Arkansas Supreme Court Opinion Exposes Assets to Claims by a Surviving Spouse!
In a 5-2 decision handed down last week (May 22, 2014) the Arkansas Supreme Court held that the assets of a revocable living trust may be included in a decedent’s probate estate for the limited purpose of calculating the surviving spouse’s elective share. This decision, In Re Estate of Thompson, 2014 Ark. 237 (2014), breaks new ground in Arkansas law and could have significant implications in many estate plans.
Under Arkansas law a surviving spouse is entitled to claim an “elective share” or portion of their deceased spouse’s property. This is true even when the deceased spouse has a Last Will and Testament dictating how he or she wants the property to pass. Essentially the survivor can either choose to take what is left to him or her under the Will or choose to take the elective share. Prior to last week’s decision, it was generally accepted that this survivor’s right only covered property which was actually included in the deceased spouse’s probate estate. So it was believed that assets held in a revocable living trust, or assets which passed via beneficiary designation, were not subject to the elective right. With last week’s decision in Thompson, assets of a revocable living trust may be included in calculating the elective share when that trust is created to deprive a surviving spouse of said share. The test for inclusion is whether or not the decedent “intended to defraud [the survivor] of statutory rights to property.” In Re Estate of Thompson.
In her dissent, Justice Hart called the holding “contrary to established Arkansas probate law,” and further stated that it “will thwart the use of many traditional estate-planning tools.” In her opinion, the majority used their authority to create a new source from which an interest can be taken, not currently considered in the plain language of the Arkansas statutes. She also expressed concerns about the scope of the opinion, stating that any transfer of property to a person other than a spouse will give rise to the inference that the spouse was defrauded of statutory rights.
The impact of this decision is significant, and, while the effects cannot be fully measured at this time, it carries the potential to drastically reshape estate planning practices currently used throughout the state. There is now a risk that any estate planning which is not fully disclosed to a spouse might be perceived as an effort to defraud the survivor. Particularly in the context of remarriages later in life where each spouse may have independent wealth and desire independent planning this presents real problems. Unless one intends to have all of his or her wealth pass wholly to the surviving spouse he or she should consult an attorney to avoid violating this new law and creating unforeseen consequences.