Recent Case Clarifies No TBE Protection for TBE Asset Transferred to a Joint Trust

In the recent bankruptcy case, In Re Gregory Todd Givans, the bankruptcy court confirmed that real estate held by a married couple as Tenants by the Entireties (“TBE”) loses such protection as TBE when such real estate is transferred to a joint trust.

Generally, under Florida law an asset held as TBE is protected from a creditor of one spouse. To create TBE there are 6 requirements: (1) unity of possession (joint ownership and control) (2) unity of interest (each interest is identical), (3) unity of title (the interest must be created in the same instrument (4) unity of time (interest commenced simultaneously) (5) survivorship and (6) unity of marriage.   

In Givans, Gregg (the debtor who owed money) and his wife, Marna owned a piece of residential real estate (not homestead) (“Property”) . The Property was originally transferred from Marna and her mother to Gregg and Marna as TBE and then by Gregg and Marna to Gregg and Marna, as Trustees of the Gregory T. Givans and Marna A. Givans Inter Vivos Revocable Trust. (the “Trust”) . The actual deed into the Trust was not recorded.

Under the Trust terms, upon the death of either Gregg or Marna, the assets were held for the survivor as an income beneficiary, and, at both deaths, the assets were distributed to their 2 children.

Gregg filed a bankruptcy petition and claimed the Property as exempt from bankruptcy because it was owned as TBE. Further they argued that they did not “deliver” the deed to themselves as trustees because it was not recorded.Thus, they argued that, because the deed was not delivered to the trustees, the Property was still held as TBE. 

The court found that, under Florida law, “the delivery of a deed by the grantor and its acceptance by the grantee consummates the deed and it is effective and operative from that date on”. The recording of the deed is “not essential  to its validity as between the parties…”. The court looked at the plain language of the deed which states that the settlor (Gregg and Marna) “transfers and delivers to the Trustee the property…the receipt of which is hereby acknowledged by the Trustee”. The Trust language refers to the Property attached as an exhibit to the Trust.

The court then determined that the Trust could not own Property as TBE. The deed clearly indicates that, upon transfer to the Trust, the Property is held by Gregg and Marna, as trustees and not as husband and wife. The Property is held for the benefit of the trust beneficiaries, not only themselves, but also their children.

They also argued that the Trust provides that the Trustees are BOTH Gregg and Marna and, because they have to act together, the unities required for TBE remain intact. The court noted a trustee only owns legal title while the beneficiaries own equitable title. Thus, there was no ownership of the Property by a husband and wife. 

Gregg and Marna then argued that the doctrine of merger applies which provides that, when either the entire beneficial interest passes to the trustee or where the legal title passes to a sole beneficiary, then there is a merger of legal and equitable title and the holder of both interests receives the total ownership of the property. As children are remainder beneficiaries of the Trust, the doctrine of merger did not apply. 

Interestingly, the court pointed out that while Gregg and Marna may avoid probate at both deaths, they did not get the benefit of TBE protection. They could not have it both ways. “The Property cannot be held by the Trust, subject to the terms of the Trust (which creates an interest for their children) and also be held as tenants by entirety, subject to common law and protected from creditors’ claims.” 

ADVICE:  Be very careful if you are advised to move everything to a trust to “avoid probate”. Such a transfer is NOT always the best solution. The term, “probate”, has become a four letter word for some individuals. Many do not realize the cost of administering a trust, the lack of oversight by a court and many times a trust may not accomplish the purpose you want. Consult with an attorney to determine whether such transfers are best for your situation.

WORD OF THE WEEK: Legal title reflects the actual ownership of the property. The name in the public records is typically the owner of the legal title. Legal title grants true ownership of the property. Equitable title refers to the enjoyment of the property. While equitable ownership is not “true ownership”, equitable title gives the individual or entity the right to the use and enjoyment of the property.  If I give Blackacre to Bob as trustee of the Bob Trust, then Bob has legal title as trustee and the beneficiaries of Bob’s trust. have equitable title. 

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