What Married Couples in Hawaii Should Know About TBE

By J.R. Robinson, Financial Planner

Hawaii has some unusually sophisticated rules governing how married couples can own property. One of the most underutilized is Tenancy by the Entirety, commonly called TBE.

TBE is a form of ownership available to married couples, civil-union partners and, in certain circumstances, reciprocal beneficiaries. Unlike ordinary joint ownership, TBE treats the couple as a single ownership unit. Neither spouse owns a separately attachable fractional interest in the property, and an individual creditor of one spouse generally cannot attach property held as TBE.

That makes TBE much more than an estate-planning technique. For the right Hawaii family, it can be an important asset-protection strategy.

Hawaii Is Ahead of the Curve

Hawaii's TBE laws are remarkably progressive.

Hawaii Revised Statutes §509-2 expressly allows not only land but "any other type of property or property rights or interests" to be conveyed to spouses as tenants by the entirety. Hawaii courts have also recognized that TBE can exist in personal property, including financial assets, although the documents must clearly demonstrate the couple's intent to create a tenancy by the entirety.

That distinction is important.

In many states, TBE is primarily a form of real-estate ownership. Hawaii, by contrast, permits TBE treatment for both real estate and personal property, including bank and investment accounts.

But there is a critical caveat: simply opening a joint account does not make it TBE.

The Hawaii Supreme Court addressed precisely this issue in Traders Travel International, Inc. v. Howser. The court held that a bank account owned jointly by a husband and wife was not TBE because the account documents did not establish that intention. The court emphasized that TBE in personal property must be clearly manifested in the account documents.

In other words, if asset protection is the objective, "Joint Tenants with Right of Survivorship" is not the same thing as "Tenants by the Entirety."

Why Does TBE Matter?

The most important benefit is protection from the individual creditors of either spouse.

Hawaii's Supreme Court held in Sawada v. Endo that the interest of one spouse in property owned as TBE is not subject to the claims of that spouse's individual creditors while both spouses are alive. The court explained that TBE is based on the legal unity of the spouses.

Suppose, for example, that a married couple owns a $2 million investment portfolio as TBE. The husband is later sued individually and a $1 million judgment is entered against him.

If the account is properly registered as TBE, the creditor generally cannot simply seize the husband's "half" of the account because there is no separately owned half for the creditor to attach.

That is a very different result from ordinary individual ownership.

Of course, TBE does not protect against every creditor. It generally does not protect property from a creditor with a legitimate claim against both spouses, and other exceptions can apply. Bankruptcy, federal tax claims, fraudulent transfers and other circumstances require separate analysis.

TBE Can Work With a Revocable Trust!

Hawaii has taken another unusual step that makes its TBE rules particularly useful for estate planning.

Historically, couples faced a difficult choice. They could hold property as TBE and obtain its creditor protection, or transfer the property into a revocable trust to simplify estate administration and avoid probate. Moving TBE property into a trust could jeopardize the TBE protection.

Hawaii changed that.

Under Hawaii law, qualifying TBE property can be transferred to a revocable trust while preserving the protection associated with TBE, provided statutory requirements are satisfied. HRS §509-2 specifically addresses real property transferred into a joint revocable trust or into the spouses' separate revocable trusts. The statute requires, among other things, that the spouses remain married, that both remain beneficiaries, and that appropriate notice of the intent to preserve the TBE protection be recorded.

Hawaii's permitted-transfers-in-trust statute provides an additional layer of protection. HRS §554G-10(f) provides that when property was owned by spouses as TBE immediately before a permitted transfer into trust, the property and its accumulation may continue to be treated as though held as TBE while in the trust, unless the trust instrument provides otherwise.

That "immediately before" requirement is important. The strategy is not simply to put individually owned property into a trust and then declare that it should have TBE protection. The property must first qualify for TBE treatment.

For real estate, Hawaii's §509-2 rules are especially explicit. For other property, including financial assets, the interaction among TBE registration, the particular trust, the financial institution's account agreement and Hawaii's trust statutes should be reviewed carefully by an estate-planning attorney.

