No. 88-380

IN THE SUPREME COURTOF THE STATE OF MONTANA

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# --z INTHEMATTER OF THE ESTATES OF: -. , -I ;f~ ANNA MARGARET CLARK, and 

### --7 7% ,-'7 * C ' 3- WALIVACE BRADLEY CLARK, SR., 37 "-, t' - - Protected Persons. 

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APPEAL FR.OM: ~istrict Court of theTwelfth ~udicial ~istrict, In and for the County of Chouteau, The Honorable Chan ~ttien, Judgepresiding.

COUNSEL OF RECORD:

ForAppellant:

DonA. Labar and Margaret

### M. Joyce Johnson, Church, Harris, Johnson and ~illiams; Great Falls,Montana

For Respondent: ~llin H. Cheetham, Fort Benton,Montana GaryW. 

### jella and, Great Falls,Montana

Submitted on Briefs: December 16, 1988 ~~~id~d: April 26, 1989

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# " ClerkMr. ;rustice~il-lj-am F. Hunt, Sr. deliver~d t-he Opinion of the Court.

Appellants, George Clark, Bertha ~ovelliand Marian Molnar, threeof the fiveadultchildrenof Anna Marqaret and Wallace Bradley Clark, Sr. (~eniors), appeal from a decree of theDistrictCourt of theTwelfth JudicialDistrict, Chouteau County, which, with exceptions, approved! the accounting of the conservator of their parents' estates. We reverse and remand for furtherproceedings. The issues raised are asfollows: 1. id t.he District Court err j.n substantially approving theconservator's firstannual accounting? 2. Did the ~istrict Court properly scrutini-ze the conservator's t.ransactionswith theprotected persons? 3. Did the ~istrict Court.err in determining that the protected persons were mentally competent? In the 1970's, Wallace Bradley Clark, Jr. (Brad)

## , the youngest son of the Seniors, moved from Alaska toMontana to operate hi.s parents

### ' 1,760-acre farm located near Geraldine. In 1977, the seniors entered into a contract for deed with Brad whereby Brad agreed to purchase 800 acres of the farm for $160,000 at 6 percent interest. The contract providecl for annual payments to be made from the net proceeds of one-third of thegrain grown on the land. At about the same time, Brad and the Seniors entered into a ten-year lease for the remaining 96G acres of the farm. The contract provided for the annual payment of a one-fourth share of a1.l crop producecl on the acreage under lease. None of the other Clark chi.1-dren resided near the Seniors. The 01-dest son, George, had farmed intheGeraldine

### area until 1981, when he retired and moved to West Yellowstone. The remaining children, BerthaNovelli,Marian Molnar and ~osephine Wilson, all resided in Alaska. Although the daughters an3 George did not live in the vicinity of the Seniors, the record indicates that they each v?sited their parentsyearly. During his visits, George became concerned that his parents were no longer capable of managing their financial affairs. In 1984, he discovered that his mother had overdrawn her checking account by writing checks to the grandchildren. In 

### 1985, his Father told him that he had signed some papers but didn't know what they were. Upon investigation, George found that the seniors had deeg~d one-half of the 960 acres of farmland to the five children. Further investigation revealed that the Seniors had given Brad fullpower of 

### attorney over their affairs. On April 25, 1985, Georgepetitioned the District Court for the appointmentof a conservator for the seniors,both in their early 90s at the time. Concerned that Brad might be exercising undue influence overhis parents, Georgenominated

one L.C. Siebenaler,a disinterested party, as conservator. A 

### hearing was held on the matter, during which the District Court interviewed the elderly couple. The court found that due to their advanced age and occasional forgetfulness,both parties were unable to manage their property and affairs effectivelywithout assistance. Over George's objection, the court appointed Rrad as conservator, finding that itwould be in the best interest 

### of the Seniors if a familymember held the position rather than someone they did not know. On June 

### 11, 1985, Rrad 

### posted two bonds in the amount of 

### $25,000 each. Letters of conservatorshipissued. On September 18, 1985, Brad filed an inventory and appraisement of the fair market value of the assets of the

### Seniors as of Ju1.y 8, 

### 1985. He failed to file his first annual accounting, however, until January 8, 

### 1987. Shortly after filing the accounting, Brac7 filed an amended inventory and appraisement of assets. The amended inventory reflected

a decrease of approximately $30,600 of the balance receivable from the 1377 contract fordeed betweenBrad and the Seniors. Brad later testified that the original inventory showed both the principal and interest due and owing on the contract for deed; the amended version reflected only the principal. No reference to the $30,600 in interestBrad admittedly owed on the contract as of July 8, 1985, can be found on the amended inventory. A 

