This question comes from a resident at a recent financial meeting for residents I attended.
I heard that if I title my house properly that it can't be taken in a malpractice lawsuit. How should I title my house?
How Should You Title Your House?
Joint Tenancy
If a house is titled in the names of two people, that is called “joint tenancy.” That means each person has the equal undivided right to keep or dispose of the property. Either person can sell the place, and if either is sued, the entire property can be taken from them.
Tenants by the Entirety
A married couple in many states (including civil unions in Hawaii and Vermont) has another option, called tenants by the entirety. This means that both the husband, and the wife, own the entire property, and it cannot be sold (or taken away in a lawsuit) without the consent of the other “tenant” (property owner). So the only way you can lose the house is if BOTH of you are sued. Your spouse is never named in a malpractice suit (unless perhaps you practice together) so voila, the house is safe from malpractice suits.
In some states, you can also title bank accounts, brokerage accounts, and other property besides real estate in this way.
The title needs to read: “William and Linda Jones, husband and wife, tenants by the entirety” or sometimes just “husband and wife.”
Downsides to Tenants by the Entirety
There are some downsides to titling your house this way. If one spouse disappears or becomes incompetent, it can be difficult to transfer ownership. The property cannot be severed (divided) in a “partition action.” One party cannot convey title to an adult child and a surviving spouse may not be able to disclaim the interest of a decedent.
These can be important estate planning techniques to avoid estate taxes. But for the most part, I see little reason for a typical physician not to title his house this way, if it is available in his state.
Should I Title in My Non-Physician Spouse's Name?
Many doctors have used a much sloppier technique in the past, titling the house, cars, boat, etc in their non-physician spouse's name. While this can obviously be a very bad thing in a divorce, it can also cause estate planning issues when one spouse dies. Instead of cleanly transferring to the other spouse (“right of survivorship”), the property then has to go through probate.
So when purchasing your next home, or opening any type of financial account, inquire if titling it as “tenants by the entirety” is a possibility in your state. Also, remember to put any investment properties in a limited liability company (LLC).
What do you think? How do you title your homes, cars, boats, and other property? Comment below!
I live in Wisconsin. I just looked up tenancy by the entirety for this state. Looks like we don’t have that as an option. We have joint tenancy and tenancy in common. Does anyone know if these structures protect the home from a lawsuit?
On a similar note, I’m looking it up now – is it possible to still deduct the mortgage on the home when one of the two deed holders (entitled people) pays? I’m looking it up left and right and cant find anything (I live in Maryland).
I pay my parents mortgage, its four grand a month. I’ve not had it transferred over to my name in that if I lose in a lawsuit, I’d hate to lose my parents house too.
if its not your mortgage then i doubt you can deduct it. frankly you are giving them a gift of 50k per year and i imagine this should be reported although it wont make a difference in the long term.
My asset protection lawyer had us take everything as ” 50% / 50% Sole and Separate.” His explanation to me was that someone could win a lawsuit against me and take my 50%. However, they would not have a right to evict my wife or make her sell and she could let me live in the house as her guest. Every year they would be responsible for half of the property taxes. This is just a roadblock so that most people would want to settle for the umbrella insurance amount and not go after the house or other assets.
As usual… the fear of lawsuits is far, far more costly than the lawsuits themselves.
Dave-
Joint tenancy and tenancy in common don’t provide much asset protection. Sorry. They do make it easier for the spouse to take over in the event of your death.
Neil-
I agree with Rex. It’s a gift. You’re reducing your estate tax exemption each year I suspect, although you and your wife can each give $13K to both of your parents ($52K a year) without getting into your estate tax exemption, so it’s probably no big deal, but you might want to discuss with a lawyer. I’m pretty sure to deduct the interest the mortgage has to be in your name, and I doubt a bank would give you a mortgage on a house you don’t own. Save on taxes or increased asset protection, your choice.
Dennis-
50/50 sole and separate is new to me. The phrase “sole and separate” is usually used when just one of the spouses owns the entire thing. What state are you in? What you describe seems to be inferior to “joint tenants by the entirety”, but I guess if that’s all you can get, I’d take it.
Dangerman-
You are correct. But insurance is also more costly than the protected losses themselves. That’s why insurance companies can stay in business. In many ways taking asset protection steps is taking a small guaranteed loss in order to protect from a possible huge loss.
“insurance is also more costly than the protected losses themselves”
Yes, but only a *little bit* more expensive… at least in any well functioning insurance market.
I suspect that the fear of lawsuits leads to deadweight losses that are *exceptionally* more expensive than the costs of the lawsuits would be.
I’d still love to see some data on that, but… as we’ve discussed… its quite hard to find. The medical malpractice insurance companies must have it, though.
I live in California, a community property state that does not recognize Tenants By The Entirety unfortunately. To deal with this, couples can opt out of community property status and elect 50 / 50 Sole and Separate via a post-nuptial agreement. Doesn’t have to be 50 / 50 if you can get your wife to agree to 70 / 30 or some other agreement. I’ve included an article if you care to read. I’m sure you are right and its not as good, but that’s usually the case with California.
http://www.fa-mag.com/component/content/article/1829.html?issue=89&magazineID=1&Itemid=27
Thanks for posting that. Here’s the relevant section for a reader:
“…in community property states, a chief reason couples obtain postnups typically is asset protection. Without a marital agreement, property acquired during the course of a marriage is considered equally owned by both spouses—regardless of whose name is on it. So a postnup is particularly critical for clients whose property may be vulnerable to creditors.
