293 N.W. 527 | S.D. | 1940
Prior to June 15, 1933, Albert Anderson of Sioux Falls, South Dakota, was the owner of five different policies of life insurance on his life totaling an amount of $17,000. On June 15, 1933, Albert Anderson and the Security National Bank Trust Company of Sioux Falls entered *394 into an agreement designated an insurance trust agreement, wherein it was agreed that Albert Anderson would designate the Security National Bank Trust Company as beneficiary in the policies of life insurance, and the Security National Bank Trust Company agreed to receive and disburse the proceeds of the policies upon the death of the insured in accordance with the terms and conditions set out in the agreement. Albert Anderson executed requests for changes of beneficiaries in the policies which were forwarded to the different insurance companies, whereupon the named beneficiary was changed in accordance with the trust agreement. Following the execution of this agreement, the Security National Bank Trust Company was succeeded by the Northwest Security National Bank of Sioux Falls and a new agreement was entered into between Albert Anderson and the Northwest Security National Bank on the 17th day of April, 1937. In accordance with the terms of this new agreement, wherein the Northwest Security National Bank was to act as trustee, the beneficiary named in the different policies was again changed so as to correspond with the new agreement. Under each of said policies of insurance and under each of the agreements entered into by and between Albert Anderson and the named trustee, the insured, Albert Anderson, reserved the right to change the beneficiary without the consent of the beneficiary named in the policy; to borrow money on the security of the policy; to assign the policy; to receive all the dividends paid under the policies during his lifetime; to change the policy from a participating policy to a non-participating policy; to surrender the policy and collect the cash surrender value thereof.
Albert Anderson died in January, 1938, and thereafter there was paid to the Northwest Security National Bank, as trustee, the amounts of the various policies of life insurance represented by the policies on the life of Albert Anderson. The bank proceeded to carry out the terms of the 1937 trust agreement and, in the course of its administration thereof, filed in the circuit court of Minnehaha County a report of its acts thereunder and a petition requesting authority to pay the federal estate tax in the estate of Albert Anderson, *395 deceased, which authority it claimed under the provisions of the 1937 agreement. Thereafter, Natalie Anderson, the surviving wife of Albert Anderson, deceased, and the executrix named in the will of Albert Anderson, Harold L. Anderson and Dorothy E. Anderson, son and daughter of Albert Anderson, deceased, filed objections to the report and the petition as filed by the trustee. These objections came on for hearing before the circuit court, and the circuit court entered its order approving the report and allowing the petition. The objectors have appealed from this order.
We have considered, and have had in mind when making the foregoing statement of facts, appellants' assignments of error Nos. 1, 2, and 3. These assignments, we are convinced, are without merit.
Appellants' principal contention and the troublesome contention in this case is that the trust arrangement constituted a testamentary disposition of property by Albert Anderson, without complying with the formality required for such disposition, that is, that the trust agreement was not executed, published and witnessed as wills are required to be executed, published, and witnessed under the laws of this state. Contentions similar to that which appellants here make have been before the courts in many jurisdictions. There is a practical unanimity of judicial opinion adverse to appellants' contention. See Lashley v. Lashley,
The Restatement of the Law on Trusts in its comment on Section 57, Page 178, states the rule as follows: "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 reserves power to change the beneficiary of the policy and power to revoke or modify the trust. In such a 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."
The recent work of Professor Scott on the Law of Trusts, Page 345, goes somewhat more into detail in stating the rule, as follows: "Where a person takes out a policy of insurance upon his life payable to a third person as trustee, and reserves the power to change the beneficiary of the policy, and perhaps in addition the power to change the beneficiaries of the trust, the question arises whether the disposition is testamentary and invalid for failure to comply with the requirements of the Statute of Wills. It is arguable that the trust does not arise until his death, and that since his death is a condition precedent to the creation of the trust, the disposition is testamentary. The answer is, however, that the beneficiary of the policy as soon as he is named trustee holds his rights as beneficiary of the policy in trust. 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, does not prevent a trust from arising immediately. *397 It is not a disposition subject to the condition precedent of the death of the insured, but is a trust which is subject to revocation or modification during the life of the insured. It is true that until the death of the insured it is a pretty thin trust, and it would not be difficult to hold that the disposition is testamentary. The difficulty in upholding the trust, however, seems to be no greater than in upholding the rights of the beneficiary of an insurance policy where no trust is involved but where the insured reserves power to change the beneficiary. A policy of life insurance where the insured has reserved the right to change the beneficiary is in a sense testamentary in character, but the courts have never had any difficulty in permitting the beneficiary to recover the proceeds on the death of the insured if he had not in fact revoked the policy. It would seem that the fact that the policy is payable to a beneficiary as trustee for others makes it no more testamentary than if it were payable to the beneficiary absolutely. Moreover, the fact that the insured may have reserved power not only to change the beneficiary of the policy but also to change the beneficiaries of the trust or otherwise to modify the terms of the trust, would seem to make the disposition no more testamentary. 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."
Apart from the authorities, appellants base their contention upon the ground that the trust agreement constituted an attempt to transfer property, which transfer was not to become effective until after the death of Albert Anderson. Appellants argue that no trust inter vivos was created by Albert Anderson, because under the rule announced in the case of Christenson v. El Riad Temple,
This view, we believe, disposes of this case. The assignments of error go simply to the validity of the declaration of trust as declared in the agreement. There is no broad contention here made that the simple naming of a beneficiary in a policy of life insurance wherein the insured reserves the right to change the beneficiary constitutes a testamentary disposition of property. But appellants' arguments in support of their contention that the trust agreement is invalid would equally, we believe, support the view that the naming of a beneficiary in a life insurance policy, wherein the right to change the beneficiary is reserved, would in itself constitute a testamentary disposition of property. Quite obviously such view could not be sustained. Cf., 18 Minn. Law Rev. 391.
The order appealed from is affirmed.
SMITH, P.J., and POLLEY and ROBERTS, JJ., concur.
WARREN, J., not sitting. *400