We often see clients who created their Will, Living Trust and other Estate Planning documents years ago, and who have put those documents in their file without continued attorney review. In many instances, there have been changes in living arrangements, changes in property and liabilities, and other significant life events that require attorney review and tweaks to Estate Planning and other documents. This is the first in a series of Estate Planning follow up recommendations:
Recommendation #1: Your Home And Tenancy By The Entirety Protection:
Protecting your home, both during your lifetime and afterwards, is a key consideration. This is particularly true if there should be an event requiring a review for purposes of debt collection, bankruptcy or similar issues.
Tenancy By The Entirety (TBE) is a special form of property ownership for married couples in Illinois offering protection against creditor collection efforts and protection in the event that a bankruptcy becomes necessary. TBE title ownership is only available to married couples and only available for their principal residence. It does not have to be elected at the time of the property purchase. It can be added in the event of a subsequent marriage or at any time by an appropriate deed transfer. Review by your attorney is recommended.
Electing TBE ownership does not involve any additional expense. But if it was available and is not used, TBE protection is not available.
Here is how it works: When the marital home is held in TBE ownership, this ownership effectively provides additional security in the event that one or the other spouse is sued for an individual debt. Under Illinois law, the creditor of one spouse can only file the judgment as a lien against the home; the creditor cannot foreclose its lien while the home remains in TBE ownership. And if one spouse needs to file for bankruptcy protection, the bankruptcy trustee cannot reach the spouse’s interest in the home for the spouse’s creditors.
TBE does not protect the home against collection efforts involving joint debts of the owners.
The concern? Tenancy By Entirety may not have been elected, even if it was available.
More often, the TBE protection can be lost. And that is the reason that homeowners should review their Estate Planning and Estate Planning Documents routinely. These are some concerns and the key take-aways:
Don’t wait until there is a major liability or a need to seek bankruptcy or debt counseling.
> If a spouse is facing a significant illness, or if one or both spouses have moved to a new ‘principal’ residence, or if a divorce or separation is in the cards, considering the TBE protection for your property is a must.
> If a spouse passes away or if the marriage is ended, the TBE protection against creditors of either spouse is lost.
> If one or both spouses no longer has their principal residence at the home (regardless of the reason), the TBE protection against creditors may be lost or jeopardized.
> If the homeowners take action without discussion with an Estate Planning Attorney, the result of decisions made may significantly affect the TBE protection for the home.
One real-life example: A friend recommended that one spouse should be impoverished because of Medicare or other circumstances by transfer of the interest in the marital home. Yet there were other, pre-existing debts of the spouse, and the transfer of the home destroyed the TBE ownership and protection. The spouse who continued to own the home was sued by their creditor, and a judgment lien was filed against and attached to the entire interest of the spouse.
Another real-life example: The client heard from a friend that they could avoid a probate at the death of one or the other spouse, without using a trust. The client decided on their own to add two children to the home deed while they were still alive. By doing so, the client inadvertently destroyed the TBE ownership and protection because the home no longer owned solely by a married couple. A judgment creditor sued, and the equity in the home was reachable for the debt.
Even well-intentioned efforts to transfer the home title into a land trust or to an Estate Planning Living Trust or other form of ownership could inadvertently cause a loss of the TBE ownership and protection.
> If the marital home is transferred into a Land Trust, regardless of the reason, and the beneficial ownership interest in the trust is not retained by both spouses, or even if both spouses retained ownership, when the Land Trust Agreement fails to clearly state that the beneficial ownership is held as tenants by the entirety, then the TBE protection will be lost.
> If the Estate Planning Attorney created a living, revocable trust for one or both of the spouses, and deeded the marital home into the trust, but failed to express in the Deed into Trust that the ownership will be treated as tenancy by the entirety, or if the transfer otherwise fails to comply with the Illinois law (765 ILCS 1005/1c), then again the TBE protection will be lost.
Important Action Steps:
> Discuss TBE ownership with your real estate attorney at the time of your purchase.
> Review your Estate Planning Documents and your title ownership for your real estate interests regularly; particularly if there are significant changes that have occurred or about to occur.
Your attorney can help you to create a good plan and can assist you by reviewing your existing Estate Planning Documents and your asset and liability picture.
