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Expansion of the Surviving Spouse Elective Share

In re Estate of Thompson v. Thompson:

Expansion of the Surviving Spouse Elective Share

By Rebecca Hurst and Brittany King

For the first time in Arkansas, a surviving spouse was entitled to an elective share of an inter vivos revocable trustwithout invalidating that trust.  On May 22, 2014, the Supreme Court of Arkansas affirmed the Woodruff County Circuit Court’s decision in In re Estate of Thompson v. Thompson, rendering the decedent’s attempt to deprive his wife of her marital right to property unsuccessful and requiring that property held in an inter vivos revocable trust be included in the decedent’s estate for purposes of calculating the deprived wife’s elective share.[1]  For all other purposes, however, the trust remained intact.[2]  

   I.        H. Ripley Thompson’s Inter Vivos Revocable Trust and Estate

The Decedent, H. Ripley Thompson, originally drafted his inter vivos revocable trust in 2002.  Subsequent changes were made to the trust in 2004 and 2009; the latest of which was at issue in this case.[3]  Previous versions of the Decedent’s trust designated Appellee, his wife, as a co-trustee and provided her with annual income, annual withdrawal rights of $5,000 or 5% of the net fair-market value of the principal on the date of withdrawal, and the authority to invade the trust’s principal for extraordinary expenses.[4]  However in 2009, after Appellee filed for separation maintenance, the Decedent amended his trust, stripping Appellee of all financial rights and designation as co-trustee—changes that were not made known to the Appellee.[5] 

Under the amended 2009 trust and the Decedent’s will, Appellee’s only entitlement was a bequest of $100,000, so long as she refrained from contesting either instrument.[6]  Given the Decedent’s failure to inform the Appellee of the amended trust and that his net worth was over $6 million at the time the 2009 amendment was made, Appellee argued that the trust was inconsistent with his promise to take care of her and an attempt to deprive her of her elective share.[7]  The circuit court agreed and characterized the amendment as an attempt to leave the Appellee with “basically nothing.”[8]

Appellee argued that her true entitlement, under the Arkansas Probate Code, was over $3 million once she elected against the will, despite that the Decedent’s estate was valued at only $230,471 after the trust amendment in 2009.[9]  Nonetheless, Appellee sought the imposition of a constructive trust on the assets contained in the 2009 trust and, alternatively, claimed the trust was invalid on the grounds of incapacity or undue influence.[10] 

II.        Intent to Defraud

The Woodruff County Circuit Court found that the Decedent had intended to defraud Appellee of her elective share via the amending of his trust and included all assets held therein in its calculation of Appellee’s share.[11]  Appellant, Trustee and Executor of the Decedent’s estate, unsuccessfully argued that this holding was the crafting of a “new form of relief” not intended under the Arkansas Probate Code.[12] Appellant presented a valid argument: under Arkansas law an elective share only provides a surviving spouse the right to a statutory percentage of property owned by the decedent at the time of his or her death.[13] 

Property contained in the 2009 trust, valued at $5.8 million, was not personal property of the Decedent subject to an elective share because the Appellant irrevocably had legal title to all property held in the trust at the time of the Decedent’s death.[14]  Thus, Appellee would not be entitled to any portion of said trust property pursuant to an election against the Decedent’s will.[15]  However, this is only the general rule absent intent to defraud a surviving spouse of his or her statutory right to property.[16] When a Decedent, as in this case, amends a trust to deprive his spouse of such rights, a constructive trust may be imposed on the assets of the trust for purpose of calculating the respective elective share.[17]

Although the Arkansas Supreme Court did not discuss constructive trusts in detail, this is essentially the remedy that was imposed by the circuit court.  Constructive trusts may be established to prevent unjust enrichment from resulting through the execution of a trust.[18]  This remedy in equity has been utilized by the Arkansas courts for over a century:

If a man or woman convey away his or her property for the purpose of depriving the intended husband or wife of the legal rights and benefits arising from such marriage, equity will avoid such conveyance, or compel the person taking it to hold the property in trust for or subject to the rights of the defrauded.[19]  

The court expanded the applicability of this remedy to allow the imposition of a constructive trust, through the claim to an elective share, on the assets held in an inter vivos revocable trust when an intent to defraud the surviving spouse has been proven.[20]

