¶ 1101
Overview
Scope of the chapter. Part III examines the building blocks from which every protective plan is assembled. The first and most basic is title. How an asset is owned determines who may reach it, in what proceeding and to what extent, before any trust or entity is involved. This chapter examines the forms of ownership available to individuals and families: sole ownership, tenancy by the entirety, community property, joint tenancy and tenancy in common, and the nominee and land-trust arrangements used for privacy. It closes with a method for auditing a client's title.
Why title comes first. Many clients arrive with a complex plan in mind and a simple problem in fact: their assets are titled in the name of the spouse with the greater exposure, in joint accounts that any creditor of either spouse may levy, or in a form that the law of their state does not protect. A change of title costs little, can often be made without any transfer to a third party and may provide substantial protection against particular creditor classes. A change of title made at the wrong time, or in the wrong direction, may also be a voidable transfer (see supra ch. 7). The planner should therefore review title before designing any structure, and should treat each change of title as a transfer to be tested under the rules of chapters 5 through 7.
Title in the Threat Matrix. No form of title protects against every creditor. Tenancy by the entirety may defeat a creditor of one spouse and fail entirely against the Internal Revenue Service or a joint creditor. Community property may expose both spouses' shares to the debts of either. Joint tenancy may give a creditor of one owner a lien that survives the owner's death in some states and is extinguished in others. The ratings that follow in each section are summarized in ¶ 1190.
How to read the chapter. Paragraph 1110 surveys the forms of ownership. Paragraph 1120 examines tenancy by the entirety in depth. Paragraph 1130 addresses community property and the opt-in community-property trust statutes. Paragraph 1140 covers joint tenancy, tenancy in common and joint accounts. Paragraph 1150 analyzes transfers between spouses. Paragraph 1160 treats nominee title, land trusts and privacy arrangements. Paragraph 1170 addresses unmarried couples and other households, and ¶ 1180 title across borders. Paragraph 1190 sets out the title audit.
The planner's questions. Each section of the chapter answers a set of recurring questions about a given form of title. Who holds legal title, and who holds the beneficial interest? Can one owner convey or encumber an interest without the others? Which creditors of which owner can reach the property, and by what process? What happens to the creditor's rights on the death of an owner, on divorce and on the bankruptcy of one owner? Is a change into or out of the form a transfer, and if so, of what and by whom? The answers differ by state, and the planner who works across state lines should keep a jurisdiction note for each client recording the answers under the law that governs each significant asset.