TENANCY BY THE ENTIRETY in Tennessee: an old concept with a new twist

 

TENANCY BY THE ENTIRETY in Tennessee:  an old concept with a new twist

A statute which became effective 7/1/2014 has made it important that you make yourself aware of how a very old legal concept works, called “tenancy by the entirety.” The summary below is meant to act as a quick guide to make you familiar with tenancy by the entirety. Remember, Tennessee recognizes tenancy by the entirety in the common law, while some other states do not. Tennessee now allows the long-standing asset protection exemption of Tenancy by the Entirety to apply even after a transfer is made into a trust – so this is a timely and important topic.

1. What is Tenancy by the Entirety? A tenancy by the entirety is a form of joint ownership similar to the more familiar joint tenancy form of ownership where the surviving spouse has a right of survivorship, but offers exemption from the claims of creditors of either of the spouses.  A tenancy by the entirety can be created only between husband and wife, because the couple is considered to be one person or one unit. As such, the spouses do not take the estate in equal shares, but rather they hold title as one unit, with each being deemed to have full ownership.

2. How does a couple create a Tenancy by the Entirety? In Tennessee, where a conveyance is not clearly intended otherwise, it is presumed that a conveyance to a husband and wife creates a tenancy by the entirety. The marital designation (such as “husband and wife” or “married”) generally is the only “legalese” that is required to take ownership as a tenancy by the entirety, although it is appropriate to be clearer as to intent for assets other than the marital home.

3. Can one spouse or any other event sever a Tenancy by the Entirety? Although the tenancy by the entirety resembles a normal joint tenancy, it is very different from the joint tenancy because severance of the tenancy by one tenant (an individual spouse) is not possible. Neither spouse acting alone can destroy or disrupt the nature of the tenancy (as would be possible in a typical joint tenancy). In other words, an individual spouse cannot convey his or her interest individually. The interest must be conveyed by the marital unit.  A divorce terminates the unity of husband and wife and, therefore, the tenancy by the entirety; in Tennessee, the tenancy by the entirety is converted into a tenancy in common at divorce.  The death of either spouse terminates a tenancy by the entirety (see below).  

4. What rights (or limitations) do creditors have? Since the property is held by the marital unit, an individual spouse’s creditor cannot seize that individual’s interest (and then force the sale of the property). Only a creditor of the marital unit may enforce a lien against the property – meaning that both spouses must be liable before the tenancy by the entirety property will be subjected to creditors.  Note that, in bankruptcy, Tennessee has an odd rule about an “expectancy” value so this is not an absolutely effective exemption.   If upon the death of one spouse the surviving spouse has a creditor, that creditor can reach the property after the death of a spouse.  However, if the deceased spouse is the one with a creditor, the surviving spouse will not be subject directly to the claims of the deceased spouse’s creditors (although there are some circumstances where the exemption is limited in scope after the death of a spouse in probate court or in a trust administration).

5. Why does this new statute matter?  As indicated above, a new Tennessee statute specifically makes the creditor protection exemption continue to apply to property that is tenancy by the entirety prior to being transferred into a joint revocable living trust where the spouses are the sole beneficiaries (and other conditions are met).  In the past, it was common that property would be left outside of a trust to retain that exemption – but now all married couples should examine whether property should now be moved into a trust.

Hair Straighteners/Relaxers Linked to Increased Risk of Cancer

 Hair Straighteners/Relaxers Linked to Increased Risk of Cancer

 The Journal of the National Cancer Institute recently published a study by the National Institute of Environmental Sciences that found a link between certain hair products, like straighteners or relaxers, and uterine cancer. The paper noted that a prior study linked these hair products with a higher risk of ovarian cancer.

 Which Products May Be Harmful?

 Currently, the class action is investigating products from the following companies:

 

• L’Orèal (Softsheen-Carson): Optimum Care, Dark & Lovely, Precise, and Bantu;
• Revlon (Colomer Beauty Brands): Revlon Brand, Crème of Nature, and Fabulaxer; and
• Strength of Nature Global (Godrej Consumer): Just For Me, Motions, TCB, Soft & Beautiful, and African Pride.

What Health Conditions Being Investigated?

