Read Part 2: Tenancy in Comman & Joint Tenancy: Pros & Cons
Asset Protection and land trusts is an important topic for many people because the home is typically the largest asset of most households, yet few understand the risk they take in holding title in their name (John Doe and Jane Doe) or in the name of a revocable land trust. Protecting the marital home form potential risk is a challenging task throughout out the family holding period, from marriage, to teenage kids, to personal guarantee of a business or loan, to empty nesting. The risk is within the family, i.e. threat of divorce or separation, to outside the home i.e. as your teenage kids beginning to drive or as they begin to entertain other kids on your property, presenting you with maximum creditor risk exposure from unwanted or unpleasant events, i.e. throwing a party and one of your guests gets into a car, has an accident and kills the passenger or turns them into quadriplegics.
When devising a plan to protect the personal residence, the place most people begin is to look at the homestead exemption. Every state has a minimum amount of protection by the mere filing of an exemption certificate. The homestead exemption is quite limited in most states typically from $4,000 to $125,000 to unlimited exemption (Florida and Texas). But unless you live in those unlimited homestead exemption states, the homestead is not an asset protection device worth the filing fee. Find more about the pro’s and con’s of homestead protection here
Tenants by the entirety
Most states allow married couples to own title in their home as tenants by the entirety. This type of ownership is “only between married couples” meaning that each spouse has the right to enjoy the underlying property by the “entirety” and when one of the spouses dies, the other inherits the property by the entirety.
Tenancy by the Entirety has the following characteristics:
Tenancy by the Entirety may only be created by Husband and Wife.
Tenancy by the Entirety offers automatic rights of survivorship. The property is automatically transferred to the spouse at the death of the other spouse.
Neither spouse may transfer or convey title to a third person without consent of the other spouse. This method provides slightly better protection over joint tenancy and tenants in common if only one of the spouses incurs a liability. Property right is not divisible or alienable. Neither spouse can sell or encumber the property without the other’s approval, however, smart attorney’s just sue both spouses in most cases in order to avoid this potential problem.
Property is subject to joint creditors including the IRS.
Summary of owning property as Tenants by the entirety: its better than a stick in the eye, however, it is not available in most states, and it does NOT protect assets from joint creditors. Don’t look to Tenants by the Entirety as an asset protection plan for your personal residence