Effective January 1, the Illinois Joint Tenancy Act has been amended to permit revocable inter vivos trusts created by a husband and wife to hold title to the couple’s homestead property as tenants by the entirety. This means that married couples will no longer need to give up the protections offered by a tenancy by the entirety arrangement in order to set up and properly fund estate planning trusts.

“Tenancy by the entirety” is a special form of ownership previously available, at least in Illinois, only for homestead property (i.e. principal residence) held by a husband and wife. Similar to a joint tenancy arrangement, property held as tenants by the entirety automatically passes to the surviving spouse when one spouse passes away. Tenancy by the entirety offers added protections, however, in that (a) neither spouse can convey or encumber the residence without the consent of the other spouse, and (b) a creditor of either spouse individually cannot obtain a judgment against the property so long as the house is owned by the spouses during their lifetimes. This latter benefit-protection of the residence from individual creditors of either spouse-can be significant in relationships where one spouse has a greater creditor risk (i.e. a doctor) than the other spouse.

Prior to the change in the law, a couple often had to choose between creditor protection through a tenancy by the entirety and maximization of the funding of the revocable trusts created by the husband and wife. From an estate planning standpoint, it is often advisable to create revocable trusts (along with “pour over” wills and powers of attorney) for a husband and wife in order to achieve probate avoidance and minimization of estate taxes at death. The couple’s assets would then be divided between the husband’s revocable trust and the wife’s revocable trust so as to take advantage of the estate tax exemptions of both spouses, regardless of the order of deaths. This trust “funding” process was often at odds with the benefits offered by keeping a property titled as tenancy by the entirety.

Under the revised statute, it would seem, a couple can now have the best of both worlds.