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Trusts and Estates

Dudek v. Dudek

Cite as D073491
Filed April 10, 2019
California Court of Appeal, Fourth District

By Golnaz Yazdchi
Sheppard Mullin Richter & Hampton LLP
https://www.sheppardmullin.com

Headnote:  Probate Litigation – Irrevocable Life Insurance Trusts – Funding

Summary: Although the insurance company rejected as technically insufficient the trustor’s beneficiary designation forms naming the trustee as the owner of the policy, the trustor had nevertheless properly gifted the policy to the trust and relinquished all rights to change the beneficiaries. 

Case Brief:

J.D. established an irrevocable life insurance trust naming David as the initial trustee, and a beneficiary.  The trust document, executed by J.D. as the trustor, and David as the trustee, stated the trustor’s intention to transfer a life insurance policy to the trust.  J.D. further stated that he “retain[ed] no right, title, or interest in any trust property.”  J.D. submitted a change of ownership and beneficiary designation form to the insurance company, requesting that the owner and beneficiary of the policy be changed to David, as trustee of the trust.  J.D. and David both signed the forms.  The insurance company rejected the change of ownership forms because J.D. had made handwritten interlineations on the forms without initialing them.  J.D. never resubmitted corrected change of ownership forms.  Instead, six years later, J.D. executed and submitted new beneficiary designation forms naming Respondents as the new beneficiaries, which the insurance company accepted.  After J.D.’s death, the insurance company rejected David’s claim to the proceeds.  When David petitioned to recover the proceeds distributed to Respondents, the trial court sustained the Respondents’ demurrer without leave to amend, finding that J.D. failed to fund the trust with the insurance policy; therefore, no trust was ever created.

The Court of Appeal reversed.  The rules for making gifts apply when determining whether property is effectively transferred into an irrevocable trust.  There must be donative intent,  actual or symbolic delivery, and the donee must accept the gift.  David properly alleged all of the elements necessary to constitute an effective donative transfer of the policy from J.D. to David, as trustee of the trust.  J.D. executed a trust document evidencing his intent to effectuate an immediate, complete and irrevocable transfer of his policy to David, as trustee.   David signed the trust document, as trustee, signifying his acceptance of the gift.  J.D.’s failure to complete the change of ownership forms properly did not invalidate or revoke the gift of the policy to the trust, once the gift was made.  Thus, J.D., who no longer owned the policy, could not change the beneficiaries.   

https://www.courts.ca.gov/opinions/documents/D073491.PDF

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