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C.         LIFE INSURANCE TRUSTS


Life insurance trusts are usually one of the following kinds:



1.         Contingent Beneficiary Trust

Example :    W, owner and insured under a life insurance policy, designates the policy beneficiary as her husband, H; and if H does not survive W, to B to hold in trust for W's children.

This is a valid inter vivos trust,
        a) which becomes effective
                i) immediately.

The contingent right  (i.e., future interest)
        a) to the proceeds
        b) in W's children

1) is a sufficient res.

B has active duties
        a) in that
                i) he waits to see
                        (a) if H dies before W and,                
                ii) if he does,
                        (a) collects the proceeds on W's death.

This is not a testamentary trust, (because the trustee has duty immediately, not at death )

1) even though B receives the proceeds,         
        a) if at all,
        b) only on W's death,

2) because the trust came into being
        a) during W's life.

2.         Assignment of Policies

For example :   A, owner and insured under a life insurance policy, assigns the policy to B to hold in trust for A's children.

The trust can be
        a) funded
                i) (i.e., other funds are transferred to B
                        (a) from which B pays the premiums), or
        b) unfunded (i.e., the only trust res is the policy and
                        (a) A continues to pay the premiums).

In either event, it is valid
        a) as an inter vivos transfer.

3.         Payable to Testamentary Trustee

For example :   A, owner and insured under a life insurance policy, designates as beneficiary "the trustee named in my will."

        In A's will, she names her brother B as trustee of her property for the benefit of her children.

Some courts have held that
        a) this
                i) is a testamentary designation
                        (a) that does not comply with the Statute of Wills and,
                ii) thus, fails.

Others (e.g., California) have held that
        a) if A has a will
                i) executed
                        (a) prior to the change
                                (i) in beneficiary designation,

        b) an inter vivos trust arises
                i) as soon as the beneficiary designation is made
        c) because A so intends.

However,

if the beneficiary designation is "the trustee
        a) to be named in my future will,��

1) no inter vivos trust would arise
        a) at the time of the change of beneficiary, and
2) the attempted designation would fail
        a) as a testamentary act.

In many states (e.g., California),

statutes have been passed
        a) permitting trustees "to be named in a will��
                i) to be designated as insurance beneficiaries
        b) without rendering the transaction testamentary.

D.         TOTTEN TRUST BANK ACCOUNTS


"Totten trust" is the name
        a) given to a bank account
                i) in the depositor's name
                        (a) "as trustee��
                                (i) for a named beneficiary
        b) (e.g., "A, trustee for B").

Under such a bank account,

A, the depositor,
        a) retains the passbook and
        b) continues to make
                i) deposits and
                ii) withdrawals
                        (a) during her lifetime.

B
        a) has no beneficial interest in the account
                i) during A��s lifetime, but
        b) succeeds to whatever is on deposit
                i) at A's death.

It is called a Totten trust
1) because it was first recognized
        a) in In re Totten, 71 N.E. 748 (N.Y. 1904).

1.         Trustee -Depositor Has Full Rights During Lifetime (similar to life estate)

A Totten trust is not really a trust
1) because there is no separation of
        a) legal and        
        b) equitable
                i) title.

The depositor
        a) remains the full owner of
                i) all funds on deposit
                        (a) during her lifetime and
        b) can withdraw them (i.e., revoke in as much part as withdrawn)
                i) at any time.

2.         Revocation by Other Lifetime Act

While Totten trusts are revoked
        a) by withdrawals,

1) they can
        a) also
        b) be revoked
                i) by any lifetime act
                        (a) that manifests an intent to revoke.

Example:    A delivered to her attorney a document expressly revoking "all of my 'in-trust-for' accounts."

        This is a valid revocation, even though the revoking instrument was not delivered to the various banks.

        Thus, the funds passed under A��s will rather than to the designated Totten trust beneficiaries.

        The fact that A did not comply with the method for changing beneficiaries set out in the bank signature card was irrelevant; that agreement was solely for the protection of the bank and did not limit A's right to revoke.


3.        Revocation by Will

If A leaves a will
        a) that says, "I bequeath all funds on deposit
                i) in my 'in-trust-for' savings accounts
                        i) to my friend C,"

1) this is a valid disposition.

