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?
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!