• Uterine Cancer;
• Ovarian Cancer;
• Breast Cancer;
• Uterine Fibroids (benign or non-cancerous growths on the uterus that can be painful and may lead to pregnancy loss or infertility; and
• Endometriosis (a painful condition in which tissue similar to the tissue that grows on the inside of a uterus instead grows on the outside).

Diminished Capacity Resources

 I found several interesting resources on determining the mental capacity of clients to change their estate plan.   At least one Court has recommended using a client worksheet such as located here.   A good book on the subject is also located here.  

Holographic Codicil

 Today, the Mississippi Court of Appeals handed down In re Estate of Obert located here.  This is the first case I am aware of discussing holographic codicils to a will.    The Court found that a handwritten note signed by the deceased acted as a cancellation of a debt that was due.   As such, might be worth have clients search the deceased home at times.  

Quirky Issue in the Mississippi Wrongful Death Statute

Typically, creditors of the deceased are not entitled to wrongful death proceeds in Mississippi.   However, Mississippi Code   11-7-13 has a quirky provision.  

 “Any amount, but only such an amount, as may be recovered for property damage, funeral, medical or other related expenses shall be subject only to the payment of the debts or liabilities of the deceased for property damages, funeral, medical or other related expenses. All other damages recovered under the provisions of this section shall not be subject to the payment of the debts or liabilities of the deceased, except as hereinafter provided, and such damages shall be distributed”

My reading is that any money designed for property damage, funeral, medical or other related expenses are subject to creditors.    Additionally what are "other related expenses"?    One can argue is is only expenses related to funeral or medical expenses or maybe that they are truly other expenses related to the death outside of pain and suffering.   

Food for thought. 

Employment Contracts and Minors

 On Thursday, the Mississippi Supreme Court decided Watercolor Salon, LLC v. Nealie Hixon located here.  Here, the Court found that the exceptions allowing minors age eighteen to twenty to enter into contracts for certain personal property did not apply to a noncompete agreement.  This was a very close case with four judges dissenting.    

Child Testimony in Custody Cases

 The Mississippi Supreme Court decided Denham vs. Denham on Thursday located here.  The Court reversed a custody case because the trial court excluded the testimony of the minor children.   The Court did an extremely detailed analysis of what is required for testimony of minor children to be admitted that is worth filing away.    

App of Interest

 Recently, I found a helpful app.    Google Lens is a free app that translates typed documents in other languages to English using your phone's camera.    It is useful if you are trying to go over documents that are in another language.   It is also useful if you happen to have a book in another language you are interested in.  

Divorce Planning

 I just wanted to throw this out there.    If someone is going through a divorce, the case should be approached from a divorce planning perspective.  What that means is how are the client's expenses going to change after the divorce is complete.    It is a whole new situation for both parties with income, new expenses, new living arrangements, etc.    This can make a huge difference in how a case for either side is portrayed by the trial court.

Cash Bonds vs. Bail Bonds in Mississippi

In Mississippi, you have the option to post a cash bond to get out of jail.   This means you will have to post the entire amount of the bond to the court. This means that if your bail is $10,000 then you pay the court, $10,000. If you (or the defendant you signed for) goes to all court appearances and abides by the rules the judge sets forth while on bail (no drinking, drugs, committing more crimes etc), then the full amount is returned. The pros of posting the entire cash bond is that you will get all your money back after trial. The cons is that you will have to wait months, maybe even a year or more to get your money back if the trial drags on.

If you cannot afford a cash bond, you may have to do a bail bond.  In Mississippi, the Department of Insurance regulates the bail bond premium at 10% of the bond or $100 whichever is greater. But, if the defendant lives outside the state or the felony is deemed to be serious (murder, rape,) then the premium is $15% plus a $50 processing fee.  The fees are set by Mississippi Code 83-39-25.   

Transfer on Death Deeds

The Mississippi legislature created statutory guidelines for “Transfer on Death Deeds” in Mississippi. SB 2851 was signed into law on June 29, 2020, by Governor Reeves and became effective July 1, 2020. The “Mississippi Real Property Transfer on Death Act” provides the requirements for using a transfer on death deed (“TODD”) in Mississippi.

