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Question:
Rosewood died as a result of an automobile accident survived only by his wife, who had been blind and seriously paralyzed for many years.
Rosewood had taken out a life insurance policy on his life in the face amount of $50,000, listing a business partner, Green as the beneficiary. At the time Rosewood listed Green, he told Green: "Your wife is a lovely girl. You know I am fond of her. I trust that you will spend the money for her benefit." Green told his wife about the conversation when it occurred and she, subsequently, thanked Rosewood.
Rosewood had taken out another policy of insurance, in the face amount of $21,000, also payable to Green as the beneficiary. He told Green about the policy and then said to him: "My wife has medical expenses of about $7,000 per year and probably won't last over three years after I go (when something happens to me)."
Both policies contained double-indemnity clauses for accidental death.
About two hours before Rosewood started his fatal automobile trip, he met Rosco in a bar. He knew Rosco only slightly as a fellow patron of the bar. After a few drinks, he told Roscoe in great detail about the helpless condition of his wife. He drew up a list showing the amount of money payments on the mortgage of his house, heat and electricity bills, clothing for his wife, and food and other necessary living expenses for her, exclusive of medical expenses, all of which added up to $725 per month. He told Rosco he was about to drive to an old book store on the outskirts of town, where he was sure that some of the many paintings contained in a battered trunk were valuable works of old masters. He told Rosco that the trunk full of paintings could be bought for fifty dollars ($50). He said: "If something happens to me before I get there, I want you to buy them for the future protection of my wife, to take care of all her expenses." He then gave Rosco the address of the book store. The next day, Rosco bought the trunk full of paintings for fifty dollars ($50) and subsequently sold them for $100,000. In fact, they had a fair market value of $200,000.
Mrs. Green and Mrs. Rosewood claim that the various sums of money are held in trust for each of them. State whether and to what extent you agree with them.
Answer
In order to determine the validity of the claim of Mr. Green and Mrs. Rosewood, an analysis of the facts will have to be made to determine whether or not any trusts were actually created for their benefit.
Because Rosewood died in the accident, Mrs. Rosewood, as the survivor, may bring an action in tort for wrongful death. Her damages would include loss of support, services, companionship, and consortium.
When Rosewood took out the $50,000 life insurance policy, he may have created a valid express trust in favor of Mrs. Green. He seems to have separated legal title by taking the policy out in his own name and creating equitable title by listing Green as the beneficiary.
It is arguable whether Rosewood had the intent to create a trust. His statement that Mrs. Green is lovely and that he wanted Green to spend the policy proceeds for her benefit may only have been precatory language, or his statement may have been sufficient to constitute intent to create a valid trust.
The policy proceeds constitute the identifiable trust res, and Rosewood had the required present property interest in them because he owned the policy. Rosewood's statement to Green relating to his wife may be sufficient to vest active powers in Green as trustee.
Providing that Rosewood's intent to create a trust for Green can be established, a valid trust exists because the other elements are present. There may, however, be violation of the statute of wills because the trust, in effect, constitutes a testamentary disposition without proper execution.
If the trust was valid, Mrs. Green would be entitled to the $50,000 when the trust proceeds upon Rosewood's death. The fact that the policy had a double indemnity clause for accidental death means that the trust may receive $100,000 if Rosewood's death in the auto accident qualifies as an accidental death.
When Rosewood took out the $21,000 policy, he may have created a valid express trust in favor of his wife as the beneficiary. He separated legal title by taking out the policy in his own name, from equitable title by listing Green as the beneficiary. Mrs. Rosewood is the intended beneficiary according to Rosewood's statement to Green that the money be used for her medical expenses. This is a valid trust purpose. However, it is arguable whether Rosewood had the required intent to create the trust or whether it could be used for medical expenses.
His statement about his wife's medical expenses may only be precatory language, not strictly enforceable by a court, but more of a plea on Green's morals. On the other hand, it could be creating a support trust as the amount of the policy was exactly the same as his calculated expenses for his wife of $7,000 per year. The policy proceeds constitute the trust res because Rosewood presently owns them as the settlor. Rosewood's statement about his wife's medical expenses coupled with his notice to Green about the expenses may be sufficient to vest active trust powers in Green.
Providing that Rosewood's intent to create the trust can be established, and that active trustee powers in Green can be shown, a valid trust in favor of Mrs. Rosewood may exist. If so, the trust would take the $21,000 proceeds when the trust became effective on Rosewood's death. The fact that he died as the result of the auto accident probably would not entitle her to $42,000 because of the double indemnity clause. He may have intended her to get no more than $21,000 from the trust.
When Rosewood met Roscoe, discussed his wife's expenses with him in detail, and directed him to buy and sell the paintings for her future protection, he may have established a trust. Mrs. Rosewood would be the intended beneficiary, as evidenced by Rosewood's statement that the money was to be used for her future protection, thus she may have the requisite standing to enforce this. However, Rosewood may have not possessed the necessary intent since he had already resolved his wife's expenses in the previous trust instrument.
It is arguable whether Rosewood had the requisite intent to create a trust for two reasons. First, his statement to Roscoe about taking care of his wife in the future and telling Roscoe about the paintings, may have been mere precatory language and not a trust expression intent because he had consumed a few alcoholic beverages before talking to Roscoe.
The fact that Roscoe was to act as a trustee by procuring the trust res, may have adequately separated legal and equitable title in Mrs. Rosewood. Thereby, giving Roscoe active powers as trustee, since it was his duty to procure the trust res and to use it to look after Mrs. Rosewood.
On the other hand the trust concept will probably fail, since there are several problems with the trust res. It may not be sufficiently identifiable because Rosewood's instructions about the trust and the paintings it contained were only vaguely described to Roscoe. Finally, Rosewood had no present property interest in the paintings, or their cash value, as they were not presently owned by Rosewood. Roscoe's payment of $50 could not constitute the trust res because he did not pay it until the next day.
As a result, no valid express trust existed. However, in order to prevent Rosco's unjust enrichment from the information Rosewood gave him, the court could impose a constructive trust. If it did, Mrs. Rosewood would be entitled to some portion of the $100,000, since Rosco would be perceived as holding those funds for the benefit of Mrs. Rosewood. However, Roscoe would probably be entitled to some portion of the monies, either for his effort or as an agent. If Roscoe was acting as Rosewood's agent, he had a fiduciary duty to get the highest possible value for the paintings. His failure to recognize or discover the true value of paintings, may be a breach of duty, for which he could be held liable.
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