Does Tenancy By Entirety Work?

If the state I live in has “Tenancy By a surviving spouse may be unable to disclaim the interest of the decedent.
The Entirety”, why do I need an Asset Protection Trust (APT)?

“Tenancy By The Entirety” has been in existence for several years now. However, some attorneys may be reluctant to utilize this method of holding title until the case law clarifies the advantages and disadvantages. It is currently available in the states of DE, FL, IN, IL, MD, HI, MA, MI, NC, OH, PA, TN, VT, VA, WY and the District of Columbia. “Tenancy By The Entirety” is a statutory form of ownership created by a conveyance to a husband and wife, and each tenant effectively owns the entire estate. Therefore, neither can deal with the property independently of the other. The main advantage is that judgment creditors of one party cannot enforce their liens against the property.

While this may be an advantage, there are several disadvantages of “Tenancy By The Entirety.” Property held in “Tenancy By The Entirety” cannot be severed by a partition action filed by one of the parties. If one spouse disappears or becomes incompetent, there can be difficulties in transferring or encumbering the property. There may also be certain estate planning ramifications which should be discussed with your advisors in detail. For example, a surviving spouse may be unable to disclaim the interest of the decedent.

Another common estate planning technique is foiled when property is held in “Tenancy By The Entirety” — one party cannot convey title to an adult child as is possible under joint tenancy. Here’s an example of another negative affect of “Tenancy By The Entirety.” It’s a cold November afternoon, and Dr. Feelgood’s wife is driving home when it begins to sleet. The inclement weather causes Dr. Feelgood’s wife to crash on the road, resulting in her death and injuries to several other motorists.

At the time of her death, “Tenancy By The Entirety” automatically transfers everything over to Dr. Feelgood and leaves his estate vulnerable to future lawsuit claims without an Asset Protection Trust. Unfortunately Dr. Feelgood cannot set up an APT after his wife’s death due to impending lawsuits that may result from the crash. Not only has Dr. Feelgood lost his wife, but he now stands to lose his entire estate.

While “Tenancy By The Entirety” may offer some value in estate planning, we continue to recommend the Asset Protection Trust (APT) because of its solid foundation for protecting assets, without loss of mortgage interest deductions or the capital gains benefit on residential sales.