C,
        a) and not the beneficiaries
                i) named in A's Totten trusts,
        b) is entitled to the funds on deposit.


a.         Compare -Joint Bank Accounts

By contrast,

a joint bank account
        a) with survivorship provisions

1) cannot be bequeathed
        a) by a will.


Example:    A deposits funds in a savings account, the signature card for which (signed by A and B) provides that A and B hold "as joint tenants with right of survivorship.��

         A leaves a will that purports to bequeath all of her interest in the bank account to C.

        The gift to C is ineffective because on A's death the fund passed by right of survivorship to B. (but how about the half interest by A? Doesn��t it pass by inter vivos transfer to C by severance?)

4.         Gift upon Delivery of Passbook

Most states hold that
        a) if depositor A delivers the passbook
                i) to beneficiary B, (thus the control of the account)

        b) this constitutes a valid gift to B
                i) of the amount on deposit.

5.         Subject to Creditors' Claims

Because the depositor has complete control
        a) over the deposit
                i) during his lifetime,

1) he is treated
        a) as the owner
2) insofar as his creditors are concerned.

His creditors
        a) can reach the deposit
                i) while he is living, and
        b) can reach it
                i) as part of his estate
                        (a) on death.

6.         Terminates If Beneficiary Predeceases Depositor

If beneficiary B predeceases depositor A,

1) the trust automatically terminates. (no antilapse)

The funds on deposit
        a) belong to A absolutely and
        b) do not pass to B's estate.

(The beneficiary must survive the depositor-trustee
        a) in order to succeed to
                i) the amount on deposit
                        (a) under a Totten trust account.)

E.         UNIFORM TRANSFERS TO MINORS ACT

To provide a convenient procedure f
        a) or making gifts
                i) to minors
                        (a) who have no legal capacity
                                (i) to manage or
                                (ii) sell property,

1) every state has enacted some version of the Uniform Transfers to Minors Act ("UTMA"),
        a) under which property may be transferred
                i) to a person
                        i) (including the donor)
                        ii) as custodian
                ii) for the benefit of a minor.

The transfer may be made
        a) to a custodian
        b) by
                i) an executor,
                ii) trustee, or
                iii) guardian
                        (a) under a governing instrument (e.g.,
                                (i) will,
                                (ii) power of appointment, or
                                (iii) deed,
                                        (A) for a minor beneficiary).

The transfer is in the form,
        a) "To [name of custodian]
                i) as custodian
                ii) for [name of minor]
                        (a) under the [name of state] Uniform Transfers to Minors Act." [UTMA ��9]

Under the UTMA,

custodianship terminates
1) when the donee attains age 21. [UTMA ��20]

1.         Custodian's Powers and Duties

A custodianship is not a trust.

The custodian does not hold legal title
        a) to the custodial property;

1) legal title is in the minor,
        a) subject to the custodian's statutory power.

The custodian has statutory powers:
        (i) to collect, hold, manage, invest, and reinvest the custodial property;
        (ii) to pay to or on the minor's behalf so much or all of the custodial property as the custodian deems advisable for the minor's use and benefit; and
        (iii) to the extent not expended, to pay over the property when the minor attains age 21 (or to the minor's estate should she die before age 21).

A custodian
        a) is a fiduciary and
        b) is subject to the standard of care
                i) of a prudent person
                        (a) dealing with property of another. [UTMA �ס�12, 14, 20]



2.         Qualifies for Annual Gift Tax Exclusion

A custodial gift
        a) made pursuant to the UTMA

1) qualifies for the $13,000 per donee
        a) annual federal gift tax exclusion.




VIII. TRUSTS ARISING AS A MATTER OF LAW
-RESULTING AND CONSTRUCTIVE TRUSTS


A.         IN GENERAL

        a) Resulting and
        b) constructive trusts

1) do not arise
        a) by a settlor's express declaration of trust.

They are
        a) implied
                i) by law or
        b) imposed
                i) by the courts
                        (a) in equity.

Resulting trusts involve a reversionary interest (legal interest)

1) when the equitable interest in property
        a) is not completely disposed of and
        b) are based on the presumed intent
                i) of the settlor.

