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JOHN WESLEY BAYS                                                         APPELLANT


                 ON REVIEW FROM COURT OF APPEALS
V.                  CASE NO. 2012-CA-002218-MR
         KNOX CIRCUIT COURT NOS. 07-CI-00371, 07-CI-00631 AND
                            09-CI-00246


KRISTIE D. KIPHART, INDIVIDUALLY AND AS
TRUSTEE OF THE DEMAND RIGHT
IRREVOCABLE TRUST FOR BRYCE A. BAYS                                       APPELLEE


                 OPINION OF THE COURT BY JUSTICE NOBLE

                                    AFFIRMING

      This case presents the question whether a dying spouse's decision to

remove the surviving spouse as a life-insurance beneficiary and to name

someone else can constitute fraud on the surviving spouse's statutory elective

share. Like the Court of Appeals, this Court concludes that it cannot.

                                   I. Background

      John Wesley Bays and Carole Kiphart married in 2000. They had one

child, Bryce Bays. In 2001, John and Carole executed reciprocal wills. Carole

was a physician and had a substantial income.

      In 2000, Carole obtained a life-insurance policy through Prudential

Insurance Company for $125,000. Her husband was initially named as a

beneficiary of this policy, but little else is known about it. Presumably, it is

standard term life insurance.
       In January 2002, she also obtained a $750,000 policy from American

General Life Insurance Company, with the benefits payable 80% to her

husband and 20% to her son. Although this policy was generally a term life

policy (with a thirty-year term), it had two facets that set it apart from ordinary

term-life insurance. First, it was a return-of-premium policy, meaning that at

the end of the term, if Carole lived, all of her premiums would be returned to

her. Under this provision, the policy built up a cash value over time, and could

be surrendered in exchange for this cash value. The cash value did not build

up linearly, representing the full value of the premiums from the beginning.

Instead, it had no cash value for its first five years, with a cash value beginning

to accrue at the end of the sixth year. Even then, the cash value was

substantially less than the premiums paid. The cash value was not to equal the

premiums paid until the end of the thirty-year term. (Carole would die shortly

before the end of the sixth year of the policy, that is, five years and ten months

into the policy.)

      The policy also included a terminal-illness accelerated benefit rider.

Under that provision, if Carole was diagnosed with a terminal illness and was

expected to die within twelve months, she could call up to 50% of the proceeds

of the policy, to a maximum of $250,000. Exercising this option would have

reduced the benefit payable on her death to any named beneficiary.

      Carole was diagnosed with cancer in December 2006. Despite this

diagnosis, Carole never invoked the terminal-illness acceleration rider on her

American General Policy.



                                         2
       In September 2007, Carole was admitted to the Markey Cancer Center in

Lexington, Kentucky. While there, and without John's knowledge, she executed

a new will that largely disinherited her husband. She had relatively liquid

assets (such as a certificate of deposit for more than $90,000, multiple bank

accounts, and a retirement account) and other valuable personal property

(such as horses), with a combined value of over $150,000. Nonetheless, she

mostly left John only personal and household effects in the new will. The will

also purported to "bar ... dower and all statutory marital rights he may have in

[her] estate." The will included a holographic codicil disposing of the bulk of the

estate, with many specific bequests of cash, horses, a truck, and other

property, largely to members of Carole's family.

      Around the same time, Carole also created two trusts, the Demand Right

Irrevocable Trust for Bryce A. Bays and the Carole Kiphart Bays Living Trust.

At that time, she removed John and Bryce' as beneficiaries on the life-

insurance policies, and instead named the trusts as the beneficiaries. The

American General policy's proceeds were to be paid into the Demand Right

Irrevocable Trust, and the Prudential policy's proceeds were to be paid into the

Living Trust.

      Carole died on October 28, 2007. In November 2007, Carole's September

2007 will was admitted to probate, and her sister, Kristie Kiphart, was

appointed executrix of the estate under the September 2007 will. Kristie was

also trustee of both trusts. She invested the proceeds of the American General


      1 The Prudential policy's beneficiary had already been changed earlier in 2007
to Bryce Bays.
policy with Raymond James 86 Associates, and the proceeds of the Prudential

policy were paid into the Knox Circuit Court Clerk, under an agreed order.

      John quickly began challenging what had occurred. In December, he

renounced the will under KRS 392.080, and instead elected to take his spousal

share under KRS 392.020. He also filed a declaration of rights action with

respect to the will, seeking to recover the portion of his spousal share that may

have been delivered to various legatees under the will and to the beneficiaries

of the life insurance policies. His primary theory was that there was fraud on

his statutory spousal interest because the beneficiaries of the insurance

policies had been changed and the trusts established without his knowledge or

consent, and the policies (and their proceeds) were part of Carole's estate.

