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In re Amended & Restated Nelson Living Trust

Supreme Court of South Dakota

July 31, 2013

IN THE MATTER OF THE: AMENDED AND RESTATED NELSON LIVING TRUST DATED SEPTEMBER 19, 2002, AS AMENDED.

Considered on Briefs Date: MAY 21, 2013

APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT MINNEHAHA COUNTY, SOUTH DAKOTA THE HONORABLE KATHLEEN K. CALDWELL Retired Judge

RICK W. ORR, JUSTIN T. CLARKE of Davenport, Evans, Hurwitz & Smith, LLP, Attorneys for trustee and appellant The First National Bank of Sioux Falls.

MICHAEL F. TOBIN JENNIFER E. BUNKERS MEGHANN M. JOYCE of Boyce, Greenfield, Pashby, & Welk, LLP, Attorneys for petitioner and appellee Ann Nelson.

OPINION

WILBUR, Justice

[¶1.] Ann Nelson, Decedent's ex-wife, timely filed a claim against Decedent's estate claiming entitlement to compensation for nursing and convalescent services she provided to Decedent prior to his death. Trustee denied the claim, contending that forgiveness of a loan Decedent made to Ann constituted payment for services rendered. Ann then filed a Petition for Allowance of Claim, alleging breach of contract and unjust enrichment and seeking payment from Decedent's trust in the amount of $270, 045. Based on surrounding circumstances and statements ascribed to Decedent, the trial court concluded that Ann was entitled to compensation, and ordered that the trust pay her $183, 538 for services she provided to Decedent. We affirm the trial court's conclusion that Ann was entitled to compensation for the services she provided to Decedent, but remand to the trial court with instructions to recalculate the award consistent with this opinion.

FACTS AND PROCEDURAL HISTORY

[¶2.] Ann Nelson and Dr. Robert E. Nelson were married on May 9, 1987. The couple divorced approximately ten years later. After the divorce, Ann purchased a nine-acre farmstead and a thirty-five acre parcel of land, which were located approximately thirty-five miles west of Sioux Falls and nine miles north of Parker (the "farmstead"). Although they were divorced, Ann and Dr. Nelson remained friends. They often had dinner together, and Dr. Nelson helped Ann restore the farmstead. Dr. Nelson frequently visited the farmstead, and he and Ann took great pride in the work that they had done to restore it.

[¶3.] When Ann purchased the farmstead, an adjoining forty-five acre parcel of land (the "adjoining parcel") was also available, but she did not purchase it. Approximately one year after Ann purchased the farmstead, she had a second opportunity to purchase the adjoining parcel. Although she submitted a bid, she was not successful in purchasing the adjoining parcel at that time. Ann and the new owner of the adjoining parcel later came to a verbal understanding that if he were to sell the property, he would afford Ann the first opportunity to purchase it.

[¶4.] Despite this verbal understanding, Ann discovered on September 16, 2007, that the adjoining parcel was to be auctioned off in thirty days. A few days later, while having dinner with Dr. Nelson, Ann brought the upcoming auction to his attention. At that time, Ann asked Dr. Nelson whether he would "go halfsies on it, " meaning that he would help Ann pay for the adjoining parcel and that they would jointly own it. Dr. Nelson responded, "[L]et me think about it."

[¶5.] Approximately a week later, while having dinner at the farmstead, Ann and Dr. Nelson discussed the upcoming auction of the adjoining parcel. Dr. Nelson asked Ann the amount of the mortgage against the farmstead. Upon learning that Ann did not owe anything on the farmstead and that she had approximately $40, 000 to put toward the purchase of the adjoining parcel, Dr. Nelson indicated he would loan Ann the difference between the amount of money that she could contribute and the purchase price. Dr. Nelson further indicated that Ann need only pay him interest on the loan and that any balance that remained upon his death would be forgiven:

Q: Did he make any other statements about what may happen to this loan at some point in time?
A: Yes, he did. He followed that up.
Q: What did he say?
A: He said, and then I have to decide what to do if I should die, meaning him. And he said, I have decided that you should have it.

