Opinion ID: 2312589
Heading Depth: 1
Heading Rank: 1

Heading: The Unfunded Revocable Insurance Trust

Text: A much closer question arises, however, with respect to an unfunded revocable insurance trust which Henderson made in 1952. Henderson had taken out another policy with the Equitable Life Insurance Company of Iowa on February 18, 1926, in the sum of $85,000, which was payable to Henderson's wife. He changed his beneficiary on May 5, 1926, and appointed a National Bank as trustee. After several changes, the policy was made payable on July 31, 1941, to his son. On February 13, 1952, Henderson executed an unfunded revocable insurance trust naming a trust company, now known as Girard Trust Corn Exchange Bank, as trustee, and delivered to the trustee as the only asset of the trust the above mentioned life insurance policy, after changing the beneficiary from his son to the Bank-trustee. The deed of trust provided that the trustee should collect (at the settlor's death) the proceeds of the policy, [] and divide the income between his sister, Ruth, and Catherine K. Yardley, with remainder to the sister's issue. On September 4, 1953, settlor amended the deed of trust by making a different distribution to his life tenants and remaindermen. On October 28, 1957, Henderson again amended the trust by revoking its dispositive provisions and providing that the income should be paid to his sister and Miss Yardley and the survivor of them, with remainder interests as therein more specifically set forth. Henderson's widow was never mentioned as a beneficiary in this deed of trust either as to income or principal, and had never been the named beneficiary in the life insurance policy since May 5, 1926. The trustee was merely the depository of the policy, with no obligation or active duties until after Henderson's death. Premiums were paid by Henderson, the settlor, and not by the trustee. The settlor reserved the right to amend the trust and to change the trust beneficiaries, which he did, as above set forth. He likewise reserved the right to revoke the trust but never exercised this right. The trustee was a mere custodian, the trust was a mere shell. When the trust was created in 1952 or amended in 1953, it was a conveyance of assets within the meaning of § 11 of the Estates Act, and under Brown Estate, supra, the widow would have been entitled to one-half of this unfunded insurance trust under her election to take against her husband's will and against this conveyance, if no changes had been made by the above mentioned Legislative Acts of 1956 and 1957, and by the settlor himself in October 1957. However, on October 28, 1957, Henderson amended this insurance trust by changing the beneficiaries and their rights and interests thereunder  after the Legislature had clearly stated (a) in 1956 that a spouse's right to take against the will and against a conveyance of assets should not apply to any contract of life insurance purchased by the decedent, whether payable in trust or otherwise; and (b) in 1957 that the designation of beneficiaries of life insurance shall not be considered testamentary regardless of whether the proceeds were payable to a named third party individual or to a testamentary trustee, or to an inter vivos trustee, and regardless of whether the trust was amendable or revocable or both, or funded or unfunded. The persons who were named by Henderson on October 28, 1957, as beneficiaries under the provisions of this insurance trust acquired whatever rights they had at that time. Since the trust was merely a revocable shell, they acquired only an expectancy. However, even under the Estates Act of 1947, Henderson's widow had no vested rights therein prior to his death. Whatever rights the widow might have therein arose only upon the death of the insured; and she then acquired only such rights as the Legislature chose to give her by statute, and these statutory rights could, as we have seen, be changed or modified or increased or destroyed by statute. While this unfunded insurance trust was a conveyance of assets within the meaning of § 11 of the Estates Act of 1947, it is clear (1) that under § 11(a) of the Estates Act, which was effective as of April 1, 1956, a widow's right to take against her husband's will and against a conveyance of his assets did not include and was not applicable to any contract of life insurance purchased by a decedent whether payable in trust or otherwise; and (2) that under § 8 of the 1957 Amendment to the Estates Act of 1947 Henderson's unfunded insurance trust was not testamentary. It follows that Henderson's widow has no rights in his inter vivos unfunded insurance trust and no rights in or to any of the proceeds of the life insurance policy which was included in the inter vivos trust which Henderson created in 1926 and amended in 1957.