The doctrine of constructive trusts was developed
        a) by equity courts
        b) as a means of granting relief
                i) where,
                         (a) by a series of events,
                        (b) one person has obtained legal title to property (real or personal)
                                (i) that,
                                        (A) the conscience of equity feels,
                                        (B) rightfully(equitably) belongs to another,
                ii) the purpose being
                        (a) to prevent unjust enrichment
                                (i) by the person
                                        (A) who has obtained legal title.

Because resulting and constructive trusts are implied
        a) by the courts,

1) the Statute of Frauds is inapplicable;
2) no writing is necessary
        a) even where real property is involved.



B.        RESULTING TRUSTS -WHEN WILL THEY BE IMPLIED?


Resulting trusts are generally of three types:
        (i) purchase money resulting trusts,
        (ii) resulting trusts
                i) arising on failure of an express trust, and
        (iii) resulting trusts
                i) arising from an incomplete disposition of trust assets (i.e., excess corpus).

In resulting trusts,

the person
        a) who is declared
                i) by equity
                ii) to be the beneficiary of the resulting trust

1) is the one
        a) responsible for supplying the trust property (corpus).

1) He has either directly
        a) conveyed the property
                i) to the person
                        (a) held to be the trustee, or

2) he has supplied the consideration
        a) for a transaction
                i) through which the other person, the "trustee," acquired title to the property.

Thus,

the person
        a) who holds title did not give consideration.

From this fact,

equity presumes
        a) that he was not intended
                i) to have the benefits of ownership and
        b) that he should be a trustee
                i) for the person
                        (a) who did
                                (a) furnish the consideration or
                                (b) convey title to him.

1.         Purchase Money Resulting Trusts

In the typical situation,

1) there is a sale of property
        a) real or personal
        b) in which Y obtains legal title from the seller
        (e.g., a deed names him as grantee; stock certificates list him as owner).

But

1) Y,
        a) who takes title,
        b) did not supply the consideration;

2) another person, X, paid the consideration.

Unless X andY are
        a) close relatives (see e., infra),

1) it is unlikely that
        a) X intended a gift.

X probably intended
        a_ to retain some benefit;

thus, the courts imply that
        a) Y is trustee and
        b) X is beneficiary of
                i) a resulting trust.

("Resulting" in that
        a) it results from
                i) X having furnished the consideration.)

This resulting trust is
        a) dry or
        b) passive in that
                i) Y,
                        (a) the title holder and trustee,
                        (b) has no management duties.

His sole duty is
        a) to convey his title
                i) to X, the beneficiary.

The court's decree
        a) that there is a resulting trust

1) will likely order him to do so.

a.         Form of Consideration Immaterial

The consideration
        a) given by X, the beneficiary,

1) is usually money;
2) but it need not be.

The resulting trust will arise

1) if
        a) the seller asks for consideration
                i) in the form of services and
        b) X supplies them, or

2) if X gives consideration
        a) by canceling a debt
                i) owed to him by the seller.

The trust will be implied

1) whether X
        a) pays the consideration directly to the seller or
        b) deposits it with Y,
                i) who in turn
                        (a) passes it to the seller and
                        (b) takes title.

But note:

A resulting trust arises
        a) only from consideration
                i) given for actual purchase of the property.
        b) (because if not, the supplier has no property right on the property)

This excludes money
        a) furnished by X
                i) to pay off a mortgage,
                ii) to pay taxes on the land, or
                iii) to build improvements on it.

b.         Time When Consideration Furnished

For a resulting trust to arise,

1) the beneficiary, X, must supply the consideration
        a) at or
        b) before the time
                i) Y takes title
         (e.g., in the case of real property, at the time of delivery of the deed to Y).

It is also sufficient

1) if X obligates himself,
        a) prior to or
        b) at the time
                i) Y takes title,
                         (a) to pay the consideration
         (e.g., X gives the seller a promissory note).

Payments
        a) made by X
        b) after Y has taken title

1) will not give rise to a resulting trust
2) unless X has bound himself
        a) to make such payments.

c.         Burden of Proof on One Claiming as Beneficiary

The burden is on X,
        a) the party claiming
                i) to be the beneficiary of a resulting trust,
        b) to prove
                i) by clear and convincing evidence
                ii) that he supplied the consideration.

