WRITTEN BY BENNY L. KASS
Question: My wife and I own a house as “Tenants by the Entirety.” This is the second marriage for both of us, and we have children from the prior marriages. We have agreed that when one of us dies, the survivor will have the right to stay in the house as long as he or she lives, but when the survivor dies, half of the house will go to my children and the other half will go to her children. We have written simple Wills spelling out our intentions, but we are not sure the Wills are sufficient. Is there anything more we should be doing?
Answer: For all practical purposes, your Wills are meaningless and will probably not accomplish what you intend.
The legal concept of “Tenants by the Entirety” is reserved exclusively for a husband and wife. This means you both own the entire property as one entity. It is not divisible, and neither spouse can sell or in any way dispose of an interest in the property without the consent of the other owner, or by court order.
When one spouse dies, the other spouse automatically becomes the full owner of the entire property. This is what we lawyers call an act “by operation of law”. No probate is required under these circumstances.
There is nothing you can do in your Will to defeat this legal occurrence. More significantly, you should recognize that if one of you should die, the survivor — if he or she is so inclined — can change the terms of the Will, so as to defeat your joint and mutual purposes.
Needless to say, this is not a pleasant subject. But the fact remains that neither you nor your wife’s intentions may be carried out as you have currently structured your legal affairs. In many cases, all of the children will honor your wishes. Otherwise, you — or they — may get involved in a full blown court trial.
You should try to avoid a clash between the relatives. If your intention is to give half of the property to your children and half to your wife’s children, you may want to change the form of your house title from Tenants by the Entirety to a “Tenant in Common” relationship. Your lawyer can assist you in drafting the necessary papers, and the legal fee should be minimal. Since this would be a transfer “for love and affection,” without any other consideration, there should be no transfer or recordation tax required by the County or the State.
You should note, however, that if you hold property as Tenants in Common, on the death of one spouse it will be necessary to go to probate on that portion of the property previously owned by the deceased spouse. While this will add additional expense, it may be worth it to assure compliance with your desires. You can, however, consider creating and filing a deed pursuant to the “Deed on Death” law, if your state has enacted that law. Again, talk to your attorney.
Additionally, you should prepare new Wills, giving your spouse a life estate in the property. Keep in mind there are potential issues involved with a life estate, such as who will pay the mortgage and the real estate tax, and what happens if the house has to be sold to pay for the health care of the survivor.
How old are your children? If they are minors, have you designated a guardian? Have you established a trust arrangement, so that the property goes in trust until the children reach the age you will be comfortable with their taking over the responsibilities of property ownership. If you have more than one child, have you adequately protected both of them? And, perhaps, of most importance, have you adequately protected your spouse’s interest in having the use of the entire property until his or her death?
Additionally, do you have a durable power of attorney, authorizing someone to handle your health and financial matters should you become incapacitated and unable to take care of your own affairs? Without such a power of attorney, your children and/or your spouse may have to spend a lot of unnecessary money getting a court to appoint a legal guardian and conservator.
You may also want to consider transferring the property now to a revocable trust for the use and enjoyment of the property on the death of you or your spouse. The taxable consequences of having an estate can be significant, and you should seriously consider discussing your entire estate planning with a competent estate counselor.
This is an area that most of us shy away from. Yet, if you have not adequately protected your estate and spelled out your intentions, it may very well be that a judge and a court — and the Internal Revenue Service — will make the decisions for you.
There is an old expression that “where there is a Will, there are relatives”. Proper and early planning is critical.