9.8 Spousal Right of Election to the Revocable Trust after Death

• Library: Revocable Trusts Handbook for Arkansas Practitioners (2019 Ed.)

9.8 Spousal Right of Election to the Revocable Trust After Death

When a decedent leaves a will, virtually all states allow a surviving spouse to elect to take against the will. In Arkansas, the amount a spouse will receive by election is equal to dower/curtesy, homestead (if available) and statutory allowances combined.⁶² Dower/curtesy if the deceased is not survived by descendants is equal to one-half of the probate estate (one-third as against creditors).⁶³ If the decedent is survived by children, dower is one-third of the personal property⁶⁴ and a life estate in one-third of the real property.⁶⁵ Statutory allowances consist of minimal amounts of personal property.⁶⁶ All of these are carved out of the probate estate. To elect to take against the will, the surviving spouse must have been married to the decedent for one continuous year before death.⁶⁷

No doubt for as long as the institution of marriage has existed, during their lives some decedents have attempted to deprive their surviving spouses of as much property as possible after their deaths. To accomplish this goal, they often resorted to will substitutes that removed assets from the probate estate, including the inter vivos trust. The modern trend is to allow spouses who elect to take against the will a share of such will substitutes.⁶⁸ In keeping with the modern trend, the Uniform Trust Code has reduced the ability of grantors to avoid the election rights of surviving spouses. However, Arkansas declined to enact the relevant Uniform Trust Code section.⁶⁹ Thus, currently in Arkansas the ATC does not answer the question of whether a grantor may establish an inter vivos trust and thereby exclude property in such a trust at the death of the grantor from being subject to the election of a surviving spouse to take against the will.

The much-studied Arkansas case prior to 2014 closest to this fact situation occurred when a husband created a revocable inter vivos trust two years prior to his death.⁷⁰ The trust was funded with the husband’s property as well as funds from a joint checking account owned by the husband, the wife and her sister.⁷¹ The husband was to receive the trust income during his life.⁷² After his death, the income would go to the widow, together with as much principal as was necessary to insure her care and comfort.⁷³ At the wife’s death, any remaining assets would be paid out to their named relatives in equal shares.⁷⁴ In addition, the husband left a will, devising his home to his wife for life, with a remainder to her sister provided the sister cared for the wife.⁷⁵ After the husband’s death, the wife requested a declaratory judgment that the will was invalid, and elected to take against the will.⁷⁶ The decision mentions no children so it may be that her dower right was one-half of the estate.

The wife first argued that the trust was testamentary in nature. However, the court, citing the Restatement (Second) of Trusts, disagreed. A grantor may legally establish an inter vivos trust and enjoy a life interest, as well as a reservation of the power to revoke and the power to control the administration of the trust.⁷⁷ Second, she argued that the trust was an “illusory scheme” to defeat her marital rights.⁷⁸ The court agreed that she would receive more property immediately if the trust was ruled invalid.⁷⁹ However, the court decided that the grantor’s intent was not to defraud his spouse of her rights but rather to assure her future care and support.⁸⁰ The court provided no dictum to indicate what it might do if it had found a fraudulent scheme, merely remarking that the test to determine whether a trust is a fraud on a surviving spouse’s rights is the grantor’s intent.⁸¹

Arguably, this is an issue quite similar to that of creditors’ rights, and the modern trend is to answer it similarly. States have allowed surviving spouses to reach revocable trust assets on three grounds. One is to regard the trust as an “illusory trust,” somewhat in the same way that revocable trusts used to be invalidated as an attempt to escape testamentary formalities,⁸² another is to regard the trust as void as against the public policy of requiring deceased spouses’ estates to provide support for the survivors,⁸³ and...