He is entitled
        a) to bolster his claim
                i) by extrinsic evidence
                ii) (i.e.,
                        (a) evidence outside
                                (i) the contract of sale of the property and
                                (ii) the deed or
                                (iii) other document of title given to Y)
                iii) that Y had agreed to hold the property
                        (a) solely for his benefit.

Of course,

if
        a) there is an actual trust agreement between X and Y, and
        b) any applicable Statute of Frauds provision is satisfied,

1) the trust would be
        a) an express trust,
        b) not a resulting trust.

d.         Rebuttable Presumption of Resulting Trust

Once X proves that
        a) he supplied the consideration,

1) a resulting trust is presumed.

However,

Y,
        a) the title holder and alleged trustee,
        b) may rebut the presumption
                i) by submitting evidence
                        (a) that no trust was intended and
                        (b) that,
                                (i) to the contrary,
                                (ii) the money used as consideration for the purchase was either:
                                        (i) a gift from X to Y;
                                        (ii) a loan f rom X to Y; or
                                        (iii) payment by X
                                                (A) of a debt owing to Y.

1)         Presumption Rebutted by Proof of Loan

If X loans the money to Y
        a) to buy the property,

1) there is no resulting trust
2) because the money belonged to Y
        a) (who had obligated himself to repay the loan)
        b) when the consideration was paid.

On the other hand,

if         a) X lends money to Y
                i) to purchase property and
        b) title is taken
                i) in the name of X, the lender,

1) there is a resulting trust
        a) in favor of Y
                i) as beneficiary
2) because he
        a) supplied the consideration (funds he had borrowed) and
        b) yet did not receive title.

2)         Recitals as to Who Paid Consideration Not Conclusive

A recital
        a) in the
                i) contract of sale,
                ii) deed, or
                iii) other document of title
        b) that X (or Y) paid the consideration

1) is not conclusive.

Extrinsic evidence will be received
        a) to establish
                i) not only how much the consideration for a transfer was,
                ii) but also who paid it.

3)         Effect of Agreement Between Parties as to Nature of Interest

The alleged trustee, Y, may
        a) partially
        b) rebut the presumption of a trust
                i) by showing, e.g., that
                        (a) X and Y had agreed that
                                (i) X (who paid the consideration) would have
                                        (A) only a life estate or
                                        (B) some other interest
                                                (I) less than a full fee simple absolute
                                                        (L) in resulting trust.




e.         Major Exception -No Trust Presumption Where Parties Closely Related

If X (the person supplying the consideration) is a close relative
        a) of Y (the one taking title),

        a) a gift
                i) from X toY
                ii) of the funds
                        (a) used for consideration, rather than
        b) a resulting trust,

1) is presumed.

The close family relationship
        a) between X and Y

1) precludes any presumption
        a) of a trust. (presumption of gift prevails over the presumption of trust)

1)         Relationships Where Gift Is Presumed

        a) A gift,
        b) not a trust,

1) is presumed
        a) from the following relationships:

                a)         i) Parent supplies consideration,
                        ii) title taken
                                (a) in child's name.

                b)         i) Grandparent supplies consideration,
                        ii) title taken
                                (a) in grandchild's name.
                c)         i) Spouse supplies consideration,
                        ii) title taken
                                (b) in other spouse's name.
                        (MWSP. married woman��s special presumption before 1975)


2)         Relationships Where Trust Is Presumed

The normal presumption of a trust applies

1) where the person
        a) furnishing consideration

    is
        a) the uncle, aunt,
        b) brother, sister,
        c) child, or grandchild
                i) of the person
                        (a) receiving title.

f.         Second Exception -Unlawful Purpose

Equity will usually decline
        a) to imply a trust

1) where the arrangement
        a) under which title is taken
                i) in Y's name

    is
        a) for an unlawful purpose,
        b) such as:

                (i) X,
                        i) who supplied the consideration,
                        ii) is trying
                                (a) to keep property from his creditors.
                (ii) X is trying
                        i) to avoid a tax liability.

                (iii) Y is eligible for
                        i) financing (e.g., he is a veteran)
                                (a) that X cannot get.

This exception is often justified
        a) on the ground that
                i) X cannot invoke the equitable resulting trust doctrine
                i) because he has "unclean hands."

