Court Opinion

ID: 9585826
Source: CourtListenerOpinion
Date Created: 2023-08-21 23:04:13.147455+00
Date Added: 2024-06-11T17:24:15.355689
License: Public Domain

Whittle, J.,
dissenting.
The decision of the majority places Virginia in a class by herself and overrides settled principles adhered to by our court in the past which are in accord with the overwhelming majority rule in this country.
Bickers’ plan was to have his second wife share equally with his own children by a former marriage. Leaving out the specific devises, he provided in his will that his estate be divided into five equal parts; one part was devised to his wife “in lieu of her dower and marital claims upon my estate”, and one part was devised to each of his four daughters.
The fife insurance trust provided that if Mrs. Bickers survived her husband and renounced the will (which she had a legal right *158to do) the proceeds of the insurance policies were to be divided equally among his four daughters. However, if Mrs. Bickers survived her husband and elected not to renounce the will, then in that event the proceeds from the insurance policies were to be divided into five equal parts, one part going to Mrs. Bickers and one part to each of the settlor’s daughters.
It is conceded that “the sole issue in the case is whether the trust agreement dated December 10, 1949 is testamentary in character and therefore of no effect because of its failure to comply with the statute of wills”. Appellant attacks the trust on two grounds rather than one as stated in the majority opinion. First, she asserts that the powers reserved by Bickers make the trust testamentary in character; and second, she contends that no interest passed under the trust agreement prior to Bickers’ death. In either event, she argues that the proceeds from the policies of insurance should be declared a part of Bickers’ estate which passes under his will.
At the outset it must be remembered that we are here dealing with a life insurance trust as distinguished from trusts involving other classes of property. Norris v. Barbour, 188 Va. 723, 51 S. E. (2d) 334.
It is conceded that Bickers could have taken out policies upon his life and named anyone he chose beneficiary therein to the complete exclusion of his wife. Unless such policies were payable to Bickers’ estate the wife would have had no interest whatever therein. The situation here is simply that the insurance policies were made payable to a trustee, and the trust agreement was nothing more than the directions to the trustee as to how the proceeds of the policies should be handled on the death of the insured.
In considering the first assertion, that the powers reserved make the trust testamentary, the majority opinion quotes at length from Scott on Trusts, § 57.3. The quotation there relied upon can hardly give comfort in the result reached. There the learned author admits that it is arguable that the trust does not arise until the settlor’s death, and that since his death is a condition precedent to the creation of the trust, the disposition is testamentary. He states, however, that the answer to this is that the beneficiary of the policy, as soon as he is named trustee, holds his rights in trust; that the mere fact that those rights can be terminated by the insured and that the rights of the beneficiaries of the trust are enjoyable only after the death of the insured, and further, that the *159trustee has no active duties until the death of the insured “does not prevent a trust from arising immediately”.
The author further states “The difficulty in upholding the trust, however, seems to be no greater than in upholding the rights of the beneficiary in an insurance policy where no trust is involved but where the insured reserves the power to change the beneficiary”; that the fact that the policy is payable to the beneficiary as trustee for others makes it no more testamentary than if it were payable to the beneficiary absolutely. Moreover, says Scott, the reservation not only of the power to change the beneficiary of the policy, but also of the right to change the beneficiaries of the trust, or otherwise modify its terms, would seem to make the disposition no more testamentary. The author concludes: “The danger of fraud which lurks in ordinary unattested testamentary dispositions is not serious in these cases. The courts have therefore had no difficulty in upholding insurance trusts, although they are not executed with the formalities necessary for a will.”
The last quoted sentence is in keeping with Judge Baldwin’s statement in the case of Gentry v. Bailey (1850), 6 Gratt. (47 Va.) 594, 607, which case is relied upon in the majority opinion. There Judge Baldwin said: “The objections which have been urged against the validity of the gift in question founded upon a supposed disregard of the solemnities required by law in relation to the attestation and authentication of the instrument, are unwarranted, it seems to me by the true construction of our statute law upon the subject.”