      In 2008, John also filed a separate action to recover money that he

claimed was missing from a safe-deposit box he had shared with his wife. And

in 2009, he sued to have the September 2007 will declared void because it was

not executed in accordance with KRS 394.040. The Knox Circuit Court

consolidated all three actions.

      The circuit court held in John's favor with respect to the will, declaring it

void. The will itself proclaimed that it had been executed in Louisville, although

there is no question that Carole signed it in Lexington. Additionally, one of the

witnesses did not actually see Carole sign the will and, instead, later signed as

a witness in Louisville, as did the notary who certified the signatures. Thus, the

will clearly failed to meet the requirements of KRS 394.040, which states that a

non-holographic will is valid only if the testator signs the will "in the presence



                                         4
of at least two (2) credible witnesses, who shall subscribe the will with their

names in the presence of the testator, and in the presence of each other."

      The other claims were decided in a bench trial in 2011. The circuit court

denied John's claim about the cash that he claimed was supposed to be in the

safe-deposit box, concluding there was insufficient evidence. But the court

found in John's favor with respect to the claimed fraud on his statutory

spousal interest. Specifically, the court found that John did not know or

consent to the changes of insurance-policy beneficiaries or the creation of the

trusts to be funded with the proceeds of the policies. And the court concluded

that those were "fraudulent [inter] vivos transfers." Moreover, the court held

that the insurance policies were personalty to be considered in calculating

John's share of his wife's estate. (By statute, he is entitled to one half of all

surplus personalty after renouncing the will.) Based on this, the court entered

judgment in John's favor for $454,093.38, plus interest. This amount

represented one half of the insurance proceeds and other property that was

part of Carole's estate at the time of her death after an off-set representing the

ownership interests of John and Bryce in some of those assets.

      The Court of Appeals, by a split vote, reversed and remanded. The court

concluded that a surviving husband's statutory spousal interest does not

attach to the proceeds of life insurance because they are never part of the

decedent's estate. Instead, all the decedent ever owned was the insurance

policies themselves, which are separable from any benefits payable on death.

The court noted that to hold otherwise would "create chaos in the realm of

estate planning" and "would also place insurance companies in an untenable
                                          5
position of honoring the contract of an insured in the face of a dower or curtesy

claim by a surviving spouse." The court also noted that Carole, as the owner of

the insurance policies, had an absolute right to change the beneficiaries of

those policies without John's knowledge or consent.

       John sought discretionary review, which this Court granted.

                                      II. Analysis

       A surviving spouse is generally entitled, by law, to a share of a dead

spouse's estate. That share includes a portion of the dead spouse's real estate,

the amount of which depends on whether there is a will that the surviving

spouse elects against, and, in every case, "an absolute estate in one-half (1 / 2)

of the surplus personalty left by the decedent." KRS 392.020. At common law,

this share, or some version of it, was called dower (for widows) and curtesy (for

widowers). 2 That share cannot be defeated even by a will excluding the

surviving spouse and disposing of all the decedent's estate. See KRS 392.080

(allowing the surviving spouse to renounce the will and claim the statutory

share, albeit at a reduced level with respect to real estate).

       Nevertheless, dying spouses sometimes attempt to defeat the surviving

spouse's statutory share by disposing of property prior to death through inter



       2At common law, the rights differed. Dower was a one-third right the widow
had in the deceased husband's real estate, whereas curtesy was a right to all of the
deceased wife's real property, if children were born of the marriage. Both interests
were life estates, rather than fee estates. Compare Black's Law Dictionary (10th ed.
2014) (definitions of dower), with id. (definition of curtesy).
        Given the modern departure from these common-law interests, the share is
better referred to as a statutory spousal share, or some variation of that term, instead
of the traditional terms. Since it can be taken in lieu of a bequest in a will, where the
surviving spouse elects against or renounces the will, it is often called an elective
share.
                                            6
vivos transfer of assets to third parties. The schemes used in such attempts

range from simple transfers of cash, Benge v. Barnett, 217 S.W.2d 782, 782

(Ky. 1949); Martin v. Martin, 138 S.W.2d 509, 511 (Ky. 1940), to more complex

deals, such as purchasing real estate in the name of another person, Rowe v.

