The Supreme Court of Nebraska Determines a Court's Power to Authorize a Conservator to Exercise an Incompetent Settlor's Reserved Rights to Amend or Revoke Her Trust in in Re Guardianship and Conservatorship of Garcia

• Publication year: 2001

36 Creighton L. Rev. 47. THE SUPREME COURT OF NEBRASKA DETERMINES A COURT'S POWER TO AUTHORIZE A CONSERVATOR TO EXERCISE AN INCOMPETENT SETTLOR'S RESERVED RIGHTS TO AMEND OR REVOKE HER TRUST IN IN RE GUARDIANSHIP AND CONSERVATORSHIP OF GARCIA

Creighton Law Review

Vol. 36

INTRODUCTION

The number of people using trusts is growing at a rapid pace.(fn1) Trusts are no longer tools utilized only by the wealthy and social elite.(fn2) Large segments of the population with diverse goals use trusts.(fn3) The trust's popularity as an estate planning device is rising for a number of reasons.(fn4) Traditional reasons for that popularity includes probate avoidance, tax advantages, confidentiality, administrative expense savings, and protection against will contests.(fn5) However, the likely reason for the recent escalation in the use of trusts is the prosperity and investment success of the 1990s.(fn6) Simply put, more people have taxable estates and are turning to trusts to maximize their childrens' inheritance.(fn7)

Another reason for the trust's recent surge in popularity is the increase in life spans.(fn8) People are living longer and they view the inter vivos trust as a superior mechanism through which they can protect and manage their assets in the event of mental or physical incapacity.(fn9) Because trusts provide such an attractive solution for protecting estates upon incompetence or disability, many trusts are funded solely for that purpose.(fn10)

As the use of trusts increases along with settlors' life spans, courts are seeing a rise in the number of issues relating to settlor in-competence.(fn11) Many courts have no clear answers, as there is little case law regarding the evolving area of trust doctrine and incapacity, and restatements and treatises do not always provide sufficient guidance.(fn12) However, the trend has been to allow fiduciaries to update or revise trusts to benefit incompetent persons and their families and accommodate changed circumstances, but with proper oversight and safeguards, such as court approval.(fn13) Courts have either looked to available statutory law or have generally applied the premise in the common law Bogert principle, which provides that a settlor's reserved power of revocation is personal and nontransferable, to make determinations on issues involving requested changes to an incompetent settlor's trust.(fn14)

The Supreme Court of Nebraska recently addressed an issue in this unsettled area of law in a case of first impression.(fn15) Specifically, in In re Guardianship and Conservatorship of Garcia,(fn16) the court was called upon to determine whether a Nebraska court had the power to authorize a conservator to exercise an incompetent settlor's reserved rights under her trust.(fn17) The court in Garcia determined Nebraska Revised Statutes section 30-2637(3) controlled, and that the statute gave Nebraska courts power to exercise such rights, provided that the courts determined such action was in the settlor's best interests.(fn18)

The Garcia court determined it need not apply the common law "Bogert principle" in analyzing a court's power to exercise an incompetent settlor's reserved rights because Nebraska Revised Statutes section 30-2637(3) was controlling.(fn19) The court then determined Nebraska Revised Statutes section 30-2637(3) empowered courts, either directly or through conservators, to exercise settlors' reserved rights to revise or revoke their trusts, absent language in the trusts expressly providing otherwise.(fn20) However, the court in Garcia noted that courts could only exercise their powers under section 30-2637(3) after conducting a hearing and determining such acts were in the settlors' best interests.(fn21) The court looked to the statute's plain meaning to make its determination.(fn22)

This Note will begin by discussing the facts and holding of Garcia.(fn23) This Note will then discuss the legislative history of section 30-2637 of the Nebraska Revised Statutes, which outlines the powers a court may exercise with respect to an incompetent person's estate and affairs.(fn24) Next, this Note will discuss cases from other jurisdictions involving the interpretation of statutes similar to section 30-2637(3) and common law concerning the court's authority to amend, revoke or modify an incompetent settlor's trust.(fn25) This Note will then analyze the Supreme Court of Nebraska's decision in Garcia.(fn26) Specifically, this Note will agree with the court's determination that Nebraska Revised Statutes section 30-2637(3) gave the court authority, either directly or through a conservator, to exercise an incompetent settlor's reserved rights to amend, modify, or revoke a trust after a hearing, and based upon clear and convincing evidence.(fn27) However, this Note will criticize the court for failing to properly analyze common law concerning the court's power to exercise an incompetent settlor's reserved rights to revise or revoke a trust, and for failing to recognize that, when properly analyzed, common law and the Bogert principle did not conflict with statutory law.(fn28) Finally, this Note will conclude by discussing the Garcia court's failure to provide guidance to future courts faced with determining whether requested trust modifications and revocations are in an incompetent settlor's best interests.(fn29)