What is a TODD?

A TODD is a legal document that transfers an individual’s interest in real property to one or more designated beneficiaries effective at the transferor’s death. The TODD requires the property owner (the “transferor”) to name a person (the “beneficiary”) to whom the property will automatically transfer at the death of the transferor. The creation and filing of a TODD does not impact the rights of the transferor while living. In other words, the transferor retains all rights and control over the property, including the right to sell, transfer, encumber, and use the property. A TODD does not change ownership of or rights to the property until the death of the transferor.

Who can execute a TODD? 

In order to execute a valid TODD, the transferor must have the capacity to make a contract. A TODD cannot be created through the use of a power of attorney, unless the power of attorney expressly authorizes it.

What can be transferred by a TODD?

Any real property in Mississippi may be transferred by a TODD.

What must be included in a TODD? 

A TODD must contain the essential elements of a recordable deed and must also state the transfer of real property to a designated beneficiary (or beneficiaries) is to take place at the death of the transferor. Unlike other deeds, there is no requirement that a deed be delivered to or accepted by the beneficiary. A TODD is effective if executed by the grantor and filed, without any action by or even knowledge of a beneficiary.

What must be done with a TODD?

In order to be effective, a TODD must be executed and recorded before the transferor’s death in the land records in the official records of the chancery clerk of the county where the property is located.  If the TODD is not recorded prior to death, it is not effective. 

Can a TODD be revoked? 

Unlike other deeds, a TODD is revocable. In order for a transferor to revoke a TODD, the transferor must file an instrument of revocation expressly revoking the TODD, or may execute and file a subsequent TODD that revokes all or part of the prior TODD either by expressly revoking or by inconsistency between the two TODDs. Any subsequent revocation must be recorded prior to the transferor’s death in order to be effective. A will does not revoke or supersede a transfer-on-death deed. If a transferor and a designated beneficiary were married when a TODD was created and subsequently divorce, the TODD is revoked only if the final judgment of divorce is recorded in the land records where the TODD is recorded prior to the death of the transferor.  The mere fact that a divorce occurred would not revoke the TODD.

What other rights are affected by a TODD? 

Certain property transfers can impact rights of a transferor.  Here is how a TODD may or may not impact the most common of these rights:

• A TODD does not affect the transferor’s right to claim the property as their homestead.
• A TODD does not affect any property tax exemptions afforded to the transferor (i.e. over 65 years old exemption).
• A TODD does not affect the rights of creditors of the transferor.
• A TODD does not trigger a “due on sale” or similar clause in a mortgage or other type of loan document.
• A TODD does not subject the property to claims of a creditor of the beneficiary.

Because a TODD does not transfer ownership of the property until the death of the transferor, the property receives a step-up in basis adjustment at the transferor’s death.

Since the TODD is not a completed gift until the death of the transferor, it is not considered a taxable event for the purposes of gift taxes.

What action must the beneficiary take at the transferor’s death?

At the death of the transferor, a beneficiary must record an affidavit of death in the deed records in order to become the legal owner of the property. 

What are the pros of a TODD? 

A TODD can be attractive as a means to transfer ownership of real property quickly and affordably without going through the probate process. A TODD allows the transferor to keep control over the property during his or her lifetime and allows the transferor to revoke the TODD at any time.

What are the cons of a TODD?

Because TODDs are so new, there is simply not very much law related to these instruments, which may lead to uncertainty for lawyers and clients alike. One potential downside of a TODD is the recording requirement for both the TODD itself and any revocation of the TODD. If a transferor fails to properly record the document prior to his or her death, it is ineffective and that could lead to unintended consequences at the transferor’s death. Another potential downside is that people may not understand the concept that a TODD trumps a will if both address the same property, which again could lead to unintended consequences is a TODD was executed in addition to a will. Finally, and probably most importantly, is that a TODD is subject to claims of creditors and estate taxes. Thus, before the designated beneficiary may rely on the deed, they must either probate the transferor’s estate or wait, in the case of claims of unsecured creditors, 3 years and 90 days, or in the case of federal estate taxes, 10 years.