Hawaii Also Allows a Transfer-on-Death Deed

Here's another interesting feature of Hawaii law.

Hawaii permits a Transfer on Death Deed, or TOD deed, for real estate.

Under Chapter 527 of the Hawaii Revised Statutes, an owner can execute a deed that transfers real property to one or more beneficiaries at the owner's death. The deed is revocable and does not transfer the property during the owner's lifetime.

And Hawaii's law specifically recognizes that a "joint owner" includes a tenant by the entirety. More importantly, the statute permits an interest in real property owned as joint tenants with right of survivorship or as tenancy by the entirety to be transferred to a designated beneficiary, provided the statutory requirements are satisfied.

This creates an intriguing estate-planning combination.

A married couple could potentially own their Hawaii real estate as TBE during their joint lives, thereby obtaining the potential creditor protection associated with TBE, while also establishing a TOD deed that determines who receives the property after the surviving spouse's death.

That can allow the couple to address two different planning objectives at the same time:

TBE addresses ownership and creditor protection during the couple's joint lives.

The TOD deed addresses the ultimate transfer of the property after death.

The details matter, however. A TOD deed must comply with Hawaii's statutory requirements and must be properly recorded before the transferor's death.

TBE, TOD and POD Can Be Used Together

The same basic philosophy can apply to financial assets.

A married couple may be able to register an investment account as TBE while both spouses are alive and use a Transfer on Death (TOD) designation to identify the beneficiaries who should receive the account after the surviving spouse dies.

Likewise, a bank account may potentially be titled TBE and paired with a Payable on Death (POD) designation.

These arrangements can create a remarkably efficient estate plan:

During both spouses' lives: TBE can provide survivorship and potential protection from the individual creditors of either spouse.

At the first death: The surviving spouse generally becomes the sole owner.

At the second death: The TOD or POD beneficiary designation can direct the asset to children, grandchildren, a trust or other beneficiaries without requiring the asset to pass through probate.

But again, there is a practical limitation: not every financial institution offers TBE registration.

Hawaii law may permit a particular form of ownership while a bank or brokerage firm may not offer that registration on its accounts. And even institutions that offer TBE may have their own requirements regarding TOD and POD designations.

The account agreement and registration therefore matter enormously.

An Underutilized Hawaii Planning Opportunity

TBE deserves considerably more attention from Hawaii residents, particularly affluent married couples and families with significant liability exposure.

It is not a substitute for adequate homeowners, auto and umbrella insurance. Nor is it a substitute for a properly designed estate plan.

But it can provide another layer of protection.

And Hawaii residents have an advantage that residents of many states do not: Hawaii law gives married couples unusually flexible choices for coordinating ownership, creditor protection and the eventual transfer of their assets.

The mistake is assuming that all jointly owned assets are equivalent.

They are not.

A house titled as TBE is different from a house titled as tenants in common. A brokerage account titled TBE is different from a conventional joint account. And a TBE asset transferred properly into a qualifying trust can have different consequences from an asset that was individually owned before being transferred to the trust.

For Hawaii married couples, therefore, one of the most useful questions to ask during an estate-planning review may be surprisingly simple:

"Which of our assets should be registered as Tenants by the Entirety?"

The answer may be worth considerably more than the cost of asking the question.

RELATED READING

New Hawaii Law Gives Tenancy by the Entirety Protection to Trusts

How Should You Hold Title to Your Property in Hawaii? (HawaiiTrustLaw.com)

States that allow TBE on Personal Property (Asset Protection Planners)

Tenants by the Entirety for Personal Property (Okura & Associates Law Firm)

Avoiding Probate In Hawaii With Transfer-on-Death Deeds (Nolo.com)

2025 Hawaii Revised Statutes
Title 28. Property
509. Conveyances to Two or More
509-2 Creation of joint tenancy, tenancy by the entirety, and tenancy in common.