In Richards v. Worthen Bank & Trust Co., the court easily determined that this was not the settlor’s intent when he created an inter vivos trust because the trust provided for his wife’s health care and assistance as she grew increasingly ill in his absence.[21] In Thompson,the Decedent, H. Ripley Thompson, however, “unequivocally” intended to defraud his wife of her statutory right to assets contained in the 2009 trust.[22] This holding was not based solely on the fact that the amount bequeathed to the Appellee was less than what her elective share would have been had he died without a will or trust, because that is not the test.[23]  The test is whether a settlor intended for the creation or amending of the trust to defeat his or her spouse’s marital rights to property.[24]  Intent is evaluated considering all circumstances; there is not a fixed standard for this determination.[25]

In Thompson,the circuit court found four factors demonstrative of the Decedent’s intent to defraud his wife:  (1) the trust, unlike that disputed in Richards,would not provide for Appellee as the previous 2002 and 2004 trusts would have; (2) the date of the amendment indicates it was executed in retaliation to Appellee’s request for separation maintenance; (3) the Decedent removed the Appellee as co-trustee; and (4) the Decedent kept the Appellee uninformed of these disfavoring changes.[26]  As a result of these findings, the Decedent’s attempt to deprive his wife was made in vain and all assets contained in the 2009 trust were included in the determination of Appellee’s elective share.[27]

III.        Established Precedent

With this case, the Arkansas Supreme Court declared that inter vivos revocable trusts created or amended to defraud a settlor’s spouse of marital rights to property contained therein will result in the inclusion of such property in the calculation of the surviving spouse’s elective share.[28] Presence of such intent will not invalidate the trusts.[29]  Therefore, arguments for reliance on prior versions of amended trusts will be unsuccessful.[30]  The question left unanswered by this opinion is:  how will this affect the distribution of trust assets to the remaining beneficiaries in the event of such finding? 

 

 



[1]In re Estate of Thompson v. Thompson, 2014 Ark. 237, at 15, 18, __ S.W.3d __.

[2] Id. at 10-11, __ S.W.3d __.

[3] Id. at 3, __ S.W.3d __.

[4] Id. at 13-14, __ S.W.3d __.

[5] Id. at 14, __ S.W.3d __.

[6] Thompson, 2014 Ark. 237, at 13-14, __ S.W.3d __.

[7] Id. at 2-3, __ S.W.3d __.

[8] Id. at 13-14, __ S.W.3d __.

[9] Id. at 3, __ S.W.3d __.

[10] Id. at 2-3, __ S.W.3d __.

[11] Thompson, 2014 Ark. 237, at 7, __ S.W.3d __.

[12] Id. at 17, __ S.W.3d __.

[13] Ark. Code Ann. § 28-39-401(b)(1)-(2) (Supp. 2014).

[14] See William M. McGovern, Jr. et al., Wills, Trusts and Estates § 4.7 (1988).

[15] Thompson, 2014 Ark. 237, at 21, __ S.W.3d __ (Hart, J., dissenting, with whom Baker, J., joined); see also, Ark. Code Ann. § 28-39-401(b)(1). 

[16]  See West v. West, 120 Ark. 500, 504, 179 S.W. 1017, 1018 (1915); Thompson, 2014 Ark. 237, at 10, __ S.W.3d __.

[17] Thompson, 2014 Ark. 237, at 9, __ S.W.3d __.

[18] Restatement (Third) of Trusts § 16 cmt. c (2003).

[19] West, 120 Ark. at 504, 179 S.W. at 1018.

[20] See Thompson, 2014 Ark. 237 at 10-12, __ S.W.3d __; Richards v. Worthen Bank & Trust Co., 261 Ark. 890, 893-94, 552 S.W.2d 228, 230-31 (1977).

[21] 261 Ark. at 894 , 552 S.W.2d at 230-31.

[22] Thompson, 2014 Ark. 237, at 13, __ S.W.3d __.

[23] Id. at 12, __ S.W.3d __ (citing In re Steck’s Estate, 81 N.W.2d 729 (Wis. 1957)).

[24] See id. at 11, __ S.W.3d __; Richards, 261 Ark. at 893-94, 552 S.W.2d at 230.

[25] Thompson, 2014 Ark. 237, at 2, __ S.W.3d __.

[26] Id. at 14, __ S.W.3d __.

[27] Id. at 1, 7, __ S.W.3d __.

[28] Id. at 18, __ S.W.3d __.

[29] Id. at 10-11, __ S.W.3d __.    

[30]  Thompson, 2014 Ark. 237, at 19, __ S.W.3d __.

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