Is Joe Paterno’s transfer of his home to his wife for the purpose of estate tax planning as claimed by his attorney? Or is it a ploy to shield his assets in the event he is the defendant in a civil lawsuit?

As part of the ongoing investigation of the sexual-abuse scandal related to Jerry Sandusky and Penn State University, it has come to light that Joe Paterno sold his ownership in his home to his wife Susan Paterno for $1 on July 21, 2011.  Although Mr. Paterno is not being investigated or pursued (at this time) for criminal charges related to the Sandusky investigation, there is a great deal of uncertainty as to how much Mr. Paterno and other officials with Penn State knew about Sandusky’s alleged illegal activities and if Mr. Paterno and others should have done more to stop Sandusky.  Many legal experts believe that Mr. Paterno will likely face a civil suit from the families of the victims for failing to take action to protect the victims from the alleged sexual abuse.

Given the timing of when Mr. Paterno sold his home to his wife, it has been theorized that the sale was an attempt to shield Mr. Paterno’s home in the event a civil suit is filed against him.  Specifically, Lawrence Frolik, a law professor with the University of Pittsburgh, indicated the transfer looks “like an attempt to avoid personal liability in having assets in his wife’s name.”  If a civil suit is brought against Mr. Paterno and it is proven that the transfer was purely for the purpose of shielding his home from the lawsuit, then the court can reverse the sale and make it available in the event the plaintiffs win the civil suit.

However, Mr. Paterno’s attorney Wick Soellers has claimed from the start that the transfer of the home to Ms. Paterno was for estate tax planning purposes and not to shield the home from a civil lawsuit.  While the estate tax planning position was generally dismissed initially because of comments such as the one noted above from Mr. Frolik, after further investigation, it does appear that the estate tax planning position does have merit for two reasons.

First, under Pennsylvania law, when a husband and wife buy a home together, they are each considered to own 100% of the property.  If a civil suit is brought against one spouse, such a property that is jointly owned is not an asset made available should the plaintiff win the civil suit, as it would violate the rights and ownership in the property of the other spouse.

Mr. Paterno’s home was owned jointly by Mr. and Mrs. Paterno.  Therefore, under the law noted above, the Paterno’s home was already completely protected from any civil suit that could be brought against Mr. Paterno.  Only in the event that a civil suit were brought against both Mr. and Mrs. Paterno would the home be potentially included in a payout should the suit be lost by them.

Second, the estate tax laws for the state of Pennsylvania are currently set to change.  At present, when someone dies and leaves an estate, the first $5 million in assets are exempt from estate tax and any assets above that amount are subject to taxation at the rate of 35%.  As of January 1, 2013, the exempt amount drops to $1 million and the tax rate for anything above this exemption level rises to 55%.

Therefore, assuming Ms. Paterno does not have assets worth $5 million already, it is a smart estate tax planning move to transfer their home (which is worth approximately $600,000) into her name before this exemption level drops.  Such a transfer is completely legal and is recommended by estate tax planning attorneys with clients who have sufficient assets to be impacted by these thresholds.

Given the facts that are now available related to the tax laws in the state of Pennsylvania and the ownership of the Paterno’s home, it does appear that the sales of Mr. Paterno’s home was for estate tax planning purposes rather than to shield the home from a civil suit.

What if I have questions about estate tax planning or other tax topics?

If you need help from a tax attorney, you can complete the short form below and a tax attorney will contact you to review your situation.  This review is completely confidential, free of charge, and does not obligate you to anything further.  Therefore, please take this opportunity today to get the help you need with your tax questions.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.