Trusts: TBE or not TBE.

• Author: Harrison, R. Craig
• Position: Tenants by the entireties

Florida favors married couples holding their property as tenants by the entireties (TBE). Probate is avoided as the property passes to the surviving spouse by operation of law. Further, the tenancy provides creditor protection. In essence, the TBE property belongs to neither individual spouse, but both are collectively seized in the whole property. This indivisible interest cannot be severed by the actions of just one spouse. Because of this legal concept, the creditor of one spouse cannot sever the TBE property to satisfy the debt. (1)

To avoid probate and to take advantage of estate tax exemptions, estate planners have traditionally split the TBE property to fund separate trusts for each spouse, which usually provide tax credit shelter and marital trusts upon the death of the grantor spouse. The division of the TBE property between the spouses (held in trust or otherwise) subjects the property held by a spouse to the reach of that spouse's creditors. With the increase of the federal exemption and portability, single-share joint trusts are becoming more popular; however, a creditor of one spouse may be able to reach the entire corpus of a single-share joint trust.

A tenancy by the entirety trust (TBE trust) can provide the married couple with both creditor protection and the various nontax benefits of a trust. The TBE trust with disclaimer provisions provides the same estate tax benefits as a complex joint trust or the typical separate trust formats. A review of the TBE concept, historically and to the present day, together with an analysis of a beneficiary's interest in a trust supports the use of a TBE trust.

The TBE Property Roots

* The Beginnings of Jointly Held Property--The holding of property as joint tenants dates back to at least the 13th century. It was a mechanism to avoid the incidents of feudalism. The joint tenants were seized "per my et pur tout." In other words, the tenants held simultaneous ownership of an equal undivided fractional share ("pur my") of the entire estate ("pur tout"). In the 14th century, partition actions developed to sever the joint tenancy and the concept of tenancy in common was born. Persons who hold property as tenants in common hold their respective interests as a separate and distinct estate, i.e., an undivided one-half.

* The Development of TBE Property: Married Women Could Not Hold Property Individually--Tenancy by the entirety took form in the 14th century and the feudal system also played a role in its development as a married woman could not hold property in her individual name. However, it was not until the 18th century that tenancy by the entirety was actually described as a property interest in the ninth edition of William Blackstone's Commentaries on the Laws of England, in which he states:

If an estate in fee be given to a man and his wife, they are neither property joint-tenants, nor tenants in common; for husband and wife being considered as one in law, they cannot take the estate by moieties, but are seized of the entirety, per tout et non per my; the consequences of which is that neither the husband nor wife can dispose of any part without the assent of the other, but the whole must remain to the survivor. (2)

Although a married woman held title to the TBE property, her husband had the right to exclusively control the estate and his creditors had the ability to reach the TBE property subject only to the wife's right of survivorship.

* The Modern Concept of TBE: The Rule of Construction and Presumption of Intention--By statutory and constitutional enactments, married women gained the right to own property in their individual names. In Florida, the right of a married woman to hold separate property slowly progressed. Finally, in 1968, Florida adopted Fla. Const. art. 10, [section]5, which abolished all distinctions between married men and women in the holding, control, disposition, or encumbering of property.

Because married women could own property in their individual name, the original reason for the development of tenancy by the entireties, that the wife lacked capacity to hold title, no longer existed. Many jurisdictions faced the issue as to whether the tenancy by entirety concept should still apply. The Florida Supreme Court, in a series of cases, held that the ancient reason for the establishment of estates by the entirety (i.e., the incapacity of the wife to hold property) was no longer the common law basis of the estate by entirety concept. Rather, the common law evolved into a rule of construction based on the presumption of an intent to create TBE property and ownership of the TBE property as a single unit (per tout et non per my). (3)

First Nat'l Bank v. Hector Supply Co., 254 So. 2d 777 (Fla. 1971), addressing a bank account, held that a TBE interest was created in the account so long as the signature card was drafted in a manner consistent with the essential six unities of the TBE estate. This standard was reaffirmed in Beal Bank, SSB v. Almand and Associates, 780 So. 2d 45 (Fla. 2001), which pronounced that strong public policy considerations favored the finding of a TBE interest in property--at least with respect to creditors.

Based on these common law standards, the TBE property interest is created by 1) the intention of the husband and wife to create the tenancy, and 2) the establishment of the six essential characteristics associated with TBE property.

The Creation...