In re Estate of Thompson
2014 Ark. 237, 434 S.W.3d 877, 2014 Ark. LEXIS 322 (2014)
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Rule of Law:
When a decedent creates or amends a revocable inter vivos trust with the intent to deprive their surviving spouse of their statutory elective share, the assets of that trust can be included in the decedent's probate estate for the limited purpose of calculating that spouse's share.
Facts:
- Anne L. Thompson and H. Ripley Thompson were married on July 15, 2001.
- In 2002, Ripley Thompson created a revocable trust and pour-over will, funding the trust with his most significant assets, including shares in a family company.
- The 2002 trust and its 2004 amendment provided Anne Thompson with significant benefits, including income for life and a position as co-trustee.
- In 2008, the couple began living separately following Anne's diagnosis with cancer and a stroke, and Ripley's own health began to deteriorate.
- In February 2009, Ripley Thompson was hospitalized and subsequently moved into a nursing home, where he remained until his death.
- On May 29, 2009, while in the nursing home, Ripley Thompson executed a new will and a restatement of the trust, which drastically reduced Anne Thompson's inheritance to a $100,000 bequest, conditioned on her not contesting the documents, and removed her as a co-trustee.
- Ripley Thompson died on February 20, 2010. At the time of his death, his trust held over $5.8 million in assets, while his probate estate contained approximately $230,000.
Procedural Posture:
- After H. Ripley Thompson's death, his 2009 will was admitted to probate.
- Anne L. Thompson filed a petition in probate court to set aside the 2009 will and filed an election to take against the will.
- Anne Thompson filed a complaint in Woodruff County Circuit Court against Vance Thompson, as trustee, seeking the imposition of a constructive trust over the trust's assets for her elective share.
- The probate and civil cases were consolidated for trial in the circuit court.
- The circuit court found that the decedent intended to deprive Anne Thompson of her marital rights and ordered that the trust assets be included in the estate for the limited purpose of calculating her elective share.
- Vance Thompson, as executor and trustee (Appellant), appealed the circuit court's order to the Arkansas Supreme Court.
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Issue:
Does a decedent's transfer of assets into a revocable inter vivos trust, with the intent to deprive a surviving spouse of her elective share, constitute a fraud on marital rights allowing a court to include those trust assets in the estate for the limited purpose of calculating that share?
Opinions:
Majority - Justice Corbin
Yes. When a court finds a settlor created or amended a revocable trust with the intent to defraud a surviving spouse of their marital rights, a court of equity can include the trust assets in the decedent's estate for the limited purpose of calculating the spouse's elective share. The court affirmed the "settlor's intent" test established in Richards v. Worthen Bank & Trust Co. as the proper standard for determining whether a trust constitutes a fraud on marital rights. Here, the evidence overwhelmingly supported the circuit court's finding of fraudulent intent, including the dramatic reduction of the wife's inheritance from previous versions, the timing of the changes after the couple's separation and the decedent's health decline, and the removal of the wife as trustee. This remedy does not invalidate the entire trust but rather uses the court's traditional equity powers to prevent injustice, bringing the trust assets into the estate solely for the calculation of the spousal share.
Dissenting - Justice Hart
No. The assets of a revocable trust should not be included in a decedent's estate for calculating the elective share. A surviving spouse's dower and elective share rights are purely statutory and attach only to property the decedent owned at the moment of death. The assets in the trust were not part of the decedent's probate estate upon his death. By including them, the majority is judicially creating an "augmented estate," a concept the Arkansas legislature has explicitly chosen not to adopt from the Uniform Probate Code. This decision upends established probate law and will create significant uncertainty for common estate planning tools like trusts, transfer-on-death accounts, and life insurance.
Analysis:
This decision significantly clarifies Arkansas law by confirming that a spouse's statutory elective share cannot be defeated by transferring assets into a revocable trust if the transfer was motivated by an intent to defraud the spouse. It solidifies the 'settlor's intent' test as the controlling standard, moving the analysis from a formalistic question of title to a fact-intensive inquiry into the decedent's purpose. While this holding provides greater protection for surviving spouses against disinheritance via common non-probate transfers, it also introduces a new avenue for litigation in estate disputes, focusing on the subjective intent of the deceased.