[¶6.] On October 3, 2007, Dr. Nelson decided to undergo back surgery. Dr. Nelson called Ann on October 8, 2007 to inform her that he was scheduled to have back surgery on October 10, 2007. When Ann expressed concern about his ability to attend the upcoming auction, which was scheduled on October 13, 2007, Dr. Nelson assured her that the surgery was "not a big deal." Dr. Nelson explained that he would be discharged from the hospital on October 12, 2007, and that he intended to attend the auction. Dr. Nelson believed that the back surgery would be a simple procedure and that he would be fully capable of caring for himself after it. However, Dr. Nelson did not recover as fast as expected, and on October 12, 2007, Richard Lauer, Sr., Dr. Nelson's financial planner and adviser, informed Ann that Dr. Nelson would not be able to attend the upcoming auction.

[¶7.] Ann attended the auction and was the successful bidder on the adjoining parcel. On the day of the auction, she signed a real estate purchase agreement and provided a ten-percent down payment. The purchase price was $161, 383, and the closing of the transaction was scheduled to take place on November 13, 2007. Ann immediately informed Dr. Nelson that she was the successful bidder.

[¶8.] On October 19, 2007, Dr. Nelson returned to his home. Ann drove Dr. Nelson from Covington Heights, where he underwent rehabilitation, to his home. Because Dr. Nelson believed he was independent enough to care for himself, Ann returned home. She did not speak to Dr. Nelson until October 21, 2007, when she received a phone call from him indicating that he was very sick and needed her to come to his house quickly. Ann headed to Sioux Falls. Upon arriving at Dr. Nelson's home, Ann and Dr. Richard Hosen, a friend of Dr. Nelson's, transported Dr. Nelson to Avera McKennan Hospital.

[¶9.] Dr. Nelson was diagnosed with pneumonia and sepsis and was admitted to the Intensive Care Unit (ICU). During his stay in the ICU, Dr. Nelson asked Ann if he could hire her to move in with him and take care of him until he recovered. Ann agreed. Dr. Nelson and Ann did not discuss the length of her service or the rate of her pay. The next day, Dr. Nelson informed his son, Robert Nelson, about this arrangement: "Rob, I am going to hire Annie to take care of me. I can't do it by myself. I'm going to need help. She knows how to do it. She knows how to manage the house, run the house and manage the dogs, and I don't want a bunch of strangers around." On October 26, 2007, with the understanding that Ann would be caring for Dr. Nelson upon his return home, Avera discharged Dr. Nelson.

[¶10.] On October 30, 2007, Dr. Nelson and Ann met with Jayna Voss, [1] an estate planning attorney, to finalize the loan documents between them. Voss first met with Dr. Nelson. Dr. Nelson informed Voss that he wanted to loan Ann money and wanted to amend the Robert E. Nelson Trust (the "Trust") to forgive the loan upon his death. Voss then met with Dr. Nelson and Ann. During the meeting, they discussed the amount of the loan, the interest rate, repayment period, and method of repayment. They determined that the amount of the loan related to the purchase of the adjoining parcel would be $125, 000 at 4.89 percent interest for a fifteen-year term.

[¶11.] Dr. Nelson also mentioned that Ann would be taking care of him because he was in poor health. Because the monthly payment on the loan was approximately $1, 000 and because Dr. Nelson could gift Ann up to $12, 000 per year without any gift tax consequences, they considered the option of Dr. Nelson gifting Ann $12, 000 a year to repay the loan. They also discussed the possibility of a personal services contract whereby Ann would use the money that Dr. Nelson paid her to pay the loan. Ultimately, Ann and Dr. Nelson decided not to enter into a personal services contract.[2] In fact, they reached no agreement regarding the repayment options.

[¶12.] On November 1, 2007, Ann and Dr. Nelson returned to Voss's office to sign the promissory notes.[3] Voss wrote a memo to the file on November 9, 2007, regarding the October 30, 2007 and November 1, 2007 meetings. The memo provided in part that "[Dr. Nelson and Ann] informed me that they intended that Ann take care of Dr. Nelson and that he would likely make annual gifts to her so that she can pay the loan[, ]" but the note does not otherwise mention Ann's services.

[ΒΆ13.] Following execution of the Note, Ann received a check from the Trust for $125, 000 payable from First National Bank. The check contained the following description: "Gift to Ann Marie Nelson from Robert E[.] Nelson[.]" Ann then used the ...


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