Tenants by Entireties Can Be Effective Estate Planning
Tenants by entireties may be used for asset protection without diminishing other estate planning goals according to a Private Letter Ruling issued by the IRS late in 2004. Estate planning attorneys typically recommend that spouses divide ownership of property to the extent necessary for each spouse to take advantage of their individual estate tax credit ($1.5 million today). Because tenants by entireties property has the legal property of survivorship all marital assets owned tenants by entireties automatically pass to the surviving spouse. Consequently, the deceased spouse is unable to apply his estate tax credit to property owned during his lifetime with his spouse as T by E. All tenants by entireties is subject to taxation at the death of the second spouse who has available only one estate tax credit to cover all the property. Tenants by entireties is thought to provide good asset protection but poor estate planning. Up until now people with taxable estates had to choose between the asset protection benefits of entireties ownership and the estate tax benefits of separately owned property.
According to Private Letter Ruling 200503024 the surviving spouse may disclaim their survivorship interest in property owned jointly with the deceased spouse with rights of survivorship. Each spouse can execute a pour-over will which provides that all property passes on their death to a living trust which contains a credit shelter trust to utilize their estate tax exemption. The surviving spouse can disclaim enough tenants by entireties property upon the first death to fully fund the decedent's credit shelter trust. This way the spouses have tenants by entireties from creditors during their lifetime and fully utilized estate tax credits upon their deaths. Alan Gassman presented this planning tip during his presentation at the Florida Bar's Wealth Protection Conference in Miami on May 13, 2005.
posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida
Thank you for this post but I feel like it is a story without an ending. Is the house still asset protected in the Family Trust if the debtor spouse disclaims? Is a disclaimer considerred a "fraudulent transfer?" Does the disclaimer make the Family Trust self-settled?
A disclaimer means he never owned it to begin with because he pre-deceased so it would seem the home would be asset protected -- or more precisely, half of it. I have no cases to back me up. What do you think? Thanks.