Estate Planning with Tenancy by the Entireties Property

Last New Year’s Eve, the IRS issued final regulations about disclaimers of tenancy by the entireties property, which was a cause for celebration for estate planners. However, there is still a problem in Florida that needs to be resolved before a surviving spouse can disclaim their interest in such property. This article will discuss the tax implications of tenancy by the entireties property and the opportunities for estate planning with this type of property. We will also talk about the history of disclaimers and a potential solution for the problem in Florida. When spouses create a joint tenancy, there are usually no gift tax consequences if both spouses are U.S. citizens. But if one spouse is not a citizen, there may be gift tax consequences. Upon the first spouse’s death, half of the jointly held property is included in their estate, but no estate taxes are owed because of the marital deduction. The surviving spouse gets a step-up in basis for half of the property and a carryover basis for the rest. When the surviving spouse dies, the entire value of the property is included in their estate for estate tax purposes. There are special rules for joint tenancies created before 1977. Executors should consider taking advantage of these rules to get a higher basis for the property and may need to file additional estate tax returns. TBE property, or tenancy by the entirety, is a type of property ownership that can only exist between a husband and wife. In Florida, it offers some protection from individual debts of either spouse. If one spouse has a debt, it generally can’t be used to take away TBE property, unless there’s a joint creditor. This type of property can be a good way for married couples in Florida to protect their assets. Before 1997, married couples were advised to divide their assets so that each spouse owned at least $600,000 individually. This would help avoid estate taxes when the first spouse passed away. Now, with disclaimer opportunities, couples can wait until after one spouse has passed away to make decisions about dividing their assets and minimizing taxes. This is a useful tool for estate planning. Before 1977, state law determined if a disclaimer of property was valid. In 1977, the Tax Reform Act added regulations for disclaimers. In 1986, rules for disclaiming jointly held property were established. From 1986 to 1990, there was confusion about when disclaimers could be made for certain types of property. In 1997, final regulations were issued, allowing disclaimers of certain property within nine months of the first joint tenant’s death. However, in Florida, there are still difficulties with disclaiming property passing under certain instruments. When a married couple buys property together in Florida, they both own the whole property, not just part of it. If one spouse dies, the other one automatically gets the whole property. If the surviving spouse wants to give away their share of the property, they can only do so within one year of buying the property. There is a way to give away their share after one year, but it’s complicated and might not work for property in Florida. There are some proposed changes to the law that might make it easier to give away part of the property in the future. The tax laws for married couples changed in 1997, but didn’t increase the amount of money a person can give to their noncitizen spouse as a gift. There are also rules about property ownership and taxes that can affect married couples. Some of these rules vary by state and can be complicated, so it’s important to talk to a lawyer for advice. This article is written by some lawyers from a law firm in West Palm Beach, Florida. They specialize in tax planning and have extra degrees in taxation. The article is submitted on behalf of the Tax Law Section.

Source: https://www.floridabar.org/the-florida-bar-journal/estate-planning-with-tenancy-by-the-entireties-property/