Attorney's Fees for Contempt

On Tuesday, the Mississippi Court of Appeals decided Hunter v. Hunter located here.  I am not going to make many comments on it since it is my case and we are still debating a rehearing motion.   This is the first case I am aware of though that says the Chancellor has the discretion to deny attorney's fees when a party is found in contempt.   

New Ethics Opinion

 The Mississippi Board of Professional Responsibilty just released a new ethics opinion located here. 

A complete copy is below.  I have not been posting in a while but I am going to try to restart posting more.    Life and law has been busy.   

CAVEAT: This Opinion is limited strictly to the facts as presented for analysis under Mississippi’s Rules of Professional Conduct. The facts and questions outlined below and the opinion rendered is limited to ethical issues only.

 

The Ethics Committee of The Mississippi Bar has been asked to render an opinion on the following question and hypothetical:

When settlement of a case requires a release to be signed by a party (“Releasor”), can the attorney representing the Releasee require the signature of the Releasor's attorney to “approve” or “agree to” the release? 

This request referenced releases that the attorney was presumably being asked to sign that included obligations required of the Releasors, such as holding the Releasee harmless, requiring indemnification, reimbursement for claims, etc.  The attorney clearly anticipates additional such requests in the future and seeks to determine whether such conduct is a violation of the Mississippi Rules of Professional Conduct.   

 

Applicable Rules

The following Rules of Professional Conduct are applicable to this opinion. The relevant portions of those Rules provide:

 

Rule 1.2(a)

A lawyer shall abide by a client’s decisions concerning the objections of representation, subject to paragraphs (c), (d), (e) and shall consult with the client as to the means by which they are to be pursued.  A lawyer shall abide by a client’s decision whether to accept an offer of settlement of a matter…

Rule 1.7(b)

 A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests…

Rule 1.8(e)

 A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, or administrative proceedings, …

Rule 2.1

In representing a client, a lawyer shall exercise independent professional judgment and render candid advice.  In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors that may be relevant to the client’s situation.

Rule 8.4(a)

It is professional misconduct for a lawyer to violate or attempt to violate the rules of professional conduct, knowingly assist or induce another to do so, or do so through the acts of another.

 

Analysis

The common scenario in Mississippi is:

Plaintiff’s lawyer represents Plaintiff against Defendant in a personal injury lawsuit.  Plaintiff has received third party benefits to pay for their medical care.  The third-party benefit provider is making a subrogation claim against Plaintiff for reimbursement of amounts paid from a settlement or judgment. 

In order to settle Plaintiff’s case, Defendant sends a release that requires Plaintiff’s lawyer to sign.  The release contains a provision that Plaintiff and Plaintiff’s lawyer agree to indemnify Defendant, and his/her insurers, agents, and lawyers, for any failure to reimburse, or set aside sufficient funds to reimburse, the third-party payer for medical expenses already paid and to hold Defendant harmless for any future liability.    

In Crowley v. Germany, the Mississippi Supreme Court ruled that the circuit court abused its discretion by forcing lawyers representing the plaintiffs to sign a release of liability after a settlement of a case that stated the attorneys “agreed to” or “approved” the settlement.  268 So.3d 1277, 1278 (Miss. 2018).  The Court ruled that if the attorneys representing the plaintiffs signed the release then it could be interpreted as making them a party to the contract, which could subject them to personal liability and/or indemnity obligations.  Id. at 1279.  The Court went on to state that a judgement cannot be enforced “against persons who are not parties to an action.”  Id. at 1280 citing Commercial Bank of Magee v. Evans, 145 Miss. 643, 112 So. 482, 483 (1927). See also A1 Fire Sprinkler Contractors, LLC v. B.W. Sullivan Bldg. Contractor, Inc., 217 So.3d 731 (Miss. Ct. App. 2017).

Given this legal background, the Committee examines the ethical implications of the Requestor’s question.  Requiring a lawyer to sign a release for “approval” or “agreement” of the terms can put that lawyer in direct conflict with the desires or wishes of their client.  Rule 1.2(a) requires a lawyer to “abide by a client’s decisions…”  If the client wants to settle their case, but their lawyer does not want to sign the release to “approve” or “agree to” the terms because of fears of being bound by any of the terms of the release then the attorney cannot abide by Rule 1.2(a). 

