Matter of Estate of Amundsun, 21015

• Court: Supreme Court of South Dakota
• Writing for the Court: PER CURIAM
• Citation: 621 N.W.2d 882,2001 SD 18
• Parties: In the Matter of the Estate of Howard Amundsun, Deceased, and In the Matter of the Estate of Margaret Amundsun, Deceased. 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. #21015, #21016 THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA
• Docket Number: 21015
• Decision Date: 14 February 2001

In the Matter of the Estate of Howard Amundsun, Deceased, and In the Matter of the Estate of Margaret Amundsun, Deceased.

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.

#21015, #21016

[2001 SD 18]

THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA

Argued March 20, 2000

February 14, 2001

Appeal from The Second Judicial Circuit Lincoln County, SD Hon. Richard Bogue, Judge

Timothy J. Langley Sioux Falls, South Dakota and Brian J. Stuart, Gerry & Schlimgen Sioux Falls, South Dakota Attorneys for appellant.

Cheryle Wiedmeier Gering Davenport, Evans, Hurwitz & Smith Sioux Falls, South Dakota Attorneys for appellee.

KONENKAMP, Justice

[¶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.

A.

[¶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.(FN1)

Upon Margaret's death, the document instructs the trustees to distribute $60,000 of the trust estate to five of Margaret's relatives.(FN2)

[¶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...