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This is a question that’s frequently asked by our clients when discussing their estate plan options. The answer depends on the facts of each case but, in general, there are good reasons to hold title in the husband’s name and wife’s name, as husband and wife, rather than in their living trust name.
Property that’s in the names of both a husband and wife is considered to be owned as “tenants by the entireties.” Tenants by the entireties is a type of joint estate in real property held by a husband and wife where each owns the undivided whole of the property. This results in liability protection of the home in the event that either the husband or wife individually has creditor(s) that are not creditors of both spouses. For example, if the husband has creditors but the wife doesn’t, the creditors of the husband cannot collect against real property titled in the husband’s and wife’s names, as husband and wife. If the property is titled in the trust name, it wouldn’t have the designation as tenants by the entireties and wouldn’t have protection against the creditors.
In addition, as owners of real property owned as husband and wife, they have the rights of survivorship. If one dies, the survivor owns the property automatically and without the necessity of a probate proceeding. However, the right of survivorship is not applicable for the second of the spouses to die. The surviving spouse is advised to speak with his or her attorney to decide if some action should be taken regarding the status of title to the property.
Another significant reason to title the principal residence in the name(s) of the husband and wife or the survivor rather than in the name of a trust is that, if you apply for Medicaid assistance, they won’t count the value of a person’s primary residence toward their countable asset limit if the primary residence is worth less than $572,000. The same is not true in the situation where the principal residence of the applicant is in the trust name. A trust doesn’t have a principal residence, so the exemption doesn’t apply to property titled in the trust name even if the settlor of the trust resides in the house. This shouldn’t be confused with the Principal Residence Exemption available for real estate taxes in Michigan which is allowed if the property is in a trust name and the grantor of the trust or his or her spouse is the sole beneficiary of the trust.
An option for both spouses or for the survivor to retain the liability protection discussed above and the avoidance of a probate proceeding is to transfer their interest in the property to create a life estate in themselves and in the property but to retain control of the property including the right to revoke the life estate and transfer the title back to them, to sell the property, to give the property to someone else, to lease the property, and to borrow against the property.
Upon the death of the life tenant, the property is conveyed to the person(s) or trust identified in the deed automatically and without probate upon the recording of the death certificate(s) of the life tenant(s) in the county where the property lies. This is a technique in which a “Lady Bird Deed” would be considered. The Lady Bird Deed is a form of a deed transferring an enhanced life estate to the life tenant. Lady Bird deeds will be the subject of a future publication on our website.
The facts and circumstances of each client are often unique and the information above should be discussed with your estate planning attorney in Ann Arbor. This will help you reach the right decision as to how to title your property.
We help our estate planning clients understand and implement a plan that avoids probate and fulfills each client’s wishes at reasonable rates that deliver real value to you and your family.
Please call us at 734-665-4441 or contact us to schedule an initial consultation