Trusts: TBE or Not TBE

In Florida, married couples often hold their property as tenants by the entireties (TBE) to avoid probate and protect against creditors. This means that if one spouse dies, the property automatically goes to the other spouse. Estate planners usually split the TBE property into separate trusts for each spouse to take advantage of tax benefits. However, this can make the property vulnerable to the creditors of each spouse. To solve this problem, a TBE trust can provide creditor protection and other benefits of a trust for the married couple. This concept of jointly held property dates back to the 13th century and has evolved over time. In the past, married women couldn’t own property on their own. But in the 18th century, a new type of property ownership called tenancy by the entirety was created, where a husband and wife owned the property together. The husband had control, but neither could sell it without the other’s permission. As laws changed, married women gained the right to own property separately. In Florida, the laws finally changed in 1968, allowing married women to own property on their own. The old reason for having tenancy by entirety, where married women couldn’t own property, doesn’t apply anymore. Now, it’s more about the intention of both spouses to share ownership of the property. In Florida, there are certain rules to follow to create a tenancy by entirety, and it can also be done through a trust. So, if a husband and wife want to share ownership of property, they can set it up that way with some legal requirements. Beal Bank confirmed that if the signature card for an account states the intent to create a TBE (tenancy by entirety) interest, then that settles the question of ownership. The bank cited court cases that said the same thing. So, if a trust agreement says it’s creating a TBE interest, that’s good enough. To be a TBE, the property must have six characteristics: both spouses have joint ownership and control, each spouse has the same interest, the interest originated in the same way at the same time, when one spouse dies the other becomes the sole owner, and the spouses must be married. These characteristics can be included in a trust agreement. Some people argue that splitting the property into a legal interest (held by the trustee) and an equitable interest (held by the spouses) destroys the TBE, but that’s not necessarily true. In a Pennsylvania case, a married couple created a trust with a bank as the trustee. They made unequal contributions to the trust, and the trust provided for income distributions to the husband and wife. After their deaths, the trust assets would go to other beneficiaries. The court ruled that the couple held the trust assets as tenants by the entirety because they had the right to control the trust during their lives and had an actual property interest in the trust. This means that the trust assets were treated as owned by both of them together. In Florida, if you are a beneficiary of a trust, you have a right to the property in the trust, even though you don’t legally own it. However, if you want to challenge the trust, you may need to give up your right to the property first.

Also, if a married couple puts their property into a trust and keeps control over it, the property still belongs to both of them, even if the money is in an attorney’s trust account. So, if one of them owes money, the creditor can’t take the money from the trust account. The Fourth DCA said that putting property owned by a husband and wife into a trust doesn’t end their joint ownership, as long as they still have control over it. But if one spouse has all the power over the trust, it could end the joint ownership. This was shown in a case where a husband controlled a trust that had the couple’s property, and made changes to it without his wife’s permission. This destroyed their joint ownership of the property. Simply put, when a married couple transfers their property into a trust, they need to make sure they both still have control over the trust. This means both spouses should be able to agree on any changes to the trust. It’s also important to create the trust at the same time as the transfer of the property, or make sure the trust clearly states that the property is meant to be held as a married couple’s shared asset. This way, the trust properly represents the couple’s ownership of the property. The Florida Trust Code doesn’t specifically say if a trust can hold TBE property. It doesn’t seem to intend to change the common law about TBE property in trusts. There are some provisions that might make TBE property in a trust liable for a deceased spouse’s estate expenses, but there are also rules that protect exempt property from being taken by the estate. So, it’s not clear if TBE property in a trust can be used to pay for estate expenses. When creating a trust, it’s important to be careful with the language used. The trust should not direct the trustee to pay any debts or expenses from the estate of the first spouse to die. This could be seen as giving permission for those payments, which could cause problems.

In Florida, if someone creates a trust and puts their own assets into it, those assets can still be used to pay off their debts. However, if a husband and wife create a trust together and put their property into it, that property is protected from the creditors of either spouse.

In simple terms, when creating a trust in Florida, it’s important to be mindful of how it could affect the payment of debts and expenses, and to understand how assets in the trust are protected from creditors. A married couple can transfer their property to a trust that offers benefits and protects their assets from creditors. If there are estate tax concerns, the surviving spouse can choose to not inherit part of the trust, and instead it will be put into a tax credit shelter trust. With the estate tax exemption set at $5 million, the TBE trust is a good option for married couples. R. Craig Harrison is a lawyer in Sarasota. He specializes in wills, trusts, and estates law and has written articles for The Florida Bar Journal. Special thanks to Bruce Marger for his help. This column is from the Real Property, Probate and Trust Section.

Source: https://www.floridabar.org/the-florida-bar-journal/trusts-tbe-or-not-tbe/