Only married couples may own property jointly as tenants by the entireties. Whenever possible, it is advisable for them to do so. This is because this form of ownership gives each spouse full rights to the property, including the right of survivorship, but does not allow creditors to seize the property if the property is used as collateral for a loan and the spouse who put up the property as collateral dies without paying off the loan. Traditionally, one drawback to this estate-planning approach has been that the full value of property owned by a husband or wife as tenant in the entirety would be deducted from his or her estate tax exemption when he or she dies.

However Maryland, following Virginia’s lead, has recently enacted legislation that extends the protections of tenancy by the entirety ownership to property held in trust by a third party, and income created by that property, provided that certain conditions are met. As property held in trust does not count towards the estate tax exemption, this new law effectively gives married couples a way to set up protections for each other from creditors without having to worry about how it will affect their eligibility for the estate tax exemption. The conditions are:

1. The property must first be owned by the married couple as tenants by the entireties;
2. The property then must be put in a trust for the benefit of both spouses and
3. The couple must remain married.

The easiest way to ensure that condition (1) above is met is to set up a bank account held by both spouses as tenants in the entireties, deposit the funds you wish to protect directly into that account, and then transfer the property to the trust. To be safe, you should specifically request that your bank account be titled as tenants by the entirety before depositing the funds into it. This may not even be an option at some banks.

If funds you wish to protect are already in the trust accounts, you should take them out, put them into the tenants by the entirety account, and put them back into the trust account. It is important to note that one implication of protecting funds in this manner is that marital rights to these funds may be ceded by treating them in such a manner, which may create controversy in the event of a divorce.

In sum, there may be new, low-cost, low-risk ways to protect your assets. To take advantage of these new laws, contact Randy at rweiss@weissllp.com.

PLEASE NOTE THAT THIS CLIENT UPDATE IS DESIGNED TO INFORM YOU GENERALLY OF CHANGES IN THE LAW THAT MAY AFFECT YOU AND SHOULD NOT BE RELIED UPON FOR LEGAL ADVICE.