Arkansas Estate, Business, and Property Law

When Do You Need a Revocable Trust?

(Updated for 2011 and 2012)

                       You may have been told that you need to protect your assets by placing them into a “trust”.  While there are many types of trusts, it is the most common is a revocable trust, which is also sometimes referred to as a “living trust”.  In basic terms this trust is a tool pursuant to which a person, during their lifetime, may transfer assets into a trust which will then be distributed to his or her family or lawful heirs at the time of death.

Revocable trusts are powerful tools which may accomplish a variety of goals including reduction of the Estate Tax, avoidance of probate, and the protection of assets.  Determining whether the Estate Tax may apply involves an analysis of the applicable exemption provided by Congress.   For 2011 and 2012, the applicable exemption is approximately $5 million ($5,120,000  in 2012).  This means, generally, that anyone who dies in those years can declare up to $5 million in assets free from the Federal Estate Tax.  On January 1, 2013, the exemption will fall back to $1 million, subject of course to additional action by Congress.  Some experts predict that the exemption rate may eventually stabilize at $5 million, adjusted by the rate of inflation.  However, it is important to remain aware of the applicable exemption as your potential Estate continues to grow during your lifetime.

Any amount left in your estate (including proceedings from life insurance) minus the applicable exemption for the year of death, are potentially subject to the estate tax.  A trust does not avoid the estate tax, but does allow a married person to likely reduce the tax effect upon his or her spouse through proper use of a Bypass Trust (which generally allows both married parties to claim the exemption, separately).

Since the $5 million exemption presently excludes most estates from the tax, the more popular justification for forming a revocable trust is to avoid probate – the sometimes costly and lengthy legal process generally necessary to administer the estate of a person upon death.  Many probate lawyers will charge your family a percentage of the assets which pass through the Estate, regardless of the amount of work which may be necessary to complete the probate.  A typical Probate will take 6-12 months to complete, often limiting the ability to access assets during the completion of the proceedings.  If assets are property titled in name of a Trust, then upon death those assets avoid probate entirely.  Further, since probate records are available to the public a trust provides the additional benefit of privacy.

Trusts may also provide a limited measure of asset protection for the family or heirs of the deceased person.  By including a “spendthrift provision” in the trust, creditors of the beneficiaries may be prevented from reaching the assets placed in the trust.  This might also be used to prevent a younger heir from reaching the full amount of his or her inheritance, which can also be accomplished by placing an age limit on the date of distribution.

There are other benefits to creating a revocable trust, such as avoiding potential issues which may arise upon a future physical or mental disability and the benefit associated with allowing your family to retain control over your assets upon death.  The largest advantage, however, may be the peace of mind associated with knowing that your wishes upon death are specifically, properly organized and detailed in a manner causing the least amount of potential stress and difficulty upon your family or heirs.  For additional information on how a trust may benefit you and your family, please contact Cade Cox of Cox, Sterling & McClure at 501-954-8073 or at clcox@coxandsterling.com.

What happens if you die without a Will? What is the law of intestate succession? How does this affect Arkansas residents?

These are all popular questions in the world of estate planning.  The answers may be found in several Arkansas statutes which are discussed in a very general terms within this article.  For a full understanding of applicable law, see the notation at the end of this article.  Arkansas law provides a procedure for “intestate succession” which is followed when you die without a Will (known as “dying intestate”). There are other times that intestate succession may apply, such as when someone has a Will that is not properly submitted to probate, or when property is not adequately addressed in an otherwise valid Will. These are rare situations, however, and for the most part intestacy is only an issue when someone dies without a Will.

So, again, what happens if you die without a Will?  Your heirs can still proceed with probate, but the law of intestacy will direct the distribution of your assets (instead of your Will). As a preliminary matter, there are several statutory exemptions which must be addressed before your property will be distributed to anyone.  The Court will first address (1) the dower or curtesy of your surviving spouse (these are generally known as “marital rights”, and will be discussed in future blog articles); (2) the homestead right of your surviving spouse; and (3) additional statutory rights and allowances to the surviving spouse and minor children. 

After allowing for these exemptions, the remainder of your property will be distributed in the order prescribed by the Arkansas statute:

• First, to your children (or, if one of your children died before you, then to their children).
• Second, to your surviving spouse (unless you were married for less than three years, in which case the spouse receives only fifty percent of the estate).
• Third, to your parents.
• Fourth, the rest of your estate will pass to your surviving spouse, even if you have been married less than three years.
• Fifth, to your surviving brothers and sisters.
• Sixth, to your grandparents, uncles and aunts.
• Seventh, to your great-grandparents and great-uncles and great-aunts.
• Eighth, to the county where you resided at the time of death.

There are multiple additional complexities which arise when you die without a Will.  Who will be responsible for initiating the intestacy process for you? How will they be paid? Will they need to file a bond with the Court? (the Answer is “yes”)  How will they know where your assets are located, and the value of your assets?   How will they know where to find all of your aunts, uncles, etc. as necessary under the intestacy law?  Who will be the guardian of your minor children, and who will handle their assets until they reach a responsible age (and who will decide the proper age for your children)?

All of these problems are avoided by a simple Will, which will provide peace of mind and provide for a clear execution of all of your wishes upon death.

This article, as well as all other content contained on this Blog, should not be considered a substitute for legal advice. Please contact our office or the probate attorney of your choice for additional details concerning your Estate. The full text of the Arkansas Intestacy Law is provided on our Estate Law Page.