Married couples: to put your house in Trust or leave it alone?

All this talk about avoiding Probate and yet it is almost always recommended that married couples leave their home titled jointly while they are both living and married, as opposed to putting it in their Trust along with their other assets. Why?

In Michigan, when spouses own real estate together, it is usually titled as “tenants by the entireties” (unless the deed indicates otherwise).  “Tenancy by the entireties” is somewhat of a legal fiction where spouses are deemed to be one “unit” and neither of them can transfer or encumber (i.e., mortgage) the property alone without the consent of the other. This is different from joint tenancy.  Also, more importantly, no creditor of one of the spouses can reach the real estate (unless the creditor is a joint creditor of both spouses). (Although in a bankruptcy situation, that might be different – don’t automatically assume that the property would be exempt.)

When one spouse dies, title to the property automatically vests in the survivor alone and at that point, the property will not be subject to Probate. And no new deed will be needed to transfer it to the surviving spouse. However, the surviving spouse will have to update his/her estate planning to deal with the house if he or she wants to keep it and avoid Probate. There are many options such as putting the house in a “Lady Bird” deed, making it jointly owned with his/her children, for example, or placing it into the name of his/her Trust.

Ultimately, when you sign your Trust or Trusts, you’ll have to “fund” the Trust and you might be surprised to see in the funding instructions that I provide you that you might need to leave the house that you own with your spouse alone until one of you passes away or upon divorce. This is why I always ask at the beginning of our estate planning process exactly how your house is currently titled (a copy of the deed is always helpful to verify).

1 comment

Leave a Reply

%d bloggers like this: