentioned in a previously
revoked will but never created.1 On or about 1 December 2009, Ms.
Venier filed an inventory for decedent’s estate. The inventory
listed $377,795.45 in total assets. That amount included the
IRA, which was valued at $38,908.99.
1
According to the brief filed by the Estate in the appeal to the
superior court, due to the “the lapse of the Heiman Trust as the
designated beneficiary,” the “default beneficiary designation”
for the IRA was the surviving spouse, Ms. Layden. We are unable
to discern from the record how or why the “default beneficiary”
of the IRA was not included as a party to the declaratory
judgment action regarding disposition of the IRA, but she was
not.
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Before Ms. Layden’s petition for elective share was heard
by the Clerk of Superior Court, the parties voluntarily attended
mediation in an effort to resolve the matter and entered into a
settlement agreement, executed by Ms. Layden on 18 May 2010 and
by Ms. Venier, as executrix, on 19 May 2010. The agreement
stated that in consideration for the payment of $65,000 from the
assets owned by decedent, “the parties accept full compromise,
settlement and satisfaction of, and the final release and
discharge of all actions, claims and demands whatsoever that
each party may have against the other . . . .” Under the
agreement, both parties released any claims against the other
and the estate agreed that Fidelity Investments would distribute
the IRA, then worth approximately $40,000.00, directly to Ms.
Layden, and that she would receive approximately $25,000.00 from
another Fidelity account.
After the agreement was signed, Ms. Venier dismissed her
declaratory judgment action against Fidelity. But Ms. Layden
refused to dismiss her petition for an elective share. She
argued that “the alleged ‘settlement’ was procured by a material
misrepresentation in the estate file.” On 9 August 2012, the
Orange County Clerk of Superior Court noticed his intent to rule
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on the elective share petition and heard the case on 4 December
2012.
The Clerk found that the existence of the Fidelity
declaratory judgment lawsuit was not disclosed to Ms. Layden. He
therefore concluded that the settlement agreement was
unenforceable as a waiver of Ms. Layden’s elective share rights.
The Clerk found that the total net assets of decedent were
valued at $363,851.50. It concluded that Ms. Layden was
entitled to a one-quarter share, $90,962.88. It further found
that Ms. Layden had already been paid $64,947.62 (the amount she
had already received under the settlement agreement). It
therefore awarded $25,970.35 to Ms. Layden.
Ms. Venier appealed to the superior court on 27 December
2012. By order entered 28 June 2013, the superior court fully
adopted the findings of fact made by the Clerk of Superior Court
and affirmed the order. Ms. Venier filed written notice of
appeal to this Court on 24 July 2013.
II. Standard of Review
Ms. Venier appeals from the superior court’s order
affirming the Clerk‘s order regarding Ms. Layden’s elective
share petition. The superior court fully adopted the clerk’s
findings of fact. Ms. Venier does not contest any of these
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findings on appeal. She only challenges the trial court’s
conclusion that Ms. Layden was not provided fair and reasonable
disclosure of the property and obligations of decedent and that
the settlement agreement was therefore unenforceable.
Thus, the only issue on appeal is one of law, which we
review de novo. Carolina Power & Light Co. v. City of Asheville,
358 N.C. 512, 517, 597 S.E.2d 717, 721 (2004). “Under a de novo
review, the court considers the matter anew and freely
substitutes its own judgment for that of the trial court.” In re
Estate of Pope, 192 N.C. App. 321, 331, 666 S.E.2d 140, 148
(2008) (citation, quotation marks, and brackets omitted), disc.
rev. denied, 363 N.C. 126, 673 S.E.2d 129 (2009).
III. Full and Fair Disclosure
The issue for us to consider is a narrow one, but one of
first impression in North Carolina: what does it mean for a
surviving spouse to be “provided a fair and reasonable
disclosure of the property and financial obligations of the
decedent” for purposes of waiver under N.C. Gen. Stat. § 30-3.6(b)(2) (2009)?
Ms. Layden urges us to consider the required disclosure in
light of the fiduciary duty she contends that Ms. Venier owed
her as executrix of the decedent’s estate. Ms. Venier denies
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that she owed Ms. Layden any such duty because Ms. Venier is a
surviving spouse who has filed a claim for an elective share,
not a beneficiary under the will. We need not decide this issue
because even assuming that Ms. Venier owed Ms. Layden a
fiduciary duty, the existence of the Fidelity lawsuit was not a
material fact and failure to disclose it was not a breach of any
duty owed—fiduciary or statutory.
A. Elective Share Statutes
The elective share statutes are quite detailed and the
calculation of an elective share is highly fact-dependent. In
deciding what information Ms. Layden was required to disclose,
it is necessary to understand the context. Therefore, before
addressing the issue of waiver, we will lay out the calculation
of elective share as applicable to this case.
Under N.C. Gen. Stat. § 30-3.1, et seq., a wife who
survives her husband2 may choose to take an “elective share” of
the decedent’s assets rather than taking under the decedent’s
will. The “applicable share” of the decedent’s assets to which
a surviving spouse is entitled depends on whether the decedent
had a prior spouse and whether the decedent is survived by
children or other lineal descendants. N.C. Gen. Stat. § 30-
2
Or vice-versa.
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3.1(a) (2009). A second or successive spouse of a decedent
survived by one or more lineal descendants is entitled to a
reduced share. N.C. Gen. Stat. § 30-3.1(b). Where the decedent
is survived by a second spouse and one child, the applicable
share is one-quarter of the decedent’s total net assets. See id.The term “total net assets” is defined by N.C. Gen. Stat. §
30-3.2(4) (2009) as the decedent’s total assets reduced by any
year’s allowances “to persons other than the surviving spouse
and claims.” “Total assets” is in turn defined as the sum of the
values listed in N.C. Gen. Stat. § 30-3.2(3f), which includes
inter alia “[b]enefits payable by reason of the decedent’s death
under any policy, plan contract, or other arrangement.” N.C.
Gen. Stat. § 30-3.2(3f)(d). Such benefits include “[i]ndividual
retirement accounts.” N.C. Gen. Stat. § 30-3.2(3f)(d)(5).
The surviving spouse is entitled to her share of the total
net assets reduced by the value of the net property passing to
the surviving spouse. N.C. Gen. Stat. § 30-3.1(a). The “net
property passing to the surviving spouse” includes any property
that passes by “beneficiary designation” (except federal social
security) reduced by the amount of any death taxes or claims
payable out of such assets. N.C. Gen. Stat. § 30-
3.2(2c),(3c)(a).
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Taking these statutes as a whole, if the decedent owns an
individual retirement account at the time of his death, it is
included in the decedent’s total net assets for purposes of
calculation of the elective share. If someone other than the
surviving spouse is the IRA beneficiary, then the elective share
to which the surviving spouse is entitled will be her share of
the total net assets—including the IRA—without any reduction in
value. If, however, an individual retirement account owned by
the decedent passes by beneficiary designation to the surviving
spouse, her elective share will be reduced by the value of the
IRA. In either case, the total value of the decedent’s assets to
which a surviving spouse is entitled is simply the applicable
share of the total net assets of the decedent.
A surviving spouse entitled to an elective share may waive
her right in writing. N.C. Gen. Stat. § 30-3.6(a). However, “[a]
waiver is not enforceable if the surviving spouse proves that:
(1) The waiver was not executed voluntarily; or (2) The
surviving spouse or the surviving spouse’s representative making
the waiver was not provided a fair and reasonable disclosure of
the property and financial obligations of the decedent . . . .”
N.C. Gen. Stat. § 30-3.6(b).
B. “Fair and Reasonable Disclosure”
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Here, Ms. Layden does not truly argue that the settlement
agreement was not a waiver of her elective share rights nor that
the waiver was involuntary. Indeed, it is clear that the
agreement was intended by all parties to fully settle Ms.
Layden’s elective share claim. The agreement between Ms. Venier,
as executrix of the Heiman Estate, and Ms. Layden stated that it
was intended to be the “final release and discharge of all
actions, claims and demands whatsoever that each party may have
against the other.” Such “claims and demands” include Ms.
Layden’s claim for elective share.
Nevertheless, Ms. Layden contends that the agreement is
unenforceable because Ms. Venier failed to provide “fair and
reasonable disclosure” of decedent’s assets under N.C. Gen.
