Johnston v. Scott

This action is brought to have determined: (1) The validity of an alleged trust; (2) if valid, the construction of certain provisions thereof; and (3) that the trustee be allowed to account and resign and have his successor appointed.

In December, 1910,'James L. Scott had procured upon his life in several companies nine life insurance policies, aggregating $95,000. In some of these policies Russell M. Johnston, as trustee, was named as beneficiary; in others, the wife, Anna M. B. Scott; and in others, a son, Gordon B. Scott. In each policy the right was reserved and given to James L. Scott to change at any time the name of the beneficiary. From time to time the names of the beneficiaries in' these policies have been changed by Mr. Scott, until in December, 1911,

“It is expressly understood and agreed by and between the parties hereto that this agreement may be revoked, modified, or changed by the party of the first part at any time during his life, and that he may, in his discretion, cause the -beneficiary or beneficiaries in any or all of said policies to be changed at any time during his lifetime, as he may wish.”

Also each deed states that Mr. Scott has caused the policies named to be made payable to Russell M. Johnston as trustee, and that Russell M. Johnston, upon the death of Mr. Scott, is authorized to receive, collect, and receipt for such sums as may be due or become due upon any and all of said policies issued as aforesaid upon the life of the party of the first part. From time to time thereafter Mr. Scott exercised the right of revocation and modification of the said deeds, the last of which, applying to both of the said deeds of December 31, 1910, being under date of December 29, 1911. In this paper he recites :

“I having caused all of said policies aggregating $32,500, and all of the policies aggregating $62,500, to be transferred to said Russell M. Johnston, individually, instead of as trustee, and having assigned to him by absolute assignments all my right, title, and interest in said policies and each and every of them, he having, for value received, agreed that the proceeds thereof shall be charged with the same trust and used as provided in said agreements and the modifications thereof heretofore and hereby made: Now, therefore, I, James L. Scott, do ratify said transfers and assignments, and each and every thereof, and hereby, .for value received of said Johnston, as such trustee, do surrender and annul my right to hereafter revoke, modify, or change the said trust agreements and the modifications heretofore and hereby made, or any or either of them, and do consent and agree with said Russell M. Johnston that the transfers to him for the purposes aforesaid be and they are hereby made absolute, irrevocable, and unchangeable forever.”

The deeds and assignments were delivered. The trustee accepted the trust and has acted. The insurance companies have recognized his title and have paid over the moneys due upon the several policies. Mr. Scott died on the 9th day of January, 1912, leaving a last will and testament, dated December 8, 1911, which has been duly admitted to probate, names his widow as the sole executrix, and gives his property, substantially share and share alike, to his widow and his son Gordon. Mr. Scott left him surviving his widow and two sons, Gordon B. Scott and Brenton H. Scott. His estate was solvent, and no rights of creditors are involved.

A will has no effect whatever until the death of the testator, and conveys no interest prior thereto. An instrument which has effect during the life of the maker and passes some right or interest before death, even though enjoyment is postponed until after death, is not testamentary in character, but is a grant or a contract. A cpntract, even though to be carried into execution after death only, is valid. An agreement by one party to make a will in favor of another, when the promised bequest cannot take effect until after death, is valid. Matter of Diez, 50 N. Y. 88 ; Gilman v. McArdle, 99 N. Y. 451 , 2 N. E. 464 , 52 Am. Rep. 41 . Under the established rules, if, by a transaction, whether it be evidenced in one instrument, or in an instrument in writing accompanied by a separate transfer of property therein mentioned, a trust takes effect immediately upon delivery and in the life of the settlor of the trust, and by it present rights accrue, it is valid, even though the enjoyment be postponed until after death; while, if the instrument does not take effect until after death, it is testamentary in character, and must be executed with all the formalities required by statute in the execution of wills. Hirsh v. Auer, 146 N. Y. 13 , 40 N. E. 397 ; Robb v. Washington & J. College, 185 N. Y. 485 , 78 N. E. 359 ; Grating v. Heilmann, 1 App. Div. 260 , 37 N. Y. Supp. 253 .

The fact that a deed of trust contains full power of revocation does not render the instrument testamentary or the trust invalid. Van Cott v. Prentice, 104 N. Y. 45 , 10 N. E. 257 ; Schreyer v. Schreyer, 101 App. Div. 460 , 91 N. Y. Supp. 1065 , affirmed 182 N. Y. 555 , 75 N. E. 1134 ; Robb v. Washington & J. College, supra. A valid trust may exist, continue, and be terminated at the will and pleasure of the settlor. Van Cott v. Prentice, supra, 104 N. Y. 55 , 10 N. E. 257 . A trust of personalty is not within the statute of rises and trusts, and may be created for any purpose not forbidden by law. Hirsh v. Auer, 146 N. Y. 19 , 40 N. E. 397 ; Gilman v. McArdle, 99 N. Y. 451 , 2 N. E. 464 , 52 Am. Rep. 41 . The fact that the trust was voluntary and without consideration is no objection to it, if in fact it was fully and completely constituted. Id. All the transactions, the insurance papers, the assignments thereof, and the trust deeds are to be considered together; each being a part of the complete transaction. Van Cott v. Prentice, supra, 104 N. Y. 55 , 10 N. E. 257 .

