You, like most people, may be concerned about protecting your hard-earned assets from potential creditors. As estate planning attorneys, we discuss this topic frequently with our clients when preparing their estate planning. A Missouri statute was recently updated to expand protection from creditors for married couples when assets are placed in a specific type of trust, called a Qualified Spousal Trust. This blog will discuss this type of trust and what you need to do to take advantage of this expanded protection.
What is a Qualified Spousal Trust?
In 2011, Missouri enacted the Qualified Spousal Trust under statute 456.950 and have updated it multiple times over the years, making it a more attractive option for married couples each time. When assets are transferred to a Qualified Spousal Trust by a married couple, whether the property was held in the joint names of both spouses prior to the transfer or if it was in the sole name of only one spouse, those assets receive tenancy by the entirety protection.
What is Tenancy by the Entirety Protection?
When two individuals get married, they form a union which in a sense produces a new entity, the married couple. Any property owned by the married couple in both of their names is 100% the property of both spouses. It doesn’t matter if one spouse paid more than the other to purchase the property or even if one spouse paid for all of it, both spouses have equal rights to the property and the consent of both is required to sell or transfer the property. Missouri is one of 25 states that classifies property owned by a married couple this way and there are two distinct advantages to tenancy by the entirety ownership.
Advantages of Tenancy by the Entirety Ownership
The first advantage of owning property as tenants by the entirety is for estate planning. When either spouse dies, the other spouse owns 100% of the property automatically without any need for a beneficiary designation or other planning. This saves the surviving spouse a lot of money and a lot of headaches during an already difficult time having just lost their spouse.
The second advantage is that property of the married couple under tenancy by the entirety is not available to the creditors of either spouse, only creditors who have contracted with both spouses. For instance, if one spouse has credit card debt and the other spouse is not a joint owner of the credit card account, the credit card company can’t take the couples jointly owned home to pay the debts of only one spouse.
Recent Improvements to Qualified Spousal Trust
As if extending tenancy by the entirety protection to your trust wasn’t great enough, in August of this year, the Missouri Legislature improved the protection under the Qualified Spousal Trust by expanding the creditor protection provided under the trust. Prior to this amendment, upon the passing of one of the spouses the property in the Qualified Spousal Trust no longer maintained the same creditor protection for the surviving spouse. With this new amendment, unless the surviving spouse has guaranteed the debt through some kind of writing or through jointly owned collateral, the property in the Qualified Spousal Trust continues to be immune from creditors during the life of the surviving spouse. The only requirement is that the property must have been transferred to the Qualified Spousal Trust prior to the death of the first spouse and the property must stay in the trust for the remainder of the surviving spouse’s life.
Exceptions
There are some exceptions where this creditor protection is not available. You can’t transfer property to a Qualified Spousal Trust to avoid known creditors, this is considered a fraudulent transfer. You also can’t avoid certain government debts, like taxes, by transferring property to a Qualified Spousal Trust. Also, unfortunately, this protection is unavailable to people who aren’t married.
Takeaways
Clients ask us all the time whether transferring property to their trust will protect it from creditors. Despite what you might read on the internet, transferring your property to a revocable trust will not avoid your creditors. The only way to avoid future creditors with a trust is to make it irrevocable, which means you no longer have control over the property and for most people this is a step too far. There are ways that your revocable trust will protect your hard-earned assets from the creditors of your heirs and beneficiaries and you can learn more about how by reading this blog. However, with the Qualified Spousal Trust, not only can you extend your creditor protection afforded to you as a married couple to property owned in a revocable trust, the survivor of you will receive that same protection for the rest of their life, even from their own creditors.
How to Get Started
In order to take advantage of this new change in the law, you will need the assistance of an experience estate planning attorney. Reach out to us today to schedule a time to discuss how we can help you protect your assets and address any other problems you might be facing when it comes to planning for the future.
Frankel Rubin’s attorneys are licensed in Missouri and Illinois and our law firm services all of the St. Louis Metropolitan Area. We are especially convenient for estate planning in Clayton, Brentwood, Des Peres, Frontenac, Glendale, Webster Groves, Kirkwood, Ladue, Maplewood, Olivette, Overland, Richmond Heights, Rock Hill, Shrewsbury, Town and Country, Creve Coeur, Affton, Crestwood, Sappington, Sunset Hills, Maryland Heights, University City, Warson Woods, and St. Louis City.
