Morey v. Everbank

Carlton Morey executed the Carlton W. Morey, Jr. Revocable Trust, which directed that, following Carlton’s death, trust assets must be distributed to cover estate claims. Shortly after establishing the trust, Carlton took out a life insurance policy naming the revocable trust as the beneficiary. Approximately four years later, Carlton amended the trust to add a provision that the remaining assets of the trust, after the payment of estate claims, would pass into the newly created Morey Family Trust for the benefit of his three daughters. By the time of Carlton’s death, his financial circumstances had deteriorated dramatically, and the estate’s available liquid assets covered only one-tenth of the estate’s liabilities. Accordingly, satisfying all estate claims would have required the entirety of the life insurance proceeds. Kevin Morey (plaintiff), as trustee for the revocable trust, petitioned to have the life insurance proceeds declared unavailable to Carlton’s estate or its creditors so that the proceeds could pass unimpeded into the Morey Family Trust for the benefit of Carlton’s daughters. Kevin argued that (1) the general directive in the revocable trust to use trust assets to pay estate claims was insufficient to waive the statutory exemption protecting life insurance proceeds from creditors; and (2) the trust should be reformed to account for the deterioration in Carlton’s finances. The trial court ruled that the life insurance proceeds were not exempt from Carlton’s estate creditors and that reformation was inappropriate. Kevin appealed.