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IN THE COURT OF APPEALS OF IOWA No. 6-771 / 05-0978 Filed November 30, 2006

IN THE MATTER OF THE ESTATE OF ERIC CHRISTOPHER ERLAND, Deceased, PATRICIA SHEA ERLAND AND JOHN SHEA ERLAND, Executors, Appellants. vs. KRIS FAY, TERRI LUPEI AND MICHAEL SHEPARD, Appellees. ________________________________________________________________

Appeal from the Iowa District Court for Wapello County, James Q. Blomgren, Judge.

The executors appeal from a district court ruling sustaining the appellees' objections to the final report. AFFIRMED.

John R. Webber III of Harrison, Moreland & Webber, P.C., Ottumwa, for appellants. Kenneth A. Duker of Breckenridge & Duker, P.C., Ottumwa, for appellees.

Considered by Vogel, P.J., and Miller and Eisenhauer, JJ.

2 VOGEL, P.J. The co-executors of the estate of Eric Erland appeal from the district court's order sustaining the objections of the appellees to the final report. We affirm. I. Background Facts and Proceedings. Eric Erland died in October 2002. His will was admitted to probate on October 17, 2002, with his mother, Patricia Erland, and his brother, John Erland, appointed as co-executors. Eric executed his will in August 1997 and named his then wife, Joni Erland, as the sole beneficiary. In February 2001, Eric and Joni's marriage was dissolved, but Eric did not revise his will accordingly. As Eric and Joni had no children, the will provided that if Joni predeceased Eric, the homestead would pass to Joni's sister, Vicki Jo Shepard. The residue of Eric's estate would then pass in equal shares, one-half to Joni's parents, Alice and Norman Shepard, and one-half to Eric's mother, Patricia. When it was understood that the dissolution revoked Joni's interest in Eric's estate according to Iowa Code section 633.271 (2001), the remaining beneficiaries, in hopes of negotiating a settlement, retained counsel and began discussing with the executors an alternate distribution of the property of the estate. An agreement was reached whereby Alice, Norman, and Vicki would disclaim their interests in the estate pursuant to Iowa Code section 633.704 so that Joni would receive the homestead and have $50,000 paid by the estate on the mortgage. Vicki and Joni also disclaimed any interest they would receive resulting from the disclaimer filed by their parents, Alice and Norman.

3 On June 13, 2003, the named beneficiaries (Patricia, Vicki, Alice, and Norman) entered into a "Family Settlement Agreement" with Joni and the executors. The Agreement provided the following: 1. The homestead to be conveyed to Joni, with the estate to pay $50,000 toward the mortgage due on the property and all remaining sums to be paid by Joni. 2. The estate to pay property taxes pro-rated to the date of Joni's possession. 3. Joni receives all remodeling building materials located at 915 E. Highland, Ottumwa. 4. Joni will pay the inheritance taxes on the Vanguard IRA, in the amount of $3679.22. 5. Vicki, Alice and Norman Shepard shall each execute disclaimers to their interest in the estate before the expiration of nine months from the date of death (10/09/02). 6. Patricia will receive the balance of the assets of the estate, with the estate to pay for administration of the estate. The initial report and inventory filed by the executors on March 24, 2003, listed the estate's gross assets at $226,925.65. The Iowa inheritance tax return, with the family settlement agreement attached, was prepared on June 17, 2003, by the attorney for the estate, John R. Webber III. It reported a gross estate of $226,925.65 with allowable deductions of $112,400.34, leaving a net estate for distribution of $114,525.31. Joni and Patricia were the only persons listed on this return as "beneficiaries." Joni's share was $36,792.19 and, as a non-relative, the inheritance tax was calculated at $3679.22. Patricia's share was $77,733.12 and, as Eric's mother, no inheritance tax was due. Correspondence from the Iowa Department of Revenue to Webber in September 2003 regarding the return indicated any disclaimed property by Vicki, Alice, or Norman would pass to their heirs, requiring additional taxes depending on the existence and number of those heirs. Webber subsequently wrote

4 attorney Robert Breckenridge, who represented Vicki, Joni, Norman, and Alice, informing him of the department's position and requesting information on any and all heirs of Vicki, Alice, and Norman, and advising that this would affect the inheritance tax due. Webber also recommended amending the "Family

Settlement Agreement" to include any children of Alice and Norman. An amended Iowa inheritance tax return was filed on May 7, 2004, which added Alice and Norman's three other children, Michael Shepard, Kris Fay, and Terri Lupei, the objectors and appellees, each with a $10,836.86 share and inheritance tax of $1083.69 due on each share. Patricia's share dropped to

$32,510.59. The total allowable deductions shown had increased to $125,112.29 leaving the net estate at the amended value of $101,813.36. There was also a penalty of $162.56 and interest of $162.60 for the late filing. In July 2004, the district court approved the application for executor's fees to Patricia of $4658.21, ordinary fees to attorney Webber of $4658.21, as well as extraordinary attorney fees of $5569.67. Although they received notice of the application for fees,

neither Michael, Kris, nor Terri raised any objections to the application. The executors filed the final report for the estate on March 4, 2005, to which Michael, Kris, and Terri filed an objection. The objections consisted of the following five points: 1. That Kris Fay, Terri Lupei, and Michael Shepard are heirs at law, based upon certain disclaimers filed in this matter. 2. That the attorney for the executor originally incorrectly filed an estate tax return in which Kris Fay, Terri Lupei, and Michael Shepard were all left off as receiving shares. That Mr. Webber failed to even notify heirs prior to the required filing of the return. 3. That because of the errors of Mr. Webber in failing to include them, certain penalties were required to be paid [to] the State of Iowa.

5 4. Further, Mr. Webber did not include the deductions for his extraordinary fees which [were] more than $5000 over $5500 additional to be claimed on the tax return. Failure to do so artificially inflated the taxes on the return as well. 5. As such, the share of Kris Fay, Terri Lupei, and Michael Shepard has been decreased due to Mr. Webber's failing to take action to notify them correctly as well as failing to properly prepare the estate tax return. WHEREFORE, the claimants request that the amounts to be distributed to them be changed and increased to more properly represent what they should have received but for the errors of Mr. Webber. Following a contested hearing, the district court issued its ruling on April 20, 2005, in favor of the objectors. The court found that Kris, Terri, and Michael became "beneficiaries of the estate by reason of the disclaimers signed by [their parents, Alice and Norman Shepard]." The court also found that as beneficiaries of the estate, Kris, Terri, and Michael were not bound by the Family Settlement Agreement, as they were not party to the agreement. The court sustained the objections to the final report in their entirety, and ordered the "distributions to the heirs of the estate should be adjusted accordingly." The executors, Patricia and John, appeal from this ruling. II. Scope of Review. The matters before us were resolved in probate proceedings for final settlement of the estate, and our review is therefore de novo. Iowa Code

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