HB 2623 amends Hawaii Revised Statutes Section 509-2 and extends Tenancy by the Entirety Creditor Protection to Trusts in Hawaii
Among the many bills that were considered and passed in the 2012 Hawaii legislative session was a law that would allow spouses and reciprocal beneficiaries (RBs) to place real property in a trust AND be extended the creditor protection afforded by holding property as tenants by the entirety. Thus, spouses and RBs may preserve their creditor protection while taking advantage of the benefits of placing their real property into a trust.
For those unfamiliar with the concept of tenancy by the entirety, it is a form of concurrent property ownership. The other types are tenants in common and joint tenancy. Tenancy by the entirety is a form of ownership that is available only to spouses or reciprocal beneficiaries. The main benefit of holding property as tenants by the entirety is that a creditor of an individual spouse or RB cannot attach and sell the real property interest of the debtor spouse. However, this creditor protection is not available against a couple's joint creditors.
In the 2012 legislative session, HB 2623 added a few new subsections to Hawaii Revised Statutes Section 509-2. Prior to this bill passing and being signed into law, two people who held real property as tenants by the entirety and wanted to create separate trusts would need to break the tenancy by the entirety ownership and convey their interests into their respective trusts as tenants in common, thereby losing the creditor protection. However, HB 2623 now states that real property held by spouses or RBs in equal shares as tenants in common in their respective trusts shall be treated as if the real property (or its proceeds) are held as tenants by the entirety.
These new additions to Hawaii Revised Statutes Section 509-2 states that this creditor protection shall continue even after first of the couple passes away. This is also true if a court in any proper jurisdiction holds a trust to be invalid while the couple is still alive. Of course, if spouses divorce or reciprocal beneficiaries terminate their legal relationship, the tenancy by the entirety is severed and the real property will be held as tenants in common.
To gain the creditor protection for real property held in trust, certain requirements must be met and specific language needs to be inserted into the conveyance deed. In general, holding real property in tenancy by the entirety is preferable, but of course, it depends on the situation and as well as future considerations. Consult with an attorney to explore whether this extension of tenancy by the entirety for Hawaii trusts is right for you.
Samuel K.L. Suen is an attorney based in Honolulu, Hawaii specializing in estate planning, probate, conservatorship and guardianship matters.
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