What are Separate Creditor Protections and when are they available to be included?
When Tenancy is taken as Tenants by the Entirety, which is a tenancy option available only to married couples, civil union partners, and reciprocal beneficiaries. This tenancy is preferred as it protects Real Property against Separate Creditors, along with the rights of survivorship and avoiding probate. A Separate Creditor is a creditor that is owed money or may potentially file a lawsuit, but the debt or claim is only against one of the spouses, partners, or reciprocal beneficiaries. If the property ownership is held as a Tenancy by the Entirety tenancy, then the Separate Creditor will not be able to go after the property to satisfy the debt or potential claim or judgment.
When adding an Estate Plan to your portfolio, it is important to remember that a Declaration of Trust or Living Trust does not automatically include this protection upon its creation. In Hawaii, HRS Section 509-2(b) and HRS Section 509-3, allows for that Separate Creditor immunity to be continued when the Tenancy by the Entirety tenancy is then transferred to either a joint trust as tenant in severalty, or in equal shares as tenants in common to their respective separate trusts. This immunity will continue as long as certain elements are satisfied and the proper language is added to the conveyancing instrument, usually called a Deed to Trust.
Proper format, language, and execution of this process is vital for its validity and will determine whether or not those Separate Creditor protections and immunities are continued and honored by a court of law. It is important to consult an experience Hawaii Estate Planning Attorney to ensure that this process is done properly and Separate Creditor protections are available and legally enforceable.
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