According to the New York Times, “Joe Paterno transferred full ownership of his house to his wife, Sue, for $1 in July, less than four months before a sexual abuse scandal engulfed his Penn State football program and the university.“
Why would he do that?
The short answer is I don’t know. But it is fun to speculate.
Of course, I use the word “fun” in the loosest possible terms. This is a horrible situation that is not fun for anyone.
As we all know, there is currently a “child sex abuse” (really, child rape) scandal engulfing Penn State University. I will let the criminal law bloggers talk about the crimes that Sandusky will be accused of, and the possible criminal liability of other parties involved. Then I will let the civil litigation bloggers, the education law bloggers, and the insurance bloggers talk about the potential civil liability of Joe Paterno, and the university itself.
Me? I am a tax and trust estate blogger (at least sometimes) so I will talk about that issue.
There are a few possible reasons why Joe Paterno would transfer his house to his wife. The first, is “asset protection.” The second is “elder law” or “Medicaid” planning. The third is more general estate planning and tax planning. I will take each in turn.
First, a caveat. Many of these issues are specific to state law. I am not a Pennsylvania attorney. It is possible that there are unique Pennsylvania related issues that I will completely get wrong. If so, please feel free to correct me.
The article states, “Two lawyers examined the available documents in recent days. Neither wanted to be identified because they were not directly involved in the case or the property transaction. One of the experts said it appeared to be an explicit effort to financially shield Joe Paterno. The other regarded the July transaction, at least on its face, as benign.”
This kind of annoys me. If the New York Times has access to the documents, why not publish them, or link to them on its website so we can decide for ourselves? Reporters often get these issues wrong because they do not understand what they are seeing
The implication of the New York Times article is that Joe Paterno was concerned about being sued in the sex abuse scandal, and therefore is transferring his assets to his wife so that they will be protected from future creditors. Otherwise why would it even be a story?
As I have written in the past, in Florida, your house is your Homestead and is generally protected from creditors. If Joe Paterno lived in Florida, it would be very unlikely for his creditors to be able to attach the interest in this house. Furthermore, in Florida there is ownership as tenants by the entireties. Under tenancy by the entireties, if you own property with your spouse, it is not subject to attachment from the creditors of one spouse. It is only subject to attachment the creditors of both spouses. I am not a Pennsylvania lawyer. However, it appears as if Pennsylvania also has tenancy by the entirety protection. If that is so, then there would be no reason for Joe Paterno to transfer the house to his wife to protect it from creditors.
The second possible reason for Paterno to transfer the house away is for what is known as Medicaid planning. Basically there are certain circumstances in which one transfers assets away so that they will be eligible to apply for Medicaid in the future. However, the Paternos have far too much money and probably far too good insurance from the University for this to be a real possibility.
So let’s talk about estate planning, and go back to the article.
The article states that “Documents filed in Centre County, Pa., show that on July 21, Paterno’s house near campus was turned over to “Suzanne P. Paterno, trustee” for a dollar plus “love and affection.” The key word is “trustee.” The fact that it says trustee clearly shows that it was not just transferred to his wife, but to a trust in which she is the trustee. We have no idea what this trust says.
In all likelihood, it is just a revocable living trust. A revocable living trust can be used to avoid probate, because when you die, the trust owns the property and not you. Whether it is his revocable living trust, or his wife’s is unclear. She can be the trustee of either, both, or neither. It’s also possible that the transfer was to a special kind of tax planning trust called a QPRT, or qualified personal residence trust, which is used to transfer the house to younger generations for tax planning.
Unless I see the documents, I don’t know. However, I do think it’s far more likely that this was a routine estate or tax planning transaction, and has nothing to do with the ongoing scandal.