What is Tenancy by the Entirety?
Tenancy by the Entirety (“TBE”) is a form of joint ownership available to married couples. This ownership is predicated on the legal fiction that husband and wife are a single, indivisible unit. Comparably, in a joint tenancy each owner holds an equal share of property, with TBE each owner holds the entire share of the property.
There are currently sixteen states, which recognize TBE as a form of ownership for all types of property (Arkansas, Delaware, Florida, Hawaii, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Wyoming). There are also six states, which only recognize TBE ownership with regard to real property (Indiana, Kentucky, Michigan, New York, North Carolina, and Oregon).
What are the Benefits of Tenancy by the Entirety?
Holding property as TBE has two major advantages: probate avoidance and creditor protection.
Probate Avoidance: One of the benefits of TBE ownership is “the right of survivorship.” Having “the right of survivorship” means, that upon the death of one spouse, the property automatically passes to the surviving spouse. As a result, property owned as TBE is not subject to probate if there is a surviving spouse.
Creditor Protection: Unlike other forms of property ownership, with TBE, each spouse owns an indivisible 100% interest in the property, concurrently. As a result, TBE property interests cannot be severed by the actions of one spouse acting alone. For example, a creditor with a judgment against a Husband alone cannot satisfy the debt owed by Husband by filing a lien on property that is jointly owned by a Husband and a Wife, as TBE. Similarly, a Husband cannot sell, dispose of, or otherwise encumber TBE property without the consent and cooperation of his Wife, and vice versa. However, the creditor protection afforded by TBE ownership is not without limitation. A creditor with a judgment against both a Husband and a Wife would not be prevented from collecting on a debt from property held as TBE in the absence of some other safeguard, such as homestead protection.
What are the Requirements for TBE?
In order to perfect ownership as TBE, five conditions, or unities, must be present:
- Unity of Possession: Joint ownership and control of the premises.
- Unity of Interest: Equal interest in the property, i.e. 100% interest.
- Unity of Title: Both spouses acquire title to the property under the same deed.
- Unity of Time: Both spouses acquire title to the property simultaneously.
- Unity of Marriage: Owners must be married at the time the title to the property is acquired.
Traditional Estate Planning and TBE
Traditionally, estate planners have split tenancies by the entirety in order to fund separate trusts for both spouses, with the aim of maximizing estate tax exemptions. In their view, the benefits realized in tax benefits justified the loss of creditor protection offered by TBE ownership. However, with the development of “TBE Trusts,” creditor protection may now be maintained by preserving the tenancy upon transfer of the property to the trust.
Modern Approach – The TBE Trust
Under Florida law, a TBE interest is created when spouses manifest an intent to create a TBE interest, and the six unities are present. Thus, a properly drafted trust agreement may preserve the TBE interest for property transferred to the trust. This can be accomplished by a simple statement in the trust agreement that Husband and Wife intend to create a TBE interest for all property transferred to the trust. As a precaution, it is advisable that the trust agreement also include a statement identifying the presence of each of the six unities at the time that the trust is created, and the property is transferred to the trust.