Generally, in Mississippi the “approval” or “agreement” sought by the Releasee and their counsel from the Releasor's lawyer is an agreement for indemnification and hold harmless agreements for subrogation interests.      

“Agreeing to” or “approving” a release by a lawyer would also make it difficult for said lawyer to abide by Rule 2.1, which requires lawyers to “exercise independent professional judgment and render candid advice.”  If lawyers in Mississippi have to be concerned with whether they could face the threat of litigation for “approving” or “agreeing to” a release then it is likely the advice they give their clients could be affected, which could be to the detriment of the client.  A lawyer prosecuting a case should not be asked to indemnify the other party if a subrogation claim is brought – the lawyer is not a party, and the responsibility should fall on the parties only.  Any settlement agreement/release that makes settlement conditioned on the lawyer signing the release is asking said lawyer to violate Rules 1.2(a) and 2.1 of the Mississippi Rules of Professional Conduct.    Defense counsel’s insistence on such a release would be a violation of Rule 8.4(a).

Lawyers signing releases would also create a clear conflict of interest between the attorney and their client pursuant to Rules 1.7(b) as the lawyer’s own interests could be affected.  Lawyers should not be in the business of having to decide whether a release is going to negatively affect his relationship with his client in the future. 

If a release were entered into by a client (Releasor) and his lawyer that required the lawyer and client to indemnify the Releasee, and a future claim is brought against the Releasee then the Releasor and his lawyer could be contractually obligated to indemnify the Releasee.  Since the client (Releasor) actually received the benefit of the settlement then the lawyer and client would likely have a conflict about who should pay or indemnify – the client or the lawyer.  This dispute could easily rise to the level of litigation.

A conflict under Rule 1.7(b) between the lawyer and his client could be waived with the client’s informed consent in writing.  However, Rule 1.8(e) would also prevent a lawyer from entering into a release with his client because his agreement to indemnify the Releasee for unknown amounts would qualify as “financial assistance” to the client that is contemplated under the rule.  Even though the Releasee would be who would be seeking the indemnification, the Releasor, the lawyer’s client, is the one that would receive the benefit. 

There are 23 state and local bar associations in the United States that have issued ethics opinions stating that it is a violation of their ethical rules for a lawyer to sign a release that calls for the lawyer to agree or approve an indemnification agreement.  These include Tennessee, Georgia, South Carolina, Virginia, and Florida. 

 

Conclusion

 

After a thorough analysis by the Ethics Committee of the Mississippi Bar, we find that it is a violation of the Mississippi Rules of Professional Conduct for an attorney to sign a release that in any way “approved” or “agreed to” terms that would obligate them unless they are a party to the matter. 

We further find that it is a violation of the Mississippi Rules of Professional Conduct for a lawyer to ask another lawyer to sign a release that would require them to “approve” or “agree to” any of the terms of the settlement.

Life Insurance and Divorce

 The following statute is worth knowing regarding divorce in Mississippi.  

Section 91-29-23 - Pre-decree designation of ex-spouse as beneficiary of life insurance

(a) If a decree of divorce or annulment is rendered after an insured has designated the insured's spouse as a beneficiary under a life insurance policy in force at the time of rendition, a provision in the policy in favor of the insured's former spouse is not effective unless:

(1) The decree designates the insured's former spouse as the beneficiary;

(2) The insured redesignates the former spouse as the beneficiary after rendition of the decree; or

(3) The former spouse is designated to receive the proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either former spouse.

(b) If a designation is not effective under subsection (a), the proceeds of the policy are payable to the named alternative beneficiary or, if there is not a named alternative beneficiary, to the estate of the insured.

(c) An insurer who pays the proceeds of a life insurance policy issued by the insurer to the beneficiary under a designation that is not effective under subsection (a) is liable for payment of the proceeds to the person or estate provided by subsection (b) only if:

(1) Before payment of the proceeds to the designated beneficiary, the insurer receives written notice at the home office of the insurer from an interested person that the designation is not effective under subsection (a); and

(2) The insurer has not interpleaded the proceeds into the registry of a court of competent jurisdiction in accordance with the Mississippi Rules of Civil Procedure.