Ratliff 104 S.W.2d 437, 438 (Ky. 1937), or placing cash into joint accounts

with third parties, Harris v. Rock, 799 S.W.2d 10, 11 (Ky. 1990).

      Such attempts, when directed to defeating the surviving spouse's share

rather than constituting bona fide gifts, are deemed fraudulent. And this Court

and its predecessor have repeatedly stated that such attempts are improper

and may be unwound, at least to the extent needed to fund the surviving

spouse's share. See Harris, 799 S.W.2d at 11; Martin, 138 S.W.2d at 515;

Benge, 217 S.W.2d at 784; Rowe, 104 S.W.2d at 439. The rule, stated simply

(and traditionally), is that "a man may not make a voluntary transfer of either

his real or personal estate with the intent to prevent his wife, or intended wife,

from sharing in such property at his death and that the wife, on the husband's

death, may assert her marital rights in such property in the hands of the

donee." Martin, 138 S.W.2d at 515. Although the common-law rights

distinguished between husband and wife, the modern statute to which this rule

attaches is gender neutral, granting the same rights to both spouses, and thus

the same rule applies to a woman who attempts to defeat her husband's

spousal rights, as has been alleged in this case.

      Here, the alleged fraudulent scheme consisted of changing the named

beneficiaries on a pair of life insurance policies shortly before Carole's death,

and making them payable into a pair of trusts for the benefit of her minor son.
                                         7
As noted above, the trial court concluded that these acts were "fraudulent

[inter] vivos transfers," and thus invoked the fraud rule to recapture part of the

insurance proceeds.

      John makes much of this fraud finding, arguing that appellate review

should be limited to the clear-error standard as a result. The Court of Appeals

addressed this claim by concluding that "because ... the trial court erred in its

characterization of the life insurance proceeds as personalty, its finding of

fraud is unnecessary and irrelevant." John objects that in so concluding, the

Court of Appeals overlooked that his claim was one of fraud on his statutory

spousal interest, and not simply the interpretation of insurance policies in the

estate setting.

      This Court disagrees. The trial court's finding is premised on a legal

conclusion: that the life-insurance policies were personalty and thus the

proceeds of the life-insurance policies were also personalty. From this, the

court reasoned that the proceeds were part of Carole's estate at the time she

died. This was a conclusion of law, not fact, and as such it is reviewed de novo.

      Whether any transactions related to the proceeds may be found to be

fraudulent depends first on their being part of the decedent's property during

her lifetime. It is only if the proceeds are part of her property that a claim of

fraud becomes relevant because the surviving spouse's statutory share extends

only to property that belonged to the dead spouse during her lifetime. If the




                                          8
proceeds were not part of the dead spouse's property, a finding of fraud would

not have to be made. 3

       Indeed, this case, despite the various arguments made by the parties,

turns on that simple question. Are the proceeds of a life-insurance policy

payable to a third-party beneficiary part of the decedent's property and thus

subject to the surviving spouse's statutory interest and, by extension,

recoverable by a claim of fraud on the surviving spouse's statutory share? The

answer is no.

       The trial court's approach in this case confused the life-insurance

policies, which were owned by Carole, with their proceeds, which were never

owned by Carole and would never have become part of her estate. Indeed, the

trial court's reasoning in this respect depended on the conclusion that "[title

insurance policies ... are personalty of the estate." That may be true, in a

sense, but we are concerned not with the policies themselves, but with their

proceeds.

       This Court's predecessor held that the proceeds of life insurance, at least

where the insured has the contractual right to change beneficiaries, cannot be

recovered as part of the surviving spouse's statutory share. See Farley v. First

Nat. Bank, 61 S.W.2d 1059, 1061 (Ky. 1933). In Farley, the decedent changed

the beneficiary from his estate, in which his wife, though estranged at the time,

would have shared, to his children, and then committed suicide. Id. at 1060.



       3 The order of the trial court's conclusions illustrates this error. It first found
that the changes of beneficiaries were fraudulent inter vivos transfers, and then
concluded that the policies were part of Carole's personalty (and thus so were the
proceeds). This reverses the order in which the issues should have been analyzed.
                                              9
The wife challenged the beneficiary change as "fraud ... of [her] marital rights."

Id. at 1061. The court denied the claim, stating: "Where the right to change the

beneficiary is reserved by the insured, this right is a part of the contract from

its inception, and may be exercised by the insured at any time before his death,

for not until then does the right of the named beneficiary become vested." Id.

The Court further stated that "[t]he named beneficiary in a policy of insurance

which provided for a change of beneficiaries has no vested interest during the

life of the insured; his interest is a mere expectancy." Id.