In Personal Life Insurance Trusts (Smith) (1950), § 17, at page 74, it is stated that the insurance contract itself savors of a testamentary disposition of accumulated wealth; that the death of the insured marks the beginning of the real enjoyment by the named beneficiary, and it is not always easy to distinguish between an interest created at or by the death of the donor and an interest created prior to but intended to take effect in possession or enjoyment at the death of the donor, and that cases are numerous challenging the validity of trusts in which the settlor reserved numerous powers. The author goes on to say that, although it is now well settled that the reservation of a life interest or the reservation of a power to revoke, or a combination thereof does not render a trust testamentary, they form a strong foundation for arguing that the settlor has parted with nothing during his lifetime and the pur*160ported disposition is therefore testamentary. But, he adds, “The courts have, however, with almost complete uniformity, upheld the validity of the life insurance trust and have refused to heed the claims that a testamentary disposition is involved.” (Italics supplied)
As authority for his statement, the author cites twenty cases from various jurisdictions over the country generally. Among these are: Jackman v. Equitable Life Assur. Soc. of U. S., (C. C. A. 3rd, 1944) 145 F. (2d) 945; Lauterbach v. N. Y. Investment Co., 62 Misc. 561, 117 N. Y. S. 152, aff’d. Minrath v. Gifford, 137 App. Div. 919, 122 N. Y. S. 1137; Gritz v. Gritz, 336 Pa. 161, 7 A. (2d) 1.
The author continues: “The reservation of a power to revoke does not affect the result, (Beirne v. Continental-Equitable Title & Trust Co., 307 Pa. 570, 161 A. 721; In re Voorhees’ Estate, 200 App. Div. 259, 193 N. Y. S. 168) nor does a power to alter the cestuis’ interests, (Beirne v. Continental-Equitable Title & Trust Co., supra) or to change the beneficiary of the policy. (Fidelity Trust Co. v. Union Nat’l Bank, 313 Pa. 467, 169 A. 209, cert, den., 291 U. S. 680, 54 S. Ct. 530, 78 L. ed. 1068) * * * (E)ven though it is designed as a substitute for a testamentary disposition and the person named as trustee is also named executor of the settlor’s will. Fidelity & Columbia Trust Co. v. Glenn (D. C., W. D. Ky. 1941), 39 F. Supp. 822, n.45; Sacred Heart Church v. Fidelity Trust Co., 16 D. & C. 661 (Pa. 1932)).”
Restatement of Trusts, § 57, comment (f) is in accord with the foregoing statement. There it is said:
“If a person takes out a policy of insurance upon his life payable to a third person as trustee, the intended trust is not testamentary although the insured person reserved power to change the beneficiary of the policy and power to revoke or modify the trust. In such case a present trust is created, the beneficiary of the policy holding his rights as beneficiary in trust. * * * This is true whether the beneficiary of the policy is designated in the policy as trustee, or whether the policy is payable to him without mention of any trust but he agrees with the insured to hold the policy or its proceeds in trust for a designated person. The result is the same where the policy is payable to the insured person or his estate and is transferred by him to another person as trustee. The disposition is not invalid although the trustee has no active duties to perform until after the death of the insured.” (Italics supplied)
*161The majority opinion states that to hold this instrument valid would permit a husband to do his wife out of her interest in his property. The answer to this assertion is, as before indicated, a policy of insurance is not an asset of the estate of the insured and no interest of the widow arises unless the policy is made payable to her or the estate. The insured has complete freedom in all instances to exclude his wife from the benefit of insurance policies. A different rule applies to other property which the husband owns at his death. There the wife takes an interest by virtue of marriage which the husband cannot destroy without her consent by any sort of writing. Norris v. Barbour, supra.