FACTS AND HOLDING

On December 21, 1992, Ida Garcia ("Garcia") established a revocable inter vivos trust ("Trust").(fn30) On July 8, 1997, Garcia signed the fourth restatement of the Ida Garcia Revocable Trust Agreement ("Trust Agreement").(fn31) The Trust Agreement named Garcia's brother-in-law, Simon Garcia, and his wife, Betty, as co-trustees ("Simon and Betty").(fn32) The Trust named Alfred Garcia and Norwest Bank Nebraska, N.A. ("Norwest Bank"), of Omaha, Nebraska, as successor trustees, respectively.(fn33) Norwest Bank began acting as trustee and administering the Trust in 1998.(fn34)

In 1998, doctors diagnosed Garcia with Alzheimer's disease.(fn35) On December 31, 1998, the County Court for Scotts Bluff County, Nebraska, deemed Garcia mentally incompetent and appointed her nephew, Arthur Gonzales ("Gonzales"), to serve as her guardian.(fn36) A few months later, the court appointed Gonzales to serve as Garcia's conservator.(fn37)

On April 12, 2000, Gonzales, acting in his capacity as Garcia's guardian and conservator, filed a petition in the County Court for Scotts Bluff County, Nebraska.(fn38) The petition requested authorization to exercise Garcia's rights under the second article of her Trust Agreement.(fn39) The second article of Garcia's Trust Agreement read as follows:

SECOND - Right to Amend, Revoke, or Give Gifts. Grantor [Garcia] reserves the right to amend, modify, and revoke this Trust in whole or in part at any time and from time to time, and the Trustee agrees, upon the direction of the Grantor, to convey, assign, and deliver over to the Grantor any part or all of the assets held under this Agreement. Grantor further specifically reserves the right to withdraw any or all assets from the Trust and direct that the Trustee as agent for Gran-tor make gifts of any such assets to such person or entity as then specified by Grantor.(fn40)

Specifically, Gonzales' petition asked the Court to enter an order authorizing him to exercise Garcia's rights under her Trust Agreement, including but not limited to, her reserved rights to amend, modify or revoke the Trust.(fn41)

At the trial on the petition, Gonzales testified regarding proposed modifications to the Trust.(fn42) He expressed his desire to remove Norwest Bank as trustee and alternatively appoint Platte Valley National Bank in Scottsbluff, Nebraska, to administer the Trust.(fn43) In doing so, Gonzales did not allege Norwest Bank improperly invested funds.(fn44) Rather, Gonzales indicated he wished to change trustees because he had encountered trouble in communicating with Norwest Bank's trust officer and also had difficulty reading the quarterly reports on the Trust.(fn45) In addition, Gonzales claimed that changing the administrator of the Trust to a bank in Scottsbluff, Nebraska, would be more convenient for him.(fn46)

When cross-examined, Gonzales testified that he also wanted to change the Trust Agreement to remove Simon and Betty as beneficiaries in order to accommodate Garcia's alleged wishes.(fn47) The Trust Agreement provided for cash distributions to several of Garcia's relatives totaling approximately $600,000.(fn48) However, the Trust Agreement directed the trustee to distribute $400,000 of the cash distributions to Simon and Betty.(fn49)

In addition to Gonzales' testimony, the parties agreed to receive Garcia's guardian ad litem's report into evidence.(fn50) In the report, the guardian ad litem noted that Garcia's family was involved in a "family feud" arising from opposing opinions about Garcia's intentions concerning her wealth.(fn51) The report further stated that the rift had developed into two factions, with Simon and Betty on one side, and all of Garcia's other relatives on the other side.(fn52) According to the report, each faction claimed the other cared for Garcia only because of her wealth.(fn53) The report also stated that Garcia's condition had not improved and that she still needed the services of a guardian and conservator.(fn54) Gonzales did not dispute Garcia's incapacity.(fn55)

Gonzales' petition requested a...