Trust-based planning became very popular in the 1980’s and 1990’s as estate planners- some being lawyers, some being insurance agents and some without any license at all- advertised trusts as the preferred way to plan an estate in order to avoid costly and frustrating probate court proceedings. You might have attended one of the 1,000’s of trust seminars offered in Indiana during those years. Trusts were often marketed as “Loving Trusts,” to imply that you should use a trust if you really loved your family.
The truth is that estate planning trusts, known as living trusts, are an effective planning tool for many people, but are completely inappropriate for others. As a general rule of thumb, young persons should use wills as their primary way to plan their affairs. Older persons should utilize trusts when the bulk of their estate is defined and they will not be moving large properties and assets in and out of the trust. Younger persons have a lifetime of buying and selling of assets, which makes a trust less desirable.
Lost in the debate over trusts versus wills is a simple and highly effective tool with a long history- the estate by the entireties. Essentially, this is real estate owned by husband and wife as husband and wife. To create an estate by the entireties, you simply deed the real property to the married couple and identify the couple as “husband and wife.”
Why would you use an estate by the entireties and not deed the property into a trust?
The simple answer is that an estate by the entireties offers a rare form of asset protection only available to married couples. In fact, Indiana is one of just a few states that still recognizes the estate by the entireties and the importance of protecting the family household.
Regardless of a couples’ ages, the estate by the entire ties should be considered, particularly if the couple has any equity in the home. However, many estate planners who create trusts for their clients routinely cause the family home to be transferred into the trust without any regard for the loss of asset protection afforded by the estate by the entireties. When a home is in a trust, the estate by the entire ties is gone and its protective features are unavailable.
What protection is available through the estate by the entire ties?
Essentially, a judgment against one spouse cannot cause the equity in the home to be subjected to attachment or a lien. If a judgment is rendered against the husband and wife both, which is extremely rare, then the estate by the entire ties would not protect the home. So, in situations where one spouse is a natural target for claims and lawsuits, such as a business person, then the estate by the entireties is often an effective tool to protect the equity in the marital or family residence. However, once a spouse dies or the couple divorces, the estate by the entire ties is gone and its protective features disappear.
