Joe Paterno Sells House for $1

November 23, 2011 — Leave a comment

In the midst of the Penn State scandal, investigators have reported that Joe Paterno, the former Penn State football coach, sold his house to his wife for $1.00. Critics have been claiming the move was a way to shield assets if a lawsuit were to be held against him. However, the transfer of ownership was likely to occur because the coach wanted to capitalize on expiring estate tax rules.

Joe Paterno and his wife, Susan, jointly owned the estate prior to the sale. According to “tenants by the entireties,” each spouse owns 100% of the estate in a joint ownership. Thus, if creditors were to target Paterno’s assets in a lawsuit, they could not take his property because both Joe and Susan jointly own it. The transfer of ownership was likely to occur because Paterno wanted to take advantage of the federal estate tax credit that exempts $5 million per spouse from estate taxes. In 2013, the federal estate tax will rise 55% for a $1 million dollar exemption and 35% for a $5 million exemption. Thus, it is likely that Paterno wanted to take advantage of the lower tax rate while it was still available.

The transfer of ownership was not to simply benefit Susan, but to benefit Joe and Susan’s heirs. When one spouse dies, any amount of money up to $5 million goes into their trust, while the remainder is allocated towards the surviving spouse. Once both spouses die, the remainder of their assets is left into a single trust, so long as it does not exceed $10 million. This inhibits any type of tax burden on their heirs. If Joe and Susan did not set up a joint trust for their heirs, once both of them die, their heirs would have to pay taxes for any inheritance over $5 million, instead of the $10 million that would be allowed in a joint trust.

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