      The Court concluded that "[t]he right of the insured to make the change

is absolute unless equities have intervened, which is not the case here, and the

beneficiary cannot prevent it by objecting." Id. (emphasis added). The

soundness of this point was illustrated by the fact that "[t]he insured may

permit the policy to lapse, and no one can complain." Id. The Court further

explained its conclusion by noting:

      It is an essential part of the contract that he retains control of the
      policy, at least, to the extent of changing the beneficiary. Whether
      the change shall be made is wholly under his control and the
      manner of making it is entirely a matter between him and the
      insurer.

Id.

      Similarly, in National Life & Acc. Ins. Co. v. Walker,   246 S.W.2d 139, 139

(Ky. 1952), the decedent's wife was originally named the beneficiary of three

life-insurance policies, but the beneficiary was changed to the decedent's

mother. The wife in that case did not claim fraud on her marital interest, per

se, but instead claimed that the change of beneficiaries violated KRS 297.140

(now KRS 304.14-340), which makes the proceeds of any life-insurance policy

                                         10
payable to a wife part of her separate estate (and thus protected from the

husband's creditors), and allows a woman to take out a policy on her husband,

without his consent, with the proceeds again inuring only to her benefit. But

the policy in Walker still allowed the insured, the husband, to change the

beneficiary, and the evidence established that the husband was the contracting

party, not the wife. Id. at 140.

      Again, the Court held "that a designated beneficiary in a policy of

insurance has no vested interest therein where the insured is authorized by the

contract to change the beneficiary at his pleasure with the consent of the

insurer." Id. Because the policy allowed the husband to change the beneficiary,

and he did so before his death, the wife "never acquired a vested right in the

proceeds which prevented the change in the beneficiary." Id. at 141.

      These cases alone would appear to control the outcome of this case.

John at most had a contingent interest, and Carole retained an absolute

contractual right to change the beneficiary of her policies. Her decision to

exercise that right cannot be fraud on John's statutory interest because she

never owned the proceeds of the insurance policies. The proceeds would thus

never become part of her estate, and would instead pass outside it. 4 Even if she

intentionally acted to defeat any claim in the proceeds, such conduct would not

be fraud on John's statutory interest because that interest could never attach

to those proceeds. His interest was at best contingent, created only by Carole's




       4 They would have, of course, if her estate had been named her beneficiary. But

those are not the facts of this case.
                                          11
naming him as a beneficiary, and that interest was defeated when she named

another beneficiary and subsequently died.

      The trial court attempted to avoid the effect of this law by treating the

insurance policies like joint bank accounts. The court emphasized that the

larger policy had a terminal-illness acceleration rider, by which Carole could

have accessed a portion of the proceeds upon her diagnosis with a terminal

illness. Because the policy had an existing cash value of sorts, the court

reasoned, it was no different than any other property that Carole owned.

      But as the Court of Appeals pointed out, the rider limited the total that

could be accessed in this manner to $250,000, far short of the full benefits to

be paid. Thus, even if the trial court was correct, only that amount could be

considered as part of Carole's personalty.

      More importantly, however, even if a life-insurance policy has a cash

value, it does not attach to the decedent's estate in such a way as to give a

surviving spouse a statutory interest in it. As this Court's predecessor noted in

Farley, although a "policy of life insurance having a cash surrender value is

sometimes spoken of as property, ... it has attributes different from other forms

of property." 61 S.W.2d at 1061. Chief among those differences is that "Mire

insurance is chiefly for the purpose of creating an asset at the death of the

insured for the benefit of his estate or of a named beneficiary." Id. Again,

"[w]here the right to change the beneficiary is reserved by the insured, this

right is a part of the contract from its inception, and may be exercised by the

insured at any time before his death, for not until then does the right of the

named beneficiary become vested." Id.
                                        12
      It could be argued that the trial court's joint-account analogy was

accurate at least with respect to the $250,000 in proceeds that Carole could

have accelerated. Presumably she could have met the policy's requirements of

proving a terminal illness and thus could have exercised her rights under the

rider. Thus, she had a contractual option on $250,000 in proceeds that she

had a right to. But the trial court's analogy breaks down because Carole never

exercised her option. Unlike a joint bank account, which the decedent had

possession of during her life, Carole never had possession of the $250,000 in

proceeds.