Stat. § 30-3.6(b). Ms. Layden further asserts that she relied,
to her detriment, on the “misrepresentations” of Ms. Venier and
that therefore the waiver was unenforceable as a contract
induced by fraud. Specifically, she contends that Ms. Venier
concealed the existence of the estate’s lawsuit against
Fidelity. Regardless of whether the issue is considered as a
matter of common law fraud or statutory application, if the fact
Ms. Venier failed to disclose was immaterial, then the agreement
would remain enforceable. See Harton v. Harton, 81 N.C. App.
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295, 297, 344 S.E.2d 117, 119 (“A cause of action for fraud [may
be] based on . . . a failure to disclose a material fact
relating to a transaction which the parties had a duty to
disclose.” (citations omitted) (emphasis added)), disc. rev.
denied, 317 N.C. 703, 347 S.E.2d 41 (1986).
“A fact is material[] if[,] had it been known to the party,
would have influenced that party’s decision in making the
contract at all.” Carcano v. JBSS, LLC, 200 N.C. App. 162, 176-
77, 684 S.E.2d 41, 53 (2009). As in any other settlement
negotiation, the material facts are those that allow the party
to calculate her best alternative to a negotiated agreement and
to understand the effect of the agreement.
Ms. Layden had two alternatives: to proceed with her claim
for elective share and receive the amount as ordered by the
Clerk of Court, or to enter into a settlement agreement with the
estate. If the surviving spouse knows what property decedent
owned and what financial obligations were owed, she can
accurately calculate the share to which she would be entitled
absent a settlement. If the amount of the “total net assets” of
the estate is known, it is a simple matter to calculate 25% of
this amount, and this amount is what the surviving spouse would
receive as her elective share by order of the Clerk; the total
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amount paid to the surviving spouse by the estate would also be
reduced by any sums which passed to her by “beneficiary
designation,” excluding the amount of any death taxes or claims
payable out of such assets. N.C. Gen. Stat. § 30-
3.2(2c),(3c)(a).3 But whether the funds are paid to the surviving
spouse entirely by the estate or partially by the estate and
partially as a direct distribution to the surviving spouse as
beneficiary of an account, the amount received by the surviving
spouse would be the same.
Here, the existence of the lawsuit against Fidelity was not
a material fact because it had no relevance to the calculation
of the share of the decedent’s total net assets to which Ms.
Layden would be entitled. Decedent owned an IRA valued at
$38,908.99. This asset was included in the total net assets
owned by decedent, valued at $379,796.54, and disclosed on the
Inventory for Decedent’s Estate of 1 December 2009. The IRA was
listed in the section of the Inventory for “Stocks and Bonds In
the Sole Name of Decedent or Jointly Owned Without Right of
Survivorship” and was identified as a “Fidelity Traditional IRA”
with the correct account number listed and the value stated as
3
Ms. Layden does not contend, and the record does not reflect,
any “death taxes or claims payable out of” the IRA assets, so
for our purposes the only relevant number is the total value of
the IRA which passed to Ms. Layden.
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$38,908.99. The only difference in the Inventory, had the IRA
been listed correctly, would be that it would have been listed
under Part II of the form, instead of Part I, as
“Stocks/Bonds/Securities Jointly Owned With Right Of
Survivorship or registered in beneficiary form and automatically
transferable on death.” The value, which was the only relevant
information for purposes of calculating Ms. Layden’s elective
share, would be the same.
Ms. Layden, as a second spouse to a decedent with one
living child, was entitled to one quarter of decedent’s total
net assets. This sum could easily be calculated at mediation
based upon the values of the decedent’s property which had all
been disclosed, although some expenses, such as the
administrative costs, could only be estimated. Ultimately, the
trial court found that there were $15,945.04 in administrative
costs and reduced the total net assets by that amount, resulting
in total net assets of $363,851.50. Ms. Layden was entitled to a
one-quarter share, $90,962.88. Ms. Layden could have calculated
this amount based on the information provided to her by Ms.
4
Venier.
4
In addition, Ms. Layden was fully aware, based upon documents
filed in this matter, that Ms. Venier was seeking to have any
rights that she may have related to her marriage to decedent
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Even if the IRA had been distributed to Ms. Layden prior to
the mediation, based upon her status as the default beneficiary,
the total net assets would have still been the same and Ms.
Layden would still be entitled to $90,962.88 from those assets.