In my judgment the trust is valid. The moneys involved in the trust were to be derived solely from the insurance policies payable

[2] Life insurance policies are not testamentary papers; where "straight life policies,” they are payable at death, and are valid contracts ; they are nonnegotiable choses in action, and are assignable. 25 Cyc. 764; Cuyler v. Wallace, 183 N. Y. 292 , 76 N. E. 1 , 5 Ann. Cas. 407; New York Mut. Life Ins. Co. v. Armstrong, 117 U. S. 591 , 6 Sup. Ct. 877 , 29 L. Ed. 997 .

[3] Until the execution of the deeds of December 29, 1911, the trustee had a present title, and the beneficiary had a vested interest, subject to be divested by exercise of the power of revocation. New York Life Ins. & T. Co. v. Cary, 191 N. Y. 39 , 85 N. E. 598 . With the exercise of this power the beneficiaries are not concerned. Schreyer v. Schreyer, supra, 101 App. Div. 461 , 91 N. Y. Supp. 1065 .

[4] Upon the execution and delivery of the assignments of December, 1911, the indorsements of the name of the beneficiary on the backs of the policies, and the execution and delivery of the deed of December 29, 1911, in which the power of revocation was surrendered and renounced, a vested interest and present title during the life of the settlor went to Russell M. Johnston. New York Life Ins. & T. Co. v. Cary, supra, 191 N. Y. 38 , 39, 85 N. E. 598 .

[5] The fact that, after the surrender of the right of revocation had been included in the deed, there remained in the policy a recital of the power to change the beneficiaries, did not invalidate the trust. Robb v. Washington & J. College, supra; Schreyer v. Schreyer, supra. We are not called upon to consider what the result would have been, had Mr. Scott, in disregard of this deed, attempted to change the name of the beneficiaries in the policies. He made no such attempt, and no third party is here as beneficiary or creditor. The property is personal; the declaration of the trust by the settlor impressed it with a trust character, and converted his legal title to that of trustee for the person for whose benefit the trust was created. That the trust created was not to take effect in possession and enjoyment until the death of the settlor was because of the nature and source of the property and the terms of the deed, not because the deed or transaction was testamentary in character. Robb v. Washington & J. College, supra, 185 N. Y. 492 , 493, 78 N. E. 359 .

We have present each of the four essential elements of a valid trust of personal property:

“(1) A designated beneficiary; (2) a designated trustee, who must not be the beneficiary; (3) a fund or other property sufficiently designated or identified to enable the title thereto to pass to the trustee; and (4) the actual delivery of the fund or other property, or of a legal assignment thereof to the trustee, with the intention of passing legal title thereto to him as trustee.” Brown v. Spohr, 180 N. Y. 201 , 209, 73 N. E. 14 , 16.

It is urged by Mrs. Scott that the policies are like certificates in fraternal benefit societies, because the beneficiary can at any time be changed, and therefore the policies are not choses in action. There

[6] Under all the circumstances of the case I must find that, in making the trust deeds and the transfers of the insurance policies, Mr. Scott did not purpose or intend to avoid the statute of wills. We cannot justly infer, when a man takes out a “straight life policy” payable to his wife, his child, or another, that he intends to avoid the statute of wills. Each of these insurance policies in question, during its entire life, was payable to a beneficiary, other than the assured, of his estate. Their proceeds therefore, upon the assured’s death, intestate, at any time after their issue, disregarding his trust deeds, would have never come into his estate. They would have gone direct to the beneficiaries. Though he might have named his executors as the beneficiaries, he has not done so at any time. Where insurance is payable to the assured, or to his executors, administrators, or assigns, the proceeds are subject to appraisal for the purpose of taxation under the collateral inheritance tax. Matter of Knoedler, 140 N. Y. 377 , 35 N. E. 601 . But where payable to an individual other than himself or his executors, administrators, or assigns, the proceeds are not a part of his estate. Griswold v. Sawyer, 125 N. Y. 411 , 26 N. E. 464 . So that, by making the trust deeds, Mr. Scott has not disposed of any property which otherwise would have gone into his estate after his decease. He has simply attempted to direct what use should be made of the proceeds of these policies after his death, and has not attempted to dispose by deed of any property which under "the existing facts was disposable by will. W. C. Bank v. Hume, 128 U. S. 195 , 9 Sup. Ct. 41 , 32 L. Ed. 370 .

Ordered accordingly.