Morey v. Everbank: three drafting tips to avoid a troubling decision.

• Author: Karibjanian, George D.
• Position: Life insurance proceeds paid to revocable trust - Florida

To many, the mention of the name "Morey" leads to thoughts of Mitch Albom's best selling 1997 novel, Tuesday's with Morrie, (spelling notwithstanding) or of the legendary Vaudeville comedian Morey Amsterdam, best known for his role as "Buddy Sorrell" on the timeless television series The Dick Van Dyke Show. Mention the name "Morey" to a Florida trusts and estates attorney and the reaction will be a raising-the-hair-on-the-back-of-the-neck reflex as the thought will be of the ramifications of Morey v. Everbank and Air Craun, Inc., 93 So. 3d 482 (Fla. 1st DCA 2012), issued on July 24, 2012.

In the Morey decision, life insurance proceeds--which are generally exempt under Florida law from claims by the insured's creditors--were paid to the insured's revocable trust that contained a clause directing that all of the insured's debts were to be satisfied with trust assets. In its decision, the First DCA held that such a clause acted to negate the statutory creditor protection and, as a result, the insurance proceeds were available for the payment of the insured's claims. This article dissects the opinion, presents a conflicting decision, discusses which view is correct, and ultimately, discusses simple yet creative drafting techniques that will avoid the issue altogether.

Case Overview

The Morey decision involves the appeal of a decision from the circuit court for Clay County, in which the court determined that particular life insurance proceeds payable upon the decedent's death, which in certain circumstances under Florida law are exempt from the claims of the decedent's creditors, were, in this instance, not so exempt.

The pertinent facts (as to this article) follow. Carlton W. Morey, Jr., executed a self-settled declaration of trust on January 19, 2000, which provided that the trustees were to pay all expenses of Mr. Morey's last illness and funeral, expenses of administering Mr. Morey's estate, all of his enforceable debts (excluding those secured by life insurance or real or personal property), and all estate and other taxes (payment provisions). The following month, Mr. Morey applied to Nationwide Life Insurance Company for two life insurance policies, each with a death benefit in the amount of $250,000. The application named the "Carl W. Morey Trust" as the beneficiary. On October 1, 2004, Mr. Morey amended and restated the declaration of trust to provide that the residue was to be held in a further trust to be called the "Morey Family Trust." Mr. Morey did not, however, execute a corresponding amendment to the beneficiary designation for the insurance, so upon Mr. Morey's death, the insurance proceeds were paid to the trustees of the declaration of trust, not to the trustees of the Morey Family Trust. Because the payment provisions provided that trust assets were to be used for the payment of all of the decedent's debts and expenses, Mr. Morey's brother, who was the successor trustee of the declaration of trust, filed a petition requesting a ruling confirming that the proceeds payable to the declaration of trust (1) were exempt from all "death obligations" and unavailable to Mr. Morey's estate or its creditors. The circuit court held that the payment provisions superseded any applicable statutory protection and, therefore, the proceeds were available for the payment

of Mr. Morey's debts and expenses. The trustee appealed.

The trustee relied on F.S. [section]222.13(1), which provides, in pertinent part, as follows:

(1) Whenever any person residing in the state shall die leaving insurance on his or her life, the said insurance shall inure exclusively to the benefit of the person for whose use and benefit such insurance is designated in the policy, and the proceeds thereof shall be exempt from the claims of creditors of the insured unless the insurance policy or a valid assignment thereof provides otherwise....

The statute states that the proceeds must be paid to a "person." To define "person" in this context, the First DCA cited an additional provision under Florida law, namely, F.S. [section]733.808(1), which provides, in pertinent part, as follows:

(1) Death benefits of any kind, including, but not limited to, proceeds of:

(a) An individual life insurance policy ... may be made payable to the trustee under a trust agreement or declaration of trust in existence at the time of the death of the insured.... It shall not be necessary to the validity of the trust agreement or declaration of trust, whether revocable or irrevocable, that it have a trust corpus other than the right of the trustee to receive death benefits. (2)

The First DCA concluded that the combination of F.S. [section]222.13(1) and F.S. [section]733.808(1) clarifies that the mere fact that life insurance proceeds are payable to a trust, rather than directly to a natural person, does not deprive such proceeds of their exempt status. (3) The First DCA explained, however, that although F.S. [section]733.808(1) authorizes the payment of insurance proceeds to a trust, the creditor exemption in F.S. [section]222.13(1) does not require the policy's owner to take advantage of the exemption, as the second sentence of F.S. [section]222.13(1) (estate payment exception) would dictate otherwise:

Notwithstanding the foregoing, whenever the insurance, by designation or otherwise, is payable to the insured or to the insured's estate or to his or her executors, administrators, or assigns, the insurance proceeds shall become a part of the insured's estate for all purposes and shall be administered by the personal representative of the estate of the insured in accordance with the probate laws of the state...