How do married couples protect their assets against creditors? Tenancy by the entirety property (TBE) offers protection for married couples against creditors. TBE is jointly owned property titled in both names and receives creditor protection. Married couples may hold any type of asset, real estate, investment accounts, and bank accounts as marital property. Missouri passed Statute 456.950 to expand property protection for married couples in a type of trust named a Qualified Spousal Trust (QST). What is a Qualified Spousal Trust?
The Qualified Spousal Trust
Arkansas and Missouri enacted statutes for a Qualified Spousal Trust. A Qualified Spousal Trust is a living trust for married couples. It is also a recommended trust for professional spouses. It offers TBE protection to spouses against creditors. Twenty-five states created these types of trusts for married couples. Let's focus on the Missouri Statute this time.
How is a Qualified Spousal Trust Created?
Three designs exist for a Qualified Spousal Trust. Spouses may create a joint only trust. In a joint QST, all property is considered marital property and receives protection against the creditors of the individual spouse. Both spouses are the trustees over trust assets. It takes both spouses to amend the trust during their lifetime. It does not protect against a joint creditor of spouses.
The second QST design is created with separate shares. Each spouse creates a separate share inside the marital trust and that property receives marital property TBE protection. A spouse's separate share is created for the benefit of the one who created it. It may seem confusing. Simply stated, Wife creates a separate share W in the QST for her benefit and Husband does the same where his share is for his benefit. There is case law, though, that takes issue with separate share QST in bankruptcy law. Make sure to discuss the pros and cons of the QST with separate shares.
The third creation is a Joint with Separate Shares in the Qualified Spousal Trust. Spouses create joint property and separate share property in the QST. This design is complex and has not been tested in the Courts.
QST CHANGES
Revised Missouri Statute 456.950 expands protection against creditors for married couples. In August of 2024, the Missouri legislature expanded the protection for married couples against creditors. Before the changes, the Qualified Spousal Trust ended at divorce and death. The changes now extend QST protection to a surviving spouse. The expansion of the QST is very important. The surviving spouse enjoys immunity from creditors during the remainder of his/her life. The important piece to this QST protection is that the property must be transferred to the QST prior to the first spouse's death.
Qualified Spousal Trust Takeaways
The QST is available only to married couples. Transfers to a QST protect spouses against creditors. Transfers cannot be made to avoid a known creditor because that makes it a fraudulent transfer. The surviving spouse receives protection during his/her lifetime. Even with a Qualified Spousal Trust, a surviving spouse needs to talk to a tax professional to discuss any tax consequences for the estate.
Estate Planning for Married Couples
Do you have a Qualified Spousal Trust in place already? If you created it before August 2024, you should consider talking to an attorney for updates. The revised statute changed the nature of the QST at the death of the first spouse. Are you a professional in marriage? You should consider talking to an estate planning attorney for a different revocable living trust- the QST. If you have nothing in place as a married couple, you need a plan. Call Sheri Tucker your estate ally attorney for estate planning at 314-332-0011 for your complimentary consultation.
