In re Estate of Amundson
| Decision Date | 14 February 2001 |
| Docket Number | No. 21016., No. 21015 |
| Citation | 2001 SD 18,621 N.W.2d 882 |
| Parties | In the Matter of the ESTATE OF Howard AMUNDSON. In the Matter of the Estate of Margaret Amundson. Albert Van Laar, as personal representative of the Estate of Margaret Amundson, Plaintiff and Appellant, v. David O. Amundson, as personal representative of the Estate of Howard Amundson, Defendant and Appellee. |
| Court | South Dakota Supreme Court |
Timothy J. Langley, Sioux Falls, SD and Brian J. Stuart of Stuart, Gerry & Schlimgen, Sioux Falls, SD, Attorneys for appellant.
Cheryle Wiedmeier Gering of Davenport, Evans, Hurwitz & Smith, Sioux Falls, SD, Attorneys for appellee.
[¶ 1.] Margaret Amundson's estate challenges the validity of a living trust created for Margaret by her husband at a time when she was mentally incapable of giving consent or exercising the powers the trust conferred. The trust effectively bypassed Margaret's estate's right to take her spousal elective share under South Dakota law. We conclude that it violated public policy. As the circuit court came to the opposite conclusion, we reverse and remand.
[¶ 2.] After fifty-four years as husband and wife, Howard and Margaret Amundson both died in 1998. They had no children together, but Howard had a son, Jerry Amundson, from a previous marriage. Howard and Margaret had invested profitably over the years and owned several businesses in Canton, South Dakota. Margaret had been an active participant in the businesses until her health began to decline. Their combined assets were worth in excess of $1.3 million.
[¶ 3.] In their latter years, Howard and Margaret had an especially close bond with Howard's nephew, David O. Amundson, the son of Howard's brother, Owen. Although David had provided assistance to Howard and Margaret on occasion in the past, when David moved back to Canton in 1990, he began providing extensive help, including financial guidance. In 1991, after visiting with a friend about estate planning, Howard obtained material on do-it-yourself wills and trust kits. He asked David for advice. When David reviewed this material nearly two years later, he told Howard that because trusts are complicated an attorney should be consulted to set up an estate plan.
[¶ 4.] In 1992, Howard and Margaret, both in poor health, began residing at the Canton Good Samaritan Center. On March 27, 1992, Margaret gave David a financial power-of-attorney, and her brother, Albert Van Laar, a medical power-of-attorney. On the same date, Howard signed a durable power-of-attorney naming David as his attorney-in-fact. By late 1993, Margaret's physical and cognitive state had severely deteriorated. She was never to leave the nursing home. Howard, on the other hand, returned home in January 1993, under the personal care of a nurse's aid.
[¶ 5.] In the fall of 1993, Howard met with his attorney in Canton to discuss estate planning. After several meetings, the attorney drew separate revocable living trust agreements for Margaret and Howard. The attorney never met with Margaret. Howard provided all the details necessary to create her trust. According to Howard's attorney, these trusts were established so that Howard and Margaret could minimize both state inheritance and federal estate taxes, and provide for their continuing care. Approximately $200,000 was initially placed in Margaret's trust. Howard's trust received $600,000. This appeal centers on the legal propriety of Margaret's trust.
[¶ 6.] In our reading, the terms of her trust instrument are somewhat contradictory. It begins by naming Howard as "Settlor," Margaret as "Primary Beneficiary/Settlor," and David as "initial Trustee." There is no place provided in the instrument for Margaret's signature as Settlor. Her signature, in fact, is nowhere in the document. The instrument declares that "Howard Amundson shall retain no rights or powers over the assets transferred in trust hereunder." However, the "Trustees" are given extensive powers under SDCL ch. 55-1A, and on the signature page Howard is named "Settlor and initial Trustee" along with David as "Co-Trustee."
[¶ 7.] Margaret's trust instrument represents that "The assets transferred in trust consist of [Margaret's] share of the joint assets of the Settlors." The trust gives her a "general power of appointment to direct disposition of all assets," including the power to name beneficiaries and to revoke the trust.1 Upon Margaret's death, the document instructs the trustees to distribute $60,000 of the trust estate to five of Margaret's relatives.2 The trustees are given discretion to make annual gifts of up to $10,000 per person to these individuals to avoid the requirement of filing a gift tax return. If Howard were still living at the time of Margaret's death, and if funds were not readily available to him from his own revocable trust or from another source, Margaret's trust instructs the trustees to draw from the principal and income of her trust for his "proper care, support, and maintenance." Upon the death of both Margaret and Howard, any amount not otherwise designated by Margaret goes to David.
