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Assume that you are married to a self-proclaimed horse handicapper.  Your spouse has acquired this talent unbeknownst to you and has spent considerable time perfecting his or her skill. The financing of this endeavor has proven extremely burdensome, and the luck ran out just one race too soon. The letters start arriving from the loan companies looking for repayment. Default judgments start arriving and you begin to get concerned for your savings account. If that account is held as joint tenants with right of survivorship (JTWROS) property, you have reason to be concerned. If it is held as tenants by the entirety, your spouse’s creditors cannot take any part of the account.

In the litigious society in which we live, asset protection can be of extreme importance to many individuals. Doctors, lawyers and small-business owners should be concerned about the potential personal liability of their respective professions. Traditionally, these concerns have been addressed by these couples owning their property as “tenants by the entirety.” Tenancy by the entirety ownership is available only to married couples. It is similar to joint tenants with right of survivorship in that upon the death of one spouse, the surviving spouse becomes the outright owner of the jointly owned assets. However, a separate creditor of one spouse may attach the debtor-spouse’s half interest in JTWROS property, subject to a few exceptions, but a separate creditor of one spouse cannot take any part of tenancy by the entirety property. Until recently, a typical married couple had to choose whether to utilize the advantages of a revocable trust (i.e., avoidance of probate, full utilization of the federal estate tax “Unified Credit” amount) or to instead own their assets as tenants by the entirety for the asset protection benefits. In Missouri, tenancy by the entirety ownership is presumed for assets owned by a husband and wife unless another form of ownership is indicated.

Missouri recently enacted legislation creating a Qualified Spousal Trust (QST) to allow couples to have the advantages of both. A QST allows a husband and wife to transfer tenancy by the entirety property into a trust and maintain the asset protection that tenancy by the entirety provides, but eliminates the requirement that the property pass wholly to the survivor. The property of a QST may be held as one trust fund, revocable by either or both spouses, or as two separate shares, one for each spouse, with each spouse having the right to revoke the trust as to his or her share.

Traditionally, for a husband and wife with assets over the Unified Credit threshold, two separate and distinct trusts would be formed — one for the husband and one for the wife. This division, while maximizing the traditional estate tax planning benefits, offered little asset protection. The QST allows a husband and wife to transfer property held as tenants by the entirety to the trust, keep the asset protection given to property held by tenants by the entirety, and still receive the benefits of utilizing both spouses’ Unified Credit. Traditional Asset Protection Trusts continue to provide better asset protection but they are often too expensive, cumbersome and impractical for most married couples to create and administer. Under the QST, the spouses can continue to control the assets by being the Trustees.

Under current federal tax laws, the estate tax Unified Credit exemption has been increased, and estate tax concerns regarding the allocation of asset ownership between spouses has been eliminated. A married couple may now leave up to $10 million to their children and other beneficiaries without incurring any estate tax. These changes have caused many couples to opt for a joint revocable trust rather than separate revocable trusts created by each spouse.

And, of concern to some married couples in the situation above, utilization of the QST does not change either party’s marital rights to the transferred property in the event of divorce.