In a leading case, Gurnett v. Mutual Life Ins. Co., (1934), 356 Ill. 612, 191 N. E. 250, Ames and a trust company entered into an agreement covering policies upon his life, made payable by him to the bank as trustee. In the agreement Ames reserved the right to exercise any privilege or option given to him in the policies, including the right to change the beneficiary, to borrow money, to use the policies as security, to receive any dividends, earnings or other payments, to surrender any policy for its surrender value, and to terminate, modify or amend the trust agreement in whole or in part. As in the instant case, the trustee agreed to hold the policies until Ames should otherwise direct, the agreement providing that upon the death of Ames the trustee was to collect the proceeds and administer and dispose of the same as provided in the trust. Upon the death of Ames his creditors attacked the trust, contending that it did not constitute a valid inter vivos trust because as there was no transfer by Ames during his lifetime of any interest in the policies to the trustee there was no actual corpus of the trust while he was alive. Ames’ creditors claimed that the proceeds of the policies were subject to a resulting trust (as the majority hold in the instant case) in favor of his estate and should, therefore, be paid to the settlor’s personal representatives. The court held that a valid inter vivos trust was created and the proceeds should be held by the trustee subject to the terms of the insurance trust agreement. The opinion reads, in part:
“A life insurance policy is property and may constitute the subject matter of a trust. * * * When the beneficiary promises the insured to pay either the whole or a portion of the proceeds of the policy to a third person, the proceeds will be impressed with a trust to the extent of the promise made. * * *
*162“* * * The policies were contracts between the insured and the insurers for the payment of stipulated sums by the latter to the trustee as the nominee of the insured upon the happening of a certain contingency, namely, the death of Ames. * * * The date of the death of the insured merely fixed the time when the obligation of the insurers to pay and the right of the beneficiary to receive the proceeds of the policies became enforceable. The trust agreement and the change of beneficiaries, however, became effective during the lifetime of the settlor. The contingent right to receive the proceeds of an insurance policy is not impaired by the unexercised right or privilege of the insured to designate another beneficiary. * # # A policy of insurance is not deemed an asset of the estate of the insured unless it is made payable to him, his executors or administrators. The mere fact that the insured may change the beneficiary does not make the policy or its proceeds a part of his estate. Neither the policies nor their proceeds constituted a part of the estate of * * * Ames. Since his death, the trust agreement is merely evidence of the trustee’s contract under which it must collect the policies and hold the proceeds for the purpose of the trust.”
See also In re Albert Anderson Life Ins. Trust (1940) 67 S. Dak. 393, 293 N. W. 527; Fidelity Trust Co. v. Union Natl. Bank, supra; Gordon v. Portland Trust Bank, (1954), 201 Ore. 648, 271 P. (2d) 653.
The majority opinion states: “Nor does appellant rely chiefly upon a contention that the agreement is invalid because revocable at will. This point we do not now decide though the invalidity of an instrument of this character, because of its revocability, is strongly intimated in Gentry v. Bailey, 6 Gratt. (47 Va.) 594, 603. * * * ”
The Gentry case (1850) was cited in Hall v. Hall (1909), 109 Va. 117, 63 S. E. 420. The case of Lightfoof's Executors v. Colgin (1813), 5 Munf. 42, was also cited. Neither of these cases dealt with life insurance trusts. However, in all three cases it was held that the husband in his lifetime had the legal right to dispose of his personal property to the exclusion of the wife. Quoting from Judge Baldwin’s opinion in the Gentry case, (6 Gratt. (47 Va.), at p. 604), it is said:
“* * * The circumstances that the gift is to become effectual during his life, or after his death, is immaterial; for, as the law confers upon him the power to alienate his whole ownership of *163the property, so he is not restrained from giving away a part of that ownership, whether the gift is to take effect before his death, or from that period * *
It will be observed that in the Lightfoot case, the settlor reserved to himself the possession and control of the property during his life. There the possession had never been parted with.
Suffice it to say that the Gentry case does not hold, as intimated in the majority opinion, that a trust agreement is invalid because revocable at will. Later cases are to the contrary. The majority opinion itself seems to concede that the suggestion as to the effect of the revocability of the trust is without substance when it states that had the writing evidenced an intent to convey a present estate or interest “though distributable after death, to designated beneficiaries, whether the maker died testate or intestate, it would have been valid as an inter vivos trust.”
The majority opinion further observes: “Appellees rely upon the decision of Russell’s Ex’rs v. Passmore, 127 Va. 475, 103 S. E. 652, and Cohn v. Central National Bank, 191 Va. 12, 60 S. E. (2d) 30. As bearing upon the question here presented, it is sufficient to say that those two cases are readily distinguishable because in each the instruments disclosed an intent to create a present trust; an interest was conveyed in praesenti to the trustee, and neither instrument was made dependent upon the existence of a will as a condition precedent to its efficacy.” (Italics supplied)
The two Virginia cases referred to do decide questions involved in the instant case, and they cannot be brushed aside by the phrase that they are “readily distinguishable”. Our holding in the Russell and Cohn cases is in accord with the majority rule in this country. Scott on Trusts, supra, relied upon in the majority opinion, holds: “The mere fact that those rights can be terminated at any time by the insured, and that the rights of the beneficiaries of the trust are enjoyable only after the death of the insured, and that the trustee has no active duties until the death of the insured, (as in the instant case), does not prevent a trust from arising immediately. * * *”. See Restatement of Trusts, § 57, supra; Personal Life Insurance Trusts (Smith), § 17, at p. 74, supra, and cases there cited.
We said in Russell’s Executors v. Passmore, supra, (127 Va., at p. 498):
“Although the power of revocation is reserved, the trust is as good and effectual as if irrevocable, until the power (of revocation) *164is exercised.” 1 Perry on Trusts, note (a), p. 114; Idem. sec. 104, p. 137.
The opinion continues:
“A valid equitable assignment may, of course, be conditional. And if the condition be a subsequent condition, although it has power to divest the equitable title to the gift, yet if that condition does not arise, the title, by relation, is regarded as complete and absolute from the time of the gift. And when such condition involves a possible revocation of the gift by the donor in his lifetime, on his death without having exercised such power, upon the same principle as that which is involved in gifts causa mortis (Basket v. Hassell, 107 U. S. 602, 2 Sup. Ct. 415, 27 L. ed. 500), the equitable title does not await until after the death of the donor to pass to the beneficiary, so as to become a testamentary disposition, but is regarded as having passed in the lifetime of the donor at the time of the gift — where the gift is in proper form to be effectual, as, of course, is unquestionably true where possession of the subject of the gift is given by the donor to a trustee who accepts the trust, all in the lifetime of the donor.” (Italics supplied) 127 Va., at pp. 499, 500. See also Cohn v. Central Natl. Bank, supra. There is no authority cited in the majority opinion holding to the contrary.
The insurance trust created on December 10, 1949, is not, in my opinion, rendered testamentary in character because of the powers reserved by the settlor under the terms of the trust agreement. The fact that Bickers reserved the right- to withdraw any or all of the policies held by the bank as trustee, and the fact that the trust agreement provided that the trustee’s only rights in the policies “prior to the death of the settlor, are to hold the policies in safe keeping until and unless they are withdrawn by the settlor” do not condemn the trust instrument. These provisions do nothing more than reserve to the insured the right to change the beneficiaries of the policies or even to cancel the policies. Neither or both of said provisions render the trust void if the right is not exercised. They merely preserve rights that are inherent in life insurance policies. This, I believe, is in accord with the overwhelming weight of authority in this country.
Considering the second contention of Mrs. Bickers, viz: That no interest passed under the trust agreement to anyone prior to Bickers’ death; I concede it to be fundamental that some interest must have passed to some other person prior to the death of the *165settlor in order to render the trust a valid inter vivos trust; otherwise it would fail because not executed with the formalities requisite to the making of a will. Spinks v. Rice (1948), 187 Va. 730, 47 S. E. (2d) 424. This is the extent of the holding in Allen v. Hendrick, 104 Ore. 202, 206 P. 733, 741, cited and relied upon by the majority.
The majority opinion states that it was not intended by the settlor that the insurance trust agreement become effective until after his death. This statement fails to take into account the fact that the insurance trust creates definite, contingent limitations in favor of the widow and the four daughters of the settlor, subject to conditions precedent, which contingent limitations are present interests passing prior to Bickers’ death; thus preventing the insurance trust from being testamentary in character. Clearly, this is our holding in Russell’s Executors v. Passmore, supra, which is buttressed by the other authorities heretofore cited.
It will be remembered that Bickers’ will, which was executed on the same day the insurance trust was created, after providing for specific legacies to one daughter, left the balance of his estate, real and personal, to his wife and four daughters equally, thus placing the wife and daughters on the same basis. Bickers’ manifest intent was to do the same with the proceeds from the insurance policies under the trust agreement. There it was provided that if his widow elected to take under the will the trustee would deliver to her one-fifth of the insurance proceeds and a like share to each child. However, if the widow renounced the will, thus altering Bickers’ plan of distribution, she would receive one-third of his personalty and his daughters would each receive a one-sixth share. Obviously the insurance trust was executed to partially compensate the daughters for this contingency by providing that if the widow did renounce the will her interest in the proceeds from the insurance would be eliminated.
It is clear that the insurance trust created alternative contingent limitations in favor of the widow and children, and these interests passed to them when the insurance trust was delivered to the bank, the beneficiary in the policies. One contingent limitation was in favor of the wife, i.e., if she did not renounce the will the trustee would deliver one-fifth of the insurance proceeds to her. Such is a valid springing limitation. Scott on Trusts, supra, § 130; Restatement of Property, § 25, comments (e) and (f), and § 46, comment 1.