[¶ 8.] After Howard and David signed the trust documents, Howard's attorney sent copies in January 1994 to Margaret at the nursing home along with a cover letter explaining that she alone held the right to revoke the trust, to change beneficiaries, and to name a different residue recipient upon her death. The problem with this was that although the letter served to formally notify Margaret of the creation of her trust, she was not mentally capable of understanding that one had been created on her behalf. She had been out of touch with reality for some time. She suffered from dementia and was unable to communicate rationally. As she had not been adjudicated legally incompetent, no guardian or conservator had been appointed to act as her representative in accepting or managing her trust. Indeed, although he had never met her, Howard's attorney conceded that it was his feeling when he sent her the trust documents that she probably was not competent. The attorney also conceded that as a practical matter it was impossible for Margaret to exercise her right of substitution and revocation under the trust.
[¶ 9.] In 1995, David told Howard that the costs of caring for Margaret had depleted the corpus of her trust to approximately $175,000. David suggested that by increasing the amount in the trust, Howard could take greater advantage of the federal tax exemption, and ensure that the trust income would cover Margaret's nursing home expenses. Howard placed funds in the trust from a mining venture that he and Owen had been involved in and recently sold. Howard received approximately $395,000 from this sale and he placed about half of it into Margaret's trust, increasing the corpus to approximately $440,000.
[¶ 10.] Howard died on May 17, 1998. Margaret died eleven days later on May 28. She had no will. At the time of her death, Margaret's trust held approximately $458,000. In preparing the trusts, neither Howard nor his attorney apparently anticipated that Margaret might be in a position to exercise her elective share. Because her health was considered worse than Howard's, Margaret was not expected to outlive him. Margaret's brother, Albert, was appointed the personal representative of her estate. On June 29, 1998, Albert filed a petition for elective share on behalf of Margaret's estate under SDCL 29A-2-212. He later moved to set aside her trust.
[¶ 11.] Margaret's estate argued in circuit court that the trust was invalid and illusory because it allowed Howard to serve as Margaret's "surrogate testator," naming his nephew, David, as the residuary beneficiary, safe in the knowledge that Margaret was incapable of changing it. In responding to these assertions, Howard's attorney testified that he and Howard had no discussion about elective shares, much less a plan to thwart Margaret's elective share rights. In its findings of fact, the trial court ruled:
Margaret Amundson's mental condition at the time her trust was created was not good. There is reason to doubt that she ever had the capacity to understand the conditions of the trust so that she could have exercised her right to revoke the trust and appoint new or additional beneficiaries. There is no evidence, however, that Howard Amundson created the trust with the intent of taking advantage of any incapacity on the part of Margaret and thereby defeating her spousal election.
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There is no evidence that Howard Amundson was ever advised, by counsel or anyone else, that there was an elective share that could be asserted by the spouse who survived the other.
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There is no evidence that Howard Amundson considered or had any thought of defeating Margaret Amundson's rights to an elective share.
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The Margaret Amundson trust and the Howard Amundson Trust were set up for tax benefits, and to provide for the care of Margaret Amundson.
The court concluded that it "may or may not have been Margaret Amundson's wish to name the same beneficiaries" because she never expressed a plan for bestowing her assets. Nonetheless, the court declined to invalidate Margaret's trust, holding that her estate did not meet its burden of establishing adequate grounds.
[¶ 12.] Margaret's estate now appeals contending that the circuit court erred in failing to hold (1) that Margaret's trust violates South Dakota public policy on spousal elective shares and intestate succession; (2) that performance of the trust is impossible; and (3) that the trust is fraudulent. We need not reach Issues (2) and (3), as we conclude that under Issue (1) the trust violates a surviving spouse's right to take an elective share, which right may be claimed by a deceased surviving spouse's personal representative under South Dakota's unique version of the Uniform Probate Code (UPC).3 Margaret's trust was created primarily to provide for...
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