### hearing on the accounting was held on January 19, 1987, during which George filedwritten objections. Shortly thereafter, George filed additional exceptions, seeking to 

### void certain transactions made by 

### Brad, as we]-!_

### as a more detailed accounting, an audit of the estates and the removal of Brad as conservator. 

### A hearing to consider the objections was held on March 2, 

### 1987. The court took testimony at that time but. also granted Brad's motion for a continuance to ~pril 6, 

### 1987, to all-owJosephine Wilson, one of the Clark daughters, to appear and testify. After thehearing, the District Court issued an order that accepted and approved the firstannualaccounting. George,Rertha and Marianmoved the court-to re-open the hearing on the accounting and to remove Brad as conservator. The District Court granted the motion and trial was held on August 17 and 19, 1987. ~uring the trial, Brad testified that in 1985 and 1986 he exchanged a series of checks with the seniors, resulting in the foraiveness of approximately $70,566 in indebtedness Brad had accumulated under the contract for deed, including $30,600 in interest. In its orcler issued after the tri-a!,the District Court voided these transactions, finding that t.hey were of such magnitude as to endanger the Seniors' welfare and that they violated S 72-20-203, MCA, the statute prohibiting a fiduciary from dealing with trust property for his own benefit. Appellants do not appeal from this part of the District Court order. Erad also testified that his father had given him other gifts that were not reflected on the accounting, including $720 for grasshopper poison and the Seniors' share of the 1985 crop, which amounted to approximztely 700 bushels of winter wheat and 375 bushels of barley. Rrad stated thathis father had given him the Seniors' share of the crop every year since 1981. ~ccording to Brad, his father intended to give him the farm. The contract for deed was executed only to avoid gift taxes. Therefore,Rrad contended, when farminq became less I-ucrative,his father no longer required him to pay under the contract. Erad also test-ifiedthat he had taken out a $3,900 loan on the 1985 crop,putting all of the proceeds in his personal account and none in the Seniors, even though the seniors owned a share 

### of the crop under the contract and lease. with the exception of the avoidance of the $70,566 in forgiven indebtedness mentioned above, the ~istrictCourt once again approveci the first annual accounting. The court found that the Seniors' promised to give Brad the -Farmand gave him their share of the crop and other gifts in honor of that promise. The court also found that the seniors were mentally competentand capableofhandling their own affairs, though they had difficulty remembering their actions afterward. The court refused to remove Brad as conservator, continuing the question to the hearing on the second annual accounting, which Brad had not yet filed.On April 18, 1988, George, Bertha and Marian filed a motion asking the District Court to either withdraw or amend its findings and conclusions. The movants sought a new trial in the alternative. TheDistrict Court failed to rule on t.he motion withi-n45 days. Hence, under Rule 59(d)

### ,M.R..Civ.P, themotion was deemed denied.. On June 24, 1988, George, Bertha and Yarian appealed to this Court, seeking, among other things, the removal of Brad

as conservator. This question was rendered moot. when, on October 17, 1988, Brad resigned his position. Gary W. ~jel.I.and, the conservator appointed in Brad's stead, has joined as amicus curiae in the appeal of George, Sertha and Marianwi+.hrespect to the remaining issues. A conservatorship may be warranted when, due to advanced age, aperson isunable to effectively manage his affairs and he owns property that is in danger of being wasted or dissipated unless proper management is provided. Section 72-5-409(2)

## , MCA. The institution of a conservatorship grants the district court broad powers. The court may exercise all powers over the estate that a protected person could exercise ifhe were not under a disability, except the power to make a will. At all times, however, the court's handling of the property must be for the benefit 

### of the protected person. section 72-5-421(3), MCA. The court may exercise these powers directly or through 

### a conservator. Section 72-5-427.,MCA. If a conservator is appointed, he must administer the estate as vrou7.d the court if administering it directly, that i.s, for the benefit of the protected person. The conservator is required to account to the District Court on. an annual basis. Section 72-5-438, MCA. The District Court must carefully scrutinize the accounting, keeping inmind t.hatit is the conservator,

### as trustee of the

### estate, who bears the burden of proving the proper disposition of the property under his control. Local Union No. 400 of the Internat'lUnion of Operating Eng'rs v. Bosh

