GPSOLO September 2010
REAL ESTATE LAW
The Perils of Joint Tenancies
By John V. Orth
Emerging in 13th-century England, the estate of joint tenancy, with its associated right of survivorship, was distinguished from the tenancy in common, which lacked a right of survivorship, by the so-called four unities: time, title, interest, and possession. Without all four simultaneously there could be no joint tenancy with the right of survivorship. The consequence of not having all four unities could be disappointment for a grantor who wanted to create a joint tenancy. The most common instance occurred when a landowner made a direct conveyance from himself, as sole owner, to himself and the other as joint tenant. The unities of time and title were absent. A tenancy in common was the result. The common law solution was to use a “straw conveyance,” where the grantor conveyed the entire estate to a third party, who reconveyed to the original grantor and the other as joint tenants, thereby perfecting the unities. Eventually, legislation that permitted a direct conveyance to achieve the desired effect allowed the grantor to address the issue in a more straightforward fashion.
The historical hodgepodge of rules surrounding joint tenancy makes it a perilous estate for its owners. First, the power of each joint tenant to sever the estate and thereby eliminate the right of survivorship can be exercised without the knowledge or consent of the other joint tenant. To make matters worse, an unintended consequence of the reform allowing direct conveyance without the intervention of a straw person to create a joint tenancy has been to allow severance by self-conveyance—that is, a conveyance from one joint tenant to himself as tenant in common.
The patch intended to fix this problem has been more legislation, making recording of the severing instrument necessary for its effectiveness. This provides no effective notice during life to the other joint tenant, who ordinarily has no reason to search the title to property currently occupied. Without notice of the severance, the former joint tenant will continue to believe that the interest remains subject to the right of survivorship and will plan accordingly.
A second peril is posed by the required unity of interest, which means that the undivided fractional shares in joint tenancy must always be equal. In consequence, a sole owner who conveys to himself and another party makes a gift of one-half of the estate. This sometimes leads to the unwelcome result that in the case of a subsequent marital disagreement, half the property then belongs to the donee. Also, those who desire to secure the benefit of the right of survivorship but contribute more than half the purchase price, the cost of maintenance, or the cost of improvement may find themselves unpleasantly surprised by a judicial decision that their share is equal to that of the other joint tenant because of the unity of interest.
The mutual obligations of the joint tenants pose another peril. Although a co-tenant must account for income generated by the jointly owned asset, the same co-tenant is under no duty to disclose favorable information to the other co-tenant, such as an attractive offer to purchase the entire estate. At this point, the joint tenants are “adverse parties.”
Destruction of any one of the unities ends the estate, resulting in a tenancy in common. The test for severance is purely mechanical. Any action that does not destroy at least one unity is ineffective to eliminate the right of survivorship. Thus, a court will not imply severance from a creditor’s successful suit against one joint tenant, or even from the filing of a judgment lien on the jointly owned property. For severance to occur, the foreclosure of the lien has to result in a final sale.
Although this provides some protection from creditors, it also poses a final peril for the joint tenants. Actions clearly intended to eliminate the right of survivorship may not be effective. Even a notarized and recorded “notice of severance” is ineffective because it does not eliminate any one of the four unities. Although the joint tenancy can be severed by an inter vivos conveyance of an undivided share, the joint tenancy cannot be severed by will, no matter how clearly the will expresses such intent. A will only becomes effective at death, when the decedent’s interest vanishes.
If joint tenancies pose perils for those taking title in that form of co-ownership, the estate of joint tenancy is itself in peril. In states without tenancies by the entirety, much marital property is held in joint tenancies. Too often, couples separating in anticipation of divorce fail to sever their joint tenancies. The accidental death of one spouse prior to the final decree of divorce leads to a windfall for the survivor. Even some property settlements incident to divorce fail to provide for severance of joint tenancies. One spouse may be allowed to remain in the family home, subject to an agreement that the property will be sold on the occurrence of some contingency. Sale, of course, will end the estate, but death in the meantime triggers the right of survivorship. Modern courts have struggled to prevent such an unintended result by discerning an implied agreement to sever and disregarding the fact that no severing event ever actually occurred.
The most pervasive disregard of the right of survivorship has been in tax law. Although the joint tenancy once served the fiscal needs of feudalism, today, the continuing recognition of the right of survivorship would interfere with the collection of estate and inheritance taxes. In consequence, tax codes provide that a decedent’s gross estate includes the entire value of property held in joint tenancy, except the part that the decedent’s estate can show was contributed by the other joint tenant. For tax purposes, the decedent is presumed to have been the sole owner of the property, using the right of survivorship merely as a “will substitute” to pass the property to the survivor without probate, even though the property was titled in joint tenancy. The decedent’s estate bears the burden of proving what interest in the property, if any, the survivor had before the decedent’s death; to that extent, the survivor does not receive any benefit from the right of survivorship.
Nothing can more objectively express the intention to sever a joint tenancy and eliminate the right of survivorship than the filing of a partition action. But filing alone does not sever a joint estate; only a judgment of partition in kind or a judicial sale and division of the proceeds has that effect, and courts continue to reach that result to this day. Few expressions of intention can be more solemn than those in a validly executed will, but allowing a will to sever a joint tenancy would defeat the intention of all those who chose the estate in order to avoid “entanglement with probate.”