Morey v. Everbank: Three Drafting Tips to Avoid a Troubling Decision

In the Morey case, a court decided that life insurance money was not protected from the insured person’s debts, even though Florida law usually protects it. This is important for trusts and estates because it affects how people’s money is handled after they die. Carlton Morey set up a trust to pay for his last expenses and debts. Later, he changed the trust, but forgot to update the beneficiary of his life insurance policies. When he died, the insurance money went to the old trust. His brother, the new trustee, asked the court to confirm that the money was not available for Carlton’s debts. The court decided that the money could be used to pay his debts. The trustee appealed the decision. The law says that life insurance proceeds can be paid to a trust and still be protected from creditors. However, if the insurance is payable to the person who passed away or their estate, then the money is not protected and can be used to pay off debts. The court said that an insurance policy is like a contract, and the rules about creditors getting the money from the policy can be changed. The court also said that a law about revocable trusts doesn’t automatically protect the money from the insurance policy. Another court in Arizona had a similar case and made a similar decision. The Arizona appellate court disagreed with the trial court’s decision about using life insurance to pay debts. They said that the trust and will didn’t specifically mention using life insurance to pay debts, and that there were other assets to use instead. They emphasized that any waiver of the exemption must be clearly stated. The First DCA also ruled that a general directive to pay debts from the estate doesn’t waive the exemption. The question is whether the First DCA made the right decision, considering the importance of being specific in waiving a right under Florida law. In Florida, if a law doesn’t say that a specific waiver is needed, you can usually waive it in a general way. For example, the Florida Trust Code says that only 23 of its provisions are mandatory, so the rest can be changed in the trust agreement without needing a specific waiver. Even before a specific legal case, Florida law has consistently shown that general waivers can be enough to give up specific rights. For example, a court case involved an agreement before marriage, where the court said that a general waiver of “all rights” includes giving up specific rights without even mentioning them. The court also said that a general waiver can include rights that didn’t even exist when the waiver was made. Basically, unless the law says otherwise, a general waiver can cover a lot of different rights. The Morey decision in Florida suggests that general waivers in estate planning documents can have unintended consequences. The lesson for estate planning attorneys is to carefully consider the impact of seemingly simple provisions in their drafting. It’s important to avoid potential issues by drafting documents to be clear and specific. For example, setting up an irrevocable trust to hold insurance proceeds can protect them from creditors and ensure they go to the intended beneficiaries. It’s important to consider the needs of the client and ensure the protection of assets for beneficiaries. If the client wants to keep the insurance proceeds separate from other funds, one option is to add a clause in the trust that specifically excludes the insurance proceeds from being used to pay off any debts or expenses. This helps to protect the insurance money from being claimed by creditors. Another option is to create a separate trust specifically for the insurance proceeds, to keep them separate from other assets and protect them from being used to pay off debts. The beneficiary designation for the insurance policy is like a set of instructions for who gets the money from the policy. It says that the money should be divided among the children and held in a trust. This means that the money from the policy will be combined with the trust funds and managed together for the children. And if the trust rules change in the future, the beneficiary designation will need to be changed too. Another solution is to set up a trust where the insurance proceeds will go. This trust will have a specific provision that avoids using the insurance money to pay off the person’s debts and expenses. Instead, the remaining money in the trust, after debts and expenses are paid, will be divided among the descendants and distributed according to the terms of the trust. This ensures that the insurance money is used for its intended purpose and not mixed with other assets. To make sure the insurance money goes into the trust and keeps its special status, the person making the trust needs to say that the money will be divided up according to a certain section of the trust. They also need to update the beneficiary designation for the insurance to match. If the trust is changed later, the insurance beneficiary designation also needs to be changed. Should the law change to protect insurance proceeds paid to a trust after the Morey decision? A committee is looking into it, but it’s unclear if a change is really needed. Estate planners think revocable trusts should be treated like wills, but the current law treats them differently. If a change is needed, how should it be done? For now, estate planners need to be careful when drafting documents to avoid issues like the one in the Morey case. This article discusses a Florida court case called Morey v. Everbank. It talks about how the court defined the word “person” and how it could have included a “trust” in that definition. The article is based on a publication by a lawyer, and it discusses the impact of the court decision nationally. It was submitted by the Real Property, Probate and Trust Section.

Source: https://www.floridabar.org/the-florida-bar-journal/morey-v-everbank-three-drafting-tips-to-avoid-a-troubling-decision/