But she would not be entitled to receive $90,962.88 in addition
to the full value of the IRA. Her elective share would be
reduced by the value of the IRA, $38,908.99, as the Clerk
correctly determined. So, no matter which party is designated
the beneficiary of the IRA, the total value of the assets to
which Ms. Layden would have been entitled remains the same.
Given the information provided, Ms. Layden fully knew the amount
to which she would be entitled if she declined to settle the
dispute. She settled it nonetheless.
Indeed, it may seem odd that Ms. Layden and Ms. Venier had
such a heated dispute regarding the seemingly simple
mathematical calculation of this elective share claim that
nearly a year passed before it was resolved at mediation, an
additional two years before being heard by the Clerk, and that
this appeal would be before this Court nearly five years after
the decedent’s death. The reasons are not apparent above
because of the single legal issue presented on appeal, but
eliminated on a theory of equitable estoppel.
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before the Clerk and trial court, the reasons were clear.
Essentially, tragic circumstances surrounded decedent’s death,
and relations between Ms. Layden, as his second wife, and Ms.
Venier, his daughter, were acrimonious. Because of these
circumstances, Ms. Venier sought to prevent Ms. Layden from
claiming an elective share. Decedent and Ms. Layden had been in
the process of negotiating a separation agreement when he died.
Before the trial court, Ms. Venier summarized her argument
as follows:
As a matter of fundamental fairness, Mr.
Heiman and Ms. Layden had a deal; the terms
were certain, both of them were acting in
accordance with these terms, and for all
intents and purposes the deal was complete
but for their signatures and the subsequent
payment of a modest sum of money. Beyond its
sheer gall and hypocrisy, it is not merely
wrong, it’s a travesty that Ms. Layden
should lay claim to a quarter of Mr.
Heiman’s estate on the basis of a short,
late in life, unhappy marriage that ended in
separation and suicide, when she had already
agreed to waive any claim to the estate. The
Court must not allow such an injustice to
occur.
Although Ms. Venier’s attempts to avoid the elective share
were unsuccessful and she does not challenge Ms. Layden’s
entitlement to an elective share on appeal, there were other
disputed issues existing at the time of the mediation. In fact,
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the value of the decedent’s estate may have been the only
undisputed issue in the settlement negotiations. Viewed in this
light, Ms. Layden’s agreement to settle the elective share claim
for a bit less than the full amount of the statutory share—where
the value of the total net estate was known—is quite reasonable.
The Fidelity lawsuit, as discussed above, solely concerned
the proper beneficiary of the account. It did not affect the
ownership of the account or its value—it was owned by the
decedent at his death and that fact is undisputed. It had no
bearing on the calculation of the share to which Ms. Layden was
entitled, so we see no reason that disclosure of that fact would
have affected in any way Ms. Layden’s decision to settle. Ms.
Layden has not claimed that any other material fact had been
concealed. Moreover, Ms. Venier, as executrix, fully performed
her part of the negotiated agreement, allowing two of the
Fidelity accounts to pass to Ms. Layden. Ms. Layden, by
contrast, failed to perform her contractual duties by refusing
to dismiss her elective share petition.
Given the immateriality of the Fidelity lawsuit to the
calculation of an elective share, we conclude that Ms. Venier
fully and fairly disclosed all material information to Ms.
Layden. Ms. Layden was fully aware of all of the decedent’s
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assets and liabilities when she decided to waive her right to an
elective share and to enter into the settlement agreement. The
settlement agreement constituted a knowing and voluntary waiver
of Ms. Layden’s elective share rights. We therefore hold that
the superior court erred in concluding that the settlement
agreement was not an enforceable waiver of Ms. Venier’s right to
an elective share. We reverse the trial court’s order affirming
that of the Clerk of Superior Court.
IV. Conclusion
For the foregoing reasons, we conclude that the existence
of the Fidelity lawsuit was not a material fact. Therefore, Ms.
Venier’s failure to disclose its existence does not make the
settlement agreement unenforceable. We hold that the superior
court erred in concluding that the agreement was not an
enforceable waiver of Ms. Layden’s elective share rights. We
therefore reverse its order affirming the order entered by the
Clerk of Superior Court.
REVERSED.
Judges HUNTER, JR., Robert N. and DILLON concur.