Why even excellent estate planning tools aren’t right for every Pennsylvania family.
Most people create an estate plan to protect everything they’ve worked hard to build. But what if a decision made during that process actually makes their assets more vulnerable to creditors? For physicians, contractors, business owners, and other professionals who face personal liability, this is a real concern.
In Pennsylvania, married couples have access to a powerful form of asset protection called tenancy by the entireties. Yet certain estate planning decisions can unintentionally eliminate that protection.
And one of those decisions may involve an otherwise excellent estate planning tool: a revocable living trust.
A Protection Many Married Couples Don’t Know They Have
Under Pennsylvania law, property owned by married couples as tenants by the entireties generally cannot be seized by a creditor of only one spouse.
Consider a married contractor who operates his business as a sole proprietor. A construction dispute results in a substantial judgment against him personally, exceeding his insurance coverage. His wife has no liability for the judgment. If their home and savings are properly owned as tenants by the entireties, those assets generally remain protected from his individual creditor.
For families facing significant professional or business liability, that protection can be invaluable.
When a Great Planning Tool Isn’t the Right Fit
Let me be clear: Revocable living trusts are fantastic estate planning tools.
They can simplify estate administration, avoid probate for properly funded assets, provide continuity during incapacity, and offer flexibility in managing and distributing assets. We use them regularly in appropriate circumstances, BUT a revocable living trust is not a one-size-fits-all estate plan.
In Pennsylvania, transferring a home owned as tenants by the entireties into a joint revocable living trust terminates that form of ownership. Even when both spouses establish the trust together, they do not automatically retain the creditor protection they previously enjoyed. Pennsylvania law also generally makes revocable trust assets available to the settlor’s creditors during the settlor’s lifetime.
Consider a physician and spouse who own an $800,000 home as tenants by the entireties. The home is generally protected from a malpractice judgment against the physician alone. However, if they transfer the home into a joint revocable living trust to avoid probate, they eliminate the existing entireties ownership and may expose an asset that was previously protected.
Was avoiding probate worth potentially sacrificing that protection?
Maybe. Maybe not. But it’s a question that deserves consideration before the deed is signed.
Estate Planning Is About More Than Choosing Documents
The same principle applies to other planning decisions.
Transferring assets into one spouse’s name, adding children to deeds or accounts, or having both spouses personally guarantee business obligations can all affect creditor protection. These decisions shouldn’t be made in isolation. A good estate plan considers the entire picture: family circumstances, assets, liability exposure, long-term-care concerns, tax considerations, and what happens after the first spouse dies.
For one family, a revocable living trust may be exactly the right solution.
For another, preserving tenancy by the entireties may be far more valuable than avoiding probate.
And for others, the best plan may involve a combination of strategies.
The goal isn’t to fit every family into the same estate plan. It’s to build an estate plan around the family.
The Bottom Line
Revocable living trusts are excellent tools. But even the best planning tool can create unintended consequences when used without considering the bigger picture.
At Zacharia Brown & Bratkovich, we believe estate planning begins with understanding the family, the assets, and the risks—not simply deciding which documents to prepare.
Because a good estate plan shouldn’t just determine what happens to your assets when you die. It should also consider how to protect them while you’re alive.
And that’s why the details matter. To set up a Strategy Session with one of our attorneys, call 724.942.6200 or click HERE