(1986),220Mont. 304, 312, 715 P.2d 36, 

### 41. The conservator must thereforekeepmeticulous accounts of 

### his administration of the estate, accounting for "the source of every item of income and the purpose of every item of expense." In re Allard 11914), 49

### Mont. 219, 229, 141 P. 

### 661, 665. The record demonstratesthat +he 

### first annual accounting filed by Brad Clark, the conservator in this case, was less than adequate. Other than a ledger listingdrafts written on his father's checking account, Brad failed to introduce any evidence to verify the accounting. He failed to submitbank statements reflecting opening and closing balances, deposits and withdrawals. Re failed toproduce receipts for purchases made onhis personal credit card allegedly for the benefit of the Seniors. Fe failed to introduce gift and income tax returns filedby the Seniors. Furthermore, Brad's accounting was inaccurate an? incomplete. He failed to account for grain held in storage at the opening of the conservatorship but sold subsequently. He failed to account for his gift from the Seniors' of their shareof the qrainunder the contract fordeed and lease. He failed to account for interest 

### due under the contract for deed. He failed to indicate either in the original inventory, the amended inventory or the accounting that the Seniors' interest in the land under the 1977 contract for dee6 had been subordinated in 1983 to a Federal Land Rank mortgage that secureda $230,000 loan. The purpose of the statutorily required annual accounting is to inform the court of the financial-condition 

### of the estste and to ensure that the conservator ismanaging the property for the benefit of the protected persons. In

### order to fulfill these purposes, the accounting must be accurate, complete and verifiable. The accounting filed by the conservator in this case is none of these. The ~istrict Court erred in acceptingand approving it. When the accounting proferred by the conservator is inadequate,theDistrict: Courtmay require the conservator to suhmit to aphysical check of 

### the estate. Thephysical check may be made in any manner specified by the court. Section 72-5-438(3), MCA. In this case, the appellants have requested an audit of the estate. I?nderthe circumstances, an audit may be the best method 

### by which to determine the estate's financial condition. We therefore remand this case for an audit and rehearing. The conservator acts as a fiduciary. As such, he is required to observe the stringent standards applicable to trustees. Section 72-5-423,MCA. Appellants argue that the ~istrict Court failed to measure Brad's actions against these rigorous standards. Instead, the court excused Brad's actions because he "was told he should handle his folks' affairs just as he had prior to the institution of the conservatorship, and which he did without any advice to the contrary fromhis attorney." The purpose of a conservatorship is to preserve the property of the protected person. A 

### conservator who profits to the detriment 

### of his wards cannot be excused because he acted out 

### of ignorance or because he acted in t.he same self-servingmanner ashe had prior to the institutionof the trust. On remand, the Df-strictCourt must more carefully scrutinize Brad's administration of the estate. Any transactions in which Rrad obtained an advantage must be presumed to 

### be entered intoby the Seniors without sufficient consideration and under un$ue influence. Section 72-20-208, MCA

## . Rrad has the burden of proving that the anytransactions in which he obtained an advantage were for the benefit of the Seniors and that the Seniors freely entered into the transactionswith fullknowledgeof the facts. Appellants argue that the District Court improperly ruled that the Seniors were mentally competent from 1981. through the period of the first accounting. We agree. Jn order to prove that any transactions in which Brad obtained

an advantage were entered intoby the Seniors freely and with full knowledge of the facts, Brad must also prove that the Seniors werementally competent. He failed todo so. The institution of a conservatorship 

### is not an adjudication of competencyand has no effect on theprotected person's capacity. Section 72-5-421(5), MCA. The protected person is therefore presumed to have the capacity to contract with third parties. When the protected person transacts with the conservator, however, the presumption shifts. Because the conservator is held to the utmost standard of good faith and fair dealing, he bears the burden of proving that the protected persons were at all times capable of understanding the nature 

### of any transaction in which the conservator obtained 

### a benefit. In the instant case, the only evidence in favor of a finding that the Seniors were mentally competent comes from the testimony 

### of the conservatorhimself. 

### his t-estimonyis refuted by at least two of the other children. Under the circumstances, we cannot say that the conservator met his burden ofproof. We reverse and remand for further proceedings in accordance with 

### this opinion.We concur: 1. . 

# CORRECTION

Date EDITORIALDEPARTMENT WestPublishingCo., P.O.Box 3526,St.Paul,MN 55165 Pleasemakethefollowing correctionintheopinioninthecaseof:

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