Most married couples in Hawaii buy their home as “tenants by the entirety.” Many have transferred their home to their trusts.  Which is better?  To own your home as tenants by the entirety, or to put your home into your trusts?  Let’s look at the advantages and disadvantages.

First, I apologize to those of you who are unmarried, divorced or a widow or widower.  “Tenancy by the entirety” can only be used by a married couple.  Read the most recent deed for your property.  See if you own the property as “tenants by the entirety.”  It is also possible to own real estate, savings accounts, stocks and bonds as tenants by the entirety.

With tenancy by the entirety, if one dies, the property goes to the surviving spouse without going to court for probate.  One spouse cannot sell any part of the property without the signature of the other spouse.  The main advantage of tenancy by the entirety is asset protection from lawsuits.  If somebody sues either the husband or the wife and wins the lawsuit, the person suing cannot touch the property.  To take away the property, the person suing would have to win a lawsuit against both husband and wife.

When husband and wife put their home into their trusts, they lose the tenancy by the entirety protection.  If one of them gets sued, the person suing could go after the half of the property that is in the trust of the spouse being sued.  Only $30,000 of the value of one property is protected if the person being sued is the head of a family or 65 years of age or older.  For others, only $20,000 of the value of one property is protected.  With tenancy by the entirety, 100% of the property is protected.

If you are married and have trusts should you put your property into the trusts, or keep owning it as tenants by the entirety?  If you put it in the trusts, you will not have to worry about probate if you die, but a person who sues you could go after the property.  If you keep the property out of the trusts, and own it as tenants by the entirety, it is protected from lawsuits.  However, if both husband and wife die together in an accident, then there will have to be two probates.  If one dies, the property will go to the survivor without probate.  The survivor should then put the property into her trust before she dies.

If the husband and wife have A-B trusts and own enough assets to be taxed by the estate tax, then owning the property as tenants by the entirety could cause a problem.  When one dies, and the property goes to the surviving spouse, she has more assets and therefore a greater chance for an estate tax problem when she dies.  This problem can be reduced by having the surviving spouse “disclaim” the half of the property that is supposed to come to her, and cause it to go into the deceased spouse’s trust.  However, disclaiming real estate requires going through probate.

So what should you do?  If you are young and healthy and not worried about being sued, put your property into your trusts.  If you are worried about being sued, either get a high level of insurance coverage, or keep your property as tenants by the entirety, or both.  If you are elderly and your assets will never be subject to the estate tax, then consider taking your home out of your trust, give it to your children, but keep a life estate as tenants by the entirety.  (A “life estate” means you own your home for the rest of your life.)  That way you don’t have to worry about probate, lawsuits, or nursing home costs.  A single person can also give away the home but keep a life estate, to protect it from probate and nursing home costs.