In Re Estate of King
228 Ariz. 565
| Ariz. Ct. App. | 2012Background
- King created a family trust for her minor son Nicholas, appointing Reed as personal representative and trustee; life insurance policy named the Trust as beneficiary and the policy proceeds totaled $2,000,000 paid into the Trust after King's death; the estate was insolvent and creditors pursued claims against the estate; Reed argued proceeds were exempt under A.R.S. § 20-1131(A) and that the 2008 trust code provision § 14-10504(D)(2) supported protection; the probate court agreed § 20-1131(A) protected the proceeds but found a waiver in the Trust; on appeal the Arizona Court of Appeals reversed and remanded for proceedings consistent with its decision; the dispute centers on whether the proceeds were protected from the insured’s creditors when paid to a trust named for a third party and whether the Trust’s language effectively waived that protection; the case was decided de novo on the statutory construction and trust interpretation questions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 20-1131(A) protects life insurance proceeds paid to a trust with a third-party beneficiary | Creditors argue no protection; Reed contends protection extends to such transfers | Reed asserts the statute protects proceeds paid to the Trust for the benefit of a third party | Yes, § 20-1131(A) protects such proceeds |
| Whether the Trust language clearly and effectively waives § 20-1131(A) protections | Waiver can be implied by directing payment of debts from the estate | Trust language sufficiently conveys waiver of protection | No clear, effective waiver present; protection not waived |
| Whether § 14-10504(D)(2) retroactively or otherwise affects the § 20-1131(A) protection | Enactment could undermine the extent of protection | Trust code mirrors and clarifies existing protections | Not dispositive; court did not rely on retroactive application to defeat § 20-1131(A) protection |
| What is the correct remedy given the protection of § 20-1131(A) for the proceeds | Proceeds should be exempt from creditors | Proceedings should address how to pay debts if protection stands | Proceedings remanded for further actions consistent with protection |
| Whether Reed is entitled to attorneys’ fees on appeal under § 14-11004 | N/A | N/A | Reed awarded reasonable fees on appeal; creditors denied |
Key Cases Cited
- May v. Ellis, 208 Ariz. 229 (Ariz. 2004) (life insurance proceeds exempt when paid to a beneficiary/third party)
- In re Grilk's Will, 231 N.W.2d 327 (Iowa 1930) (clear, apt language required to waive exemption)
- Twinam, 216 S.W.2d 314 (Tenn. 1948) (estate directive must explicitly include insurance to waive exemption)
- Adams v. Garraway, 162 S.W.2d 1086 (Tenn. 1942) (clear language required to waive exemption)
- Godman, 145 P. 221 (Wash. 1915) (waiver requires explicit language to tax exemption)
- Cooper v. Wright, 75 S.W. 1049 (Tenn. 1903) (mere directive to pay debts not enough to waive exemption)
- Waldrum v. Waldrum, 14 Tenn.App. 342 (1931) (similar principle on waiver of exemption)
- In re Milton, 294 P.2d 412 (Wash. 1956) (words governing use of life insurance proceeds must show intent to pay debts)