Under modem decisions, however,

illegality of purpose may not always bar relief
        a) by way of resulting trust,

1) especially where the gravity of the illegal scheme is slight
        a) compared to the unjust enrichment
                i) that will occur
                ii) if Y is permitted to keep the property
                        (a) for which he did not pay.

g.         Third Exception -Transferee Obtained Title Wrongfully

For there to be a resulting trust,

the placing of title in Y's name must be
        a) with the consent of
                i) X,
                ii) the one furnishing consideration.

Where Y has taken title
        a) without such consent,

1) there is usually
        a) fraud or
        b) other wrongdoing
                i) sufficient to raise a constructive trust
                        (a) in favor of X (see C.2., infra).

h.         Pro Rata Resulting Trusts

Where X pays
        a) only part of the purchase price,

1) the resulting trust
        a) in his favor

   will be
        a) only for a pro rata portion of the title.

Thus,

if
        a) the total price is $8,000 and
        b) X paid $2,000 of it,

1) the resulting trust doctrine makes X
        a) the equitable owner of
                i) an undivided one-fourth interest.

He is a co-tenant
        a) with the title holder, Y
        b) (or perhaps with some other resulting trust beneficiary
                i) who paid all or part of the remaining $6,000).



2.         Resulting Trusts Arising on Failure of Express Trust

Typically,

S, the settlor,
        a) creates an express trust and
        b) conveys legal title to T, the trustee.

A problem arises

1) when
        a) the beneficiary of the trust
                i) cannot be located or
                ii) is dead, or
        b) the trust is
                i) unenforceable or
                ii) void
                        (a) for some other reason
                (e.g., it violated the Rule Against Perpetuities), and
        c) the settlor, S,
                i) in creating the trust,
                ii) did not provide
                        (a) what should be done with the property
                                (i) in this event.

Equity implies the answer:
        a) The express trust ends and
        b) a resulting trust arises
                i) in which S is the beneficiary.

This resulting trust is
        a) dry or passive
        b) i.e., T's duty as trustee of the resulting trust is simply
                i) to convey title back to S.

If S is dead,

1) his estate is the beneficiary.
2) The property will go
        a) to his heirs or
        b) to those who took under his will.

a.         Rationale

The theory of
        a) this type of resulting trust

1) is that
        a) S must have intended the property
                i) to revert to
                        (a) him or
                        (b) his successors
        b) if the trust could not be carried out.

Trustee was intended
        a) only to manage the property and
        b) not to have full beneficial ownership.

Because the trust has failed,

1) Trustee's duties have ended and
2) he should not be entitled
        a) to retain title to the trust property.

b.         No Resulting Trust Where Consideration Paid to Settlor

There is no resulting trust
        a) in favor of S

1) where he received consideration
        a) for his conveyance of the property
                i) to the trustee.

If someone
        a) other than T

   paid the consideration,

1) a trust may result
        a) in favor of that person.

If T paid it,

1) T keeps title.

c.         On Failure of Charitable Trust

Where
        a) the express trust is charitable and
        b) the designated beneficiary ceases
                i) to exist
                (e.g., the XYZ Home for the Blind closes down operation),

1) a resulting trust
        a) in favor of the settlor

   is implied
2) where no general charitable intent
        a) by S

   appears
        a) (so that the cy pres doctrine is inapplicable).

d.         Limitation -Illegal Purpose

If the express trust
        a) that fails

   was established
        a) by S
        b) for an illegal purpose
                (e.g., to defraud S's creditors),

1) equity may refuse
        a) to imply a resulting trust,
2) allowing T
        a) to keep
                i) title plus
                ii) the beneficial interest.

Modern cases indicate that
        a) equity will imply a resulting trust
                i) despite the illegal scheme
        b) if the gravity of S's wrongdoing is slight
                i) compared to the unjust enrichment
                        (a) T would obtain
                        (b) if he were permitted to keep the trust property.

3.         Resulting Trust Implied from Excess Corpus

A resulting trust
        a) in favor of the settlor

1) also arises
2) when
        a) the trust purpose is fully satisfied and
        b) some trust property remains
        (e.g.,
                i) trust was to construct a lodge building and
                ii) the project is completed
                        (a) with funds left over).

There could be a resulting trust of
        a) part of the corpus
1) even where the trust is not completely terminated,
2) if it is clear that
        a) the trust property is
                i) in excess of the amount
                        (a) needed to carry out the trust purpose.

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