      And the statutory share is limited to "surplus personalty left by the

decedent." KRS 392.020 (emphasis added). If Carole never had those proceeds,

she could not have left them as part of her estate. This language applies

specifically to property that is possessed at the time of death. Harris, 799

S.W.2d at 11 ("Surplus personalty as used in the statute means the personalty

remaining after the payment of the debts, funeral expenses, charges of

administration, and widows exemptions have been deducted from the gross

personalty possessed by the decedent at the time of his death."). If Carole never

possessed the proceeds, then they never will pass through probate. And when a

spouse elects against a will, as John did here, that spouse is limited to the

statutory share provided in KRS 392.020.

      Carole retained the right to change the beneficiaries of her policies. She

owned the policies, and decisions with respect to them belonged exclusively to

her. Similarly, the option to exercise the acceleration clause belonged solely to

Carole. John could not have forced her to exercise that option, thereby
                                        13
converting the policy into cash, any more than he could have forced her to

continue paying the premiums on the policy if she chose to discontinue it.

Upon her death, the acceleration option evaporated and was displaced by the

insurer's obligation to pay out the policy to the named beneficiaries. The

existence of such an option was simply irrelevant until and unless Carole

exercised it. In this case, she did not. Thus, any cash value she could have

extracted from the policy never manifested and thus could not have been part

of her estate.

      Moreover, for property that Carole did not possess at the time of her

death to be imputed to her estate, to be treated as surplus personalty, there

must be proof of fraud. See Harris, 799 S.W.2d at 15 ("So, how does this

property, these joint accounts, get to be surplus at death, subject to the dower

statute? It doesn't, unless there is proof someone has been defrauded."). This is

where the joint-account analog breaks down even further. There is no

suggestion of fraud with respect to Carole's failure to invoke the terminal-

illness rider. The trial court found that changing the beneficiaries on the

policies constituted fraudulent inter vivos transfers but said nothing about

Carole's failure to invoke the rider. And there is no evidence from which fraud

could be inferred. There was not, for example, evidence of an agreement

between Carole and John by which she would accelerate the proceeds to pay

for her care and thus leave the rest of her property intact for him to use after

her death. If there was such an agreement, but Carole, instead of calling the




                                        14
rider, actually used up money in her bank accounts, a finding of fraud might

be justified. 5

       In the absence of such fraud, there can be no fraud on John's statutory

share. Indeed, there is no inter vivos transfer in the first place to undo, unlike

with a true joint account, because all Carole did was decline to draw assets

into her estate while living.

       Finally, we recognize that Farley qualified the otherwise absolute "right of

the insured to make the change" by noting that the situation could be different

where "equities have intervened." 61 S.W.2d at 1061. But like in Farley, that

"is not the case here." Id. John was able to renounce his wife's will and obtain

his statutory share of the property that was actually part of her estate (or

should have been). He was not completely disinherited. Moreover, the life-

insurance proceeds were not put to some seemingly improper use, such as

being paid to an adulterous paramour or to a shady con artist who had

connived his way into Carole's life. They were, instead, paid into trust for the

benefit of Carol's and John's young child, Bryce. Surely that is not the type of

scenario for which equity would give John a remedy—possibly at the expense of

his own child.


       5 This also explains why the $100-million example employed by the dissent in

the Court of Appeals in this case does not undermine the rule laid out above that life
insurance proceeds are not to be treated as part of the decedent's personalty. The
dissent offered the example of a spouse With a $101-million cash estate. The spouse
has a terminal illness and spends $100 million on a one-time premium to buy a $95-
million life insurance policy payable to someone other than the surviving spouse. In
such a case, with the vast bulk of the estate being diverted at the last minute to life
insurance, atrial court would be justified in finding a fraudulent transfer. In our case,
however, the analogous transfers are the regular payments of the premiums of about
$1,300 per year. There is no reason to believe those payments were attempts to
defraud John's statutory share.
                                            15
                                 III. Conclusion

      A life-insurance beneficiary has only a contingent interest in the benefits

of the policy, and where the insured retains the right to change the beneficiary,

that right is virtually absolute. Where a dying spouse exercises that right to

remove the surviving spouse as a named beneficiary and instead names a trust

for the benefit of the minor child of the marriage, the surviving spouse cannot

claim fraud on his or her statutory spousal interest. For that reason, the Court

of Appeals is affirmed.

      All sitting. All concur.


COUNSEL FOR APPELLANT:

W. Patrick Hauser
W. Patrick Hauser, PSC
PO Box 1900
Barbourville, Kentucky 40906


COUNSEL FOR APPELLEE:

Travis Alan Rossman
Rossman Law, PLLC
220 Court Square
PO Box 209
Barbourville, Kentucky 40906




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