Prior to 2011, when the estate tax exemption was much lower, most estate planning attorneys preferred to separate spouses’ assets in separate living trusts to make sure each spouse received their full estate tax exemption. Joint trusts which are not properly drafted or maintained can forfeit one or the other spouse’s exemption. The increase of the estate tax exemption to $5.0 million per person, $10.0 million per couple, has made joint living trusts more feasible estate planning tool. Even if just one spouse gets an exemption, most families today, after the recession, have taxable estates less than the single exemption of $5.0 million.
If more couples’ estate plans will use joint living trusts the issues for asset protection is whether a married couple can retain tenants by entireties protection after transferring an asset to a joint living trust. Tenants by entireties requires ownership by married persons; a trust is a contract relationship and not a person. A creditor surely can argue that transfer of a jointly owned asset to a trust destroys one or more of the tenants by entireties legal requirements.
I have always cautioned married couples with asset protection issues for one of the two spouses against putting entireties property into an estate planning living trust. I suggested that the married couple retain joint ownership in their personal names and then disclaim the inheritance by survivorship upon the first death so that the asset can pass to the living trust by disclaimer. There are, however, several technical requirements for proper use of disclaimers.
I took another look at the issue and found some cases which indicate that a married couple can retain entireties protection even after they convey joint property to a joint living trust for which the spouses act as joint trustees. One case held that a married couples’s transfer of property to a trust for their joint benefit under their joint control does not terminate entireties ownership which the the parties “clearly intended their property to be held as a tenancy by the entireties.” Another case cautioned that transfer of entireties property to a trust would destroy T by E if only one spouse could exercise control over the trust.
I think that if a couple created a joint trust for their joint benefit and served as joint trustees, requiring joint approval of all trustee actions, that the courts would maintain entireties ownership and protection. The trust should include a provision stating the trustmakers’ intent to preserve ownership as tenants by entireties over all trust assets. Attorneys: see, 886 So.2d 295
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