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Guardianship and Conservatorship of Novotny

Supreme Court of South Dakota

November 15, 2017

GUARDIANSHIP AND CONSERVATORSHIP OF MARY D. NOVOTNY, ALSO KNOWN AS MARY NOVOTNY, a Protected Person

          CONSIDERED ON BRIEFS ON OCTOBER 2, 2017

         APPEAL FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT TRIPP COUNTY, SOUTH DAKOTA THE HONORABLE JOHN L. BROWN Judge

          JOHN M. FITZGERALD KELLY M. PETERSON of Fitzgerald Law Firm Rapid City, South Dakota Attorneys for Appellant Catherine Novotny.

          BRAD A. SCHREIBER The Schreiber Law Firm Pierre, South Dakota Attorney for appellees Paul Novotny Jr. and Mark Novotny.

          WILBUR, RETIRED JUSTICE

         [¶1.] The sole beneficiary of an irrevocable trust petitioned the circuit court to terminate the trust and distribute the trust property to her. After a hearing on the beneficiary's motion for summary judgment, the circuit court refused to terminate the trust and entered summary judgment in favor of the trustees. The beneficiary appeals. We reverse and remand.

         Background

         [¶2.] Mary Novotny and Paul Novotny Sr. had six children: Catherine, Teresa, Mark, Paul Jr., Bruce, and Marianne. In 2007, Mary executed her last will and testament devising her estate in equal shares to her six children as well as shares to her grandchildren. In 2012, Mary was found to be a person in need of protection. Paul Sr. had passed away. On July 12, 2012, a circuit court appointed Teresa, Paul Jr., and Mark as Mary's co-guardians and co-conservators.

         [¶3.] Mary's estate was worth approximately $2, 000, 000. Gary Fenenga, a certified public accountant, had been Mary's accountant. After Mary was found to be a person in need of protection, Fenenga became the accountant for Mary's co-conservators and co-guardians. He recommended that Teresa, Paul Jr., and Mark reduce Mary's estate to avoid negative tax consequences. In particular, he advised them to distribute monetary gifts to Mary's children and grandchildren to reduce the estate to $1, 000, 000. Between July and December 2012, Teresa, Paul Jr., and Mark gifted a total of $1, 270, 388.80 equally among the six Novotny children. Each child received $196, 564.80. Mary's grandchildren received less substantial monetary gifts.

         [¶4.] Although five of the six Novotny children personally received their gifts, Teresa, Paul Jr., and Mark could not locate Catherine. They claimed that Catherine had not been in contact with any Novotny sibling or Mary for some time. They decided to preserve Catherine's share by creating an irrevocable trust and placing Catherine's share of the substantial gifting in the trust. They created the trust in December 2012, and appointed themselves as trustees.

         [¶5.] In January 2013, Teresa, Paul Jr., and Mark, in their capacities as Mary's co-guardians and co-conservators of Mary's estate, petitioned the circuit court for an order retroactively approving their estate plan and the previously distributed gifts, including the creation of the trust holding Catherine's gift. We note that SDCL 29A-5-420 provides that "[u]pon petition therefor, the court may authorize a conservator to exercise any of the powers over the estate or financial affairs of a protected person which the protected person could have exercised if present and not under conservatorship, including the powers: (1) To make gifts to charity or other donees, and to convey interests in any property" and (3) To create irrevocable trusts. In the petition, Teresa, Paul Jr., and Mark informed the court that due to the lowering of the Federal Estate Tax credit, the purpose of the estate plan and previous gifting was to lower Mary's assets below $1, 000, 000. They further claimed "[t]hat all gifting was done in such a manner as to treat all heirs substantially equally." In regard to Catherine's gift, the petition identified "[t]hat the protected person has established an irrevocable trust" for Catherine "in the event she can be located." The trust would terminate at the end of ten years if Catherine could not be located. The trustees requested that the court appoint a guardian ad litem to protect Catherine's interest.

         [¶6.] At the hearing on the petition, the attorney for Mary's conservatorship explained,

We do have one unique situation in this case, your Honor. We have six children, but we have one child that we cannot locate. So, what we've done, to protect that individual's interest, is we have set up a trust for her. The conservators have set up a - -the co-conservators and co-guardians - - have set up a trust for her out of their Mom's estate, and she has been treated basically equally with all the rest of the heirs. So, her share has gone in to this trust. We haven't been able to locate her. We've actually hired - - we've actually gone so far as to hire a private investigator. He's searched, and he's been unable to locate her. So, we haven't been able to locate her. The trust we set up is a trust for her, and she is entitled to the same assets as the other heirs, if she can be located within the next ten years. If she cannot be located within the next ten years, then the trust will lapse. At that time, she would be over 70, so ten years, we thought, is a long enough time to take care of that.

         At the conclusion of the hearing, the court approved the petition. The court appointed Fenenga as ...


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