But creators of postnups for asset protection too often overlook a major tax trap. Community property states provide married couples with a major tax advantage: a double step-up in a property’s cost basis. Say one spouse dies and the other immediately sells the family home. The cost basis for capital gains tax purposes jumps to the property’s value at the date of death. The result: no capital gains tax for the surviving spouse. Putting the asset in the name of just one spouse can jeopardize this tax break.
To remedy this, Barth says he recharacterizes the property in a postnup as “50/50 sole and separate.” This way, at least half of the property gains protection from creditors, but it also retains one-half of that double step-up in basis. “
Here is a link to an article written by well-known asset protection attorney, Daniel Rubin, in New York called “The 10 Biggest Legal Mistakes Physicians Make Involving Asset
Protection”. The benefits (and possible problem under certain circumstances) of Tenancy by the entireties is addressed in #8.
http://mosessinger.com/articles/files/Chapters%202%20and%2012%20-%20The%2010%20Biggest%20Legal%20Mistakes%20Physicians%20Make%20Involving%20Asset%20Protection%20and%20Trusts.pdf
The above link did not work. But I was able to find the article online. https://www.mosessinger.com/articles/the-biggest-legal-mistakes-physicians-make-involving-asset-protection
I realize I’m posting to an old thread, but figured I’d try. I live in Arizona, which is a community property state, and it seems that my only title options are;
JOINT TENANCY WITH THE RIGHT OF SURVIVORSHIP
TENANCY IN COMMON
COMMUNITY PROPERTY – which is the default
COMMUNITY PROPERTY WITH THE RIGHT OF SURVIVORSHIP
Any ideas on which one? It seems that community property is good for a step up tax basis if only one spouse dies and then the other wants to sell, but it also makes everything open to creditors from either spouse…
It sucks that tenancy by the entirety is not available to you. The others aren’t nearly as nice for asset protection. Here’s why:
http://wills.about.com/b/2011/03/15/estate-planning-basics-whats-the-difference-between-owning-property-as-tenants-by-the-entirety-and-joint-tenants-with-right-of-survivorship.htm
The step up in tax basis is nice, I suppose, but the main point of titling something right is the asset protection. I don’t think any of those provide much.
What is the law in Michigan ?
Hmmm….let me see:
http://bfy.tw/cBS
Looks like Michigan is a tenancy by the entirety state.
My husband (the doctor in the family) and I are buying our first home in California. What do you recommend then since we don’t have the tenancy in entirety option??
I’d just put it in both your names.
Ok how about us single people (as in not married or in long term domestic partnership)? What do you recommend for titling a home for asset protection?
Should I set up a separate LLC or trust to purchase the home, or can I title it in a close family members name?
You could put it in a family member’s name, but they could sell it out from under you. I probably wouldn’t recommend that.
LOL … Yes I understand. I’ll be purchasing it in my name on the advice of my estate planner.
Our house is listed as follow
His name and My name, Husband and Wife As Joint Tenants By The Entirety. Is that the correct way since I am a practicing physician?
Thank you
Depends on the state, but if your state allows for tenants by the entirety and you’re married, that’s what I’d do.
You mentioned in a recent podcast to also title your taxable investing account in a similar manner. Would that’s be understood both spouses names and also “tenants by the entirety” ? This Is what my attorney recommended but we aren’t really “tenants” of a taxable account….. I called vanguard and they didn’t seem to know what I was talking about..
Thanks for all your incredible information, it is greatly appreciated!
Yes. Like with the house, it’s only available in some states, but why not use it if you can?
BTW- that happens all the time with Vanguard if you get too far out into the weeds. I think of it like the ED. People call up the ED and start asking all their complicated medical questions to the $10/hour clerk hired last week and are surprised when they don’t know the answers. The most knowledgeable folks at any business aren’t generally answering the phones.
Thank you very much Doc, after calling back and a long wait on hold while they went to do some research, it’s all set up!
In California…
I was reviewing articles and it was recommended to either place in a Trust or “Community Property with Rights of Survivorship”. Do you know anything about those?
Not sure what you’re trying to accomplish so hard to really say much. Depending on your goals, you may wish to talk to a California estate planning or asset protection attorney.
Hi! Single physician, buying a condo. Would setting up a trust or LLC help with asset protection? Thanks!
Yes. The question is how much.
https://www.whitecoatinvestor.com/asset-protection/
https://www.whitecoatinvestor.com/put-rental-properties-llc/
How do you actually change the title on your house – do you call the city/county clerk or the title company or someone else? thanks!
In our county it’s the county recorder’s office that does all that. Our estate planning attorney actually took care of it the one time we’ve changed a title. The recorder website FAQ says to contact an attorney or title company if you need to change the name on a title. Whether that’s mandatory or not I have no idea. But if I were going to do it, my first call would be to the recorder’s office.