Mom’s Life Insurance Proceeds Placed In Trust For Daughter

JUNE 16, 1997 VOLUME 4, NUMBER 50

Janie Wyatt, a Tennessee woman, had a history of cancer. When she purchased a $100,000 life insurance policy, she named her husband Bobby Wyatt, as beneficiary. She told Bobby, however, that the real beneficiary of the policy was to be Brandy Thatcher, Janie’s teen-age daughter from a prior marriage.

When Janie Wyatt died in 1994, the insurance proceeds were paid to Bobby Wyatt. Janie’s sister, Kathy Van Story, approached Bobby and reminded him of Janie’s instructions; he agreed that he would set the money aside in trust for Brandy. Bobby, however, had other plans.

Bobby did indeed place the proceeds from the life insurance into a trust. Instead of naming himself and Kathy Van Story as co-trustees, however, he named a third person as trustee, and made the trust completely revocable. When Brandy moved out of her step-father’s house and into her aunt Kathy’s home, Bobby revoked the trust and ordered that the proceeds be placed in an account in his own son’s name.

Kathy Van Story, on behalf of Brandy, filed an action in the Tennessee courts to compel Bobby to return the money to Brandy’s name. In support of her complaint, she introduced testimony from half a dozen friends and relatives of Janie, all of whom told similar stories.

Janie had talked to several of the witnesses about the life insurance policy during her last year of life. To each, she had told essentially the same story; the money was to be used to pay her own medical expenses, then pay the mortgage on the home so long as Brandy continued to live with Bobby, and then to provide the means for Brandy to complete college and medical school. When Brandy turned twenty five, whatever money was left was to be turned over to her.

Bobby Wyatt remembered Janie’s wishes differently. He testified that she had only asked that he “take care of” Brandy after her death, and that he had agreed to do that to the best of his ability. Nothing was said, according to Bobby, about a trust for Brandy. Bobby’s two sons and his daughter-in-law also testified that they had numerous conversations with Janie about her wishes, and she never mentioned a trust.

The trial court decided to impose a trust for Brandy’s benefit, but only to provide for her education and other needs until she reached the age of twenty five. After that, or after her graduation from medical school, whichever was first, the trust was to be dissolved and the remaining balance split between Brandy and Bobby.

The Tennessee Court of Appeals disagreed. Finding that the evidence of Janie’s wishes was “clear, cogent and convincing,” the three-judge panel instructed that a trust be established for the sole benefit of Brandy. Kathy Van Story, Brandy’s aunt and the person who brought the legal action, was named as sole trustee of the trust; Bobby and his children took nothing from the insurance proceeds. Thatcher v. Wyatt, Tennessee Court of Appeals, May 15, 1997.

The device utilized by the Tennessee Court of Appeals is called a “resulting trust” in the law. Such a trust can be imposed by a judge where it is clear that a party intended to transfer property in trust, but instead named an individual as recipient.

The Thatcher case is similar, in a number of ways, to a 1955 Arizona Supreme Court case,Murrillo v. Hernandez. In that case, Serapio Murrillo secured his daughter Sara’s signature on deeds conveying his late wife’s (Sara’s mother’s) interest in real property in Clifton, Arizona, to Serapio. Sara later testified that he did so only to use the property as collateral for loans he needed, and that he promised “he was going to look after my property.” Unfortunately, Serapio died without having retransferred the property to his daughter. The court ruled that the deeds should be set aside, and Serapio’s new wife (and widow) did not receive Sara’s property.

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