*166Minor on Real Property, 2nd Ed., (Ribble), Vol. 1, § 787, p. 1025, dealing with a contingent springing limitation, has this to say:
“A springing limitation is contingent (corresponding to a contingent remainder), whenever it is limited to a person unascertained or not in being or upon the happening of an uncertain event or condition precedent, there being no preceding estate, or no sufficient one, to support it as a contingent remainder. In other words, wherever the limitation, but for the initial absence of a sufficient preceding estate, would be a valid contingent remainder, it will operate as a contingent springing limitation. * * *
“Thus, a limitation to the heirs, heirs of the body, issue, unborn child, etc., of B (a living person), without a preceding estate of freehold, or with no preceding estate at all, is a contingent springing limitation; as would also be a limitation to B upon the marriage of A; or a limitation to such of B’s children as shall attain the age of twenty-one, B having none of that age at the time of the gift, etc.” (Italics those of the author)
Such contingent limitation constituted an interest passing to the wife when the insurance trust was executed and delivered to the trustee who was the beneficiary in the policies. This interest, of necessity, passed to the wife prior to Bickers’ death, subject to the condition that she would accept the terms of the will. As this was not a contingent remainder no preceding estate was necessary to support it.
If the widow decided to take under the will the condition would be fulfilled and her right to one-fifth of the insurance proceeds under the trust became absolute. The condition that the widow accept the terms of the will did not render the limitation to her testamentary. On the contrary, the interest passing to her was a present interest subject to the condition that she accept under the will; while the interest passing to the children was absolute, being affected in amount only by the action of the widow. Thus, (contrary to the majority holding), the limitation to the widow was in no way dependent upon the provisions of the will for its efficacy. It did not set out an interest determined by what the will provided. It constituted a present interest by way of limitation, subject to the condition which would occur or would not occur after Bickers’ death by the act of the widow.
It is many times asserted in the majority opinion, as if to gain strength by repetition, that if Bickers had died without a will the *167trust would have been wholly inoperative. The trust was not in any wise dependent upon a will except with respect to the number of shares into which the proceeds from the insurance policies were to be divided. In all other respects the trust agreement is complete and wholly operative without reference to a will. The trustee for the two daughters is given specific and complete directions in the trust agreement itself for executing that trust.
If there had been no will, then there would have been no opportunity for the widow to reject it, and it would then have been at most a matter for judicial determination whether the widow would take a fifth of the insurance proceeds or whether the whole trust would fail. That point is, however, only a matter of speculation, because at the death of Bickers there was a will, there were insurance policies in the hands of the trustee, both the subject and the terms of the trust were certain and definite, no legal difficulty of any kind was in the way of exact execution of the trust according to its own terms, and the existence or non-existence of a will does not affect the controlling question here, which is, whether or not the trust agreement was in fact a testamentary writing and not what it purported to be.
The leaving of a will was a fact of independent significance preliminary to its acceptance or renunciation by the widow.1 The disposition of property made by Bickers in his will did not affect the limitation nor did it affect the rights of any person or persons who would receive a portion of the insurance proceeds under the trust agreement. The absence of a will could affect only the division of the proceeds of the policies among the widow and children.
Thus a contingent limitation passed to the widow and the four children of the settlor prior to his death, and the insurance trust is not rendered testamentary, but on the contrary, constitutes a valid inter vivos trust. Russell’s Executors v. Passmore, supra; Cohn v. Central Natl. Bank, supra; Gurnett v. Mutual Life Ins. Co., supra; Tootle-Lacy National Bank v. Rollier, 341 Mo. 1029, 111 S. W. (2d) 12; Scott on Trusts, supra, § 57.3, and cases there cited; 1 Perry on Trusts, note (a), p. 114; Idem. sec. 104, p. 137; Personal Life Insurance Trusts (Smith) (1950), supra, § 17, p. 74; *168Restatement of Trusts, supra, § 57, comment (f); 27 Rocky Mountain Law Review 240.
As aforesaid, the majority opinion is contrary to the overwhelming weight of authority in this country. It places us not in the majority or minority class but in a class by ourselves. No authority is cited attempting to sustain the result reached. There is neither a majority nor a minority rule holding as does this opinion.
I feel that the case was carefully considered and correctly decided by the learned chancellor in the court below and, in my view, the decision should be affirmed.
Eggleston and Buchanan, JJ., join in this dissent.

 For an interesting article dealing with this subject, see “Judicial Treatment of Testimentary Dispositions to Amendable and Revocable Inter Vivos Trusts”, Virginia Law Review (Oct. 1953), Vol. 39, No. 6, p. 817.