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Estate planning attorneys have long been faced with a difficult decision when recommending estate planning techniques to their married clients...is it better to transfer title to the marital home into tenancy by the entirety or a living trust. There are benefits and detriments to both.
Tenancy by the Entirety
Only married couples can take advantage of the benefits of ownership in tenancy by the entirety and it is only available for the marital home. The basic benefit to ownership of real estate in tenancy by the entirety is creditor protection. If a judgment is obtained against one of the owners of real estate held in tenancy by the entirety, but not both owners, the creditor cannot force the sale of the home to satisfy the judgment.
If both parties die while the home in owned in tenancy the entirety, however, the estate of the survivor would generally have to go through the probate process. The avoidance of probate is often one of the client’s main goals in their estate planning process.
Ownership in Trust
When real estate is transferred to a trust or trusts (usually a revocable living trust) by a married couple, concerns regarding a requirement to probate their estate are generally alleviated. However, prior to January 1, 2011, the real estate was generally subject to an action from a creditor of the spouse who created the trust to force the sale of the home to satisfy a judgment. This was particularly concerning to clients where one spouse has a higher need for creditor protection (i.e. doctor).
Along Comes Public Act 96-1145
Public Act 96-1145 became effective on January 1, 2011. It amends 765 ILCS 1005/1c, regarding holding title to home in tenancy by the entirety. The relevant part of the statute reads as follows:
Where the homestead is held in the name or names of a trustee or trustees of a revocable inter vivos trust or of revocable inter vivos trusts made by the settlors of such trust or trusts who are husband and wife, and the husband and wife are the primary beneficiaries of one or both of the trusts so created, and the deed or deeds conveying title to the homestead to the trustee or trustees of the trust or trusts specifically state that the interests of the husband and wife to the homestead property are to be held as tenants by the entirety, the estate created shall be deemed to be a tenancy by the entirety.
In order to take advantage of this new estate planning technique, it is important to ensure that the deed is drafted properly by an attorney who is familiar with the language necessary to take advantage of this new technique.