The Dangers of Owning Property as Joint Tenants with Full Rights of Survivorship

There are several ways in which property can be held by multiple owners.  For married couples, one of the most commonly used estates is the tenancy by the entireties.  It provides a right of survivorship that enables a surviving spouse to hold property without having to proceed with probate.  In Michigan, this estate is only available to married couples.  In some instances, parties may seek to mimic the right of survivorship contained in a tenancy by the entirety by holding property as joint tenants with a full right of survivorship.  Similar to a tenancy by the entireties, this estate cannot be unilaterally severed by the act of one of the parties, and it provides an indestructible right of survivorship to the surviving joint tenants.  This may make it appear to be a more attractive option, in some circumstances, to a tenancy in common which is the presumptive estate for unmarried individuals in Michigan.  However, parties seeking to utilize a joint tenancy with full right of survivorship should be aware of the risks that come with such an estate.

Background

The Nature of Estates in Land

The manner in which property, both real and personal, is held by one or more persons is referred to as an “estate.”  Identifying the estate under which real property is held will describe the degree, quantity, nature, and extent of the interest of the person holding the estate.  The term estate is often used synonymously with the words “right,” “title,” and “interest.”

An estate may be absolute or conditional.  An “absolute estate” is not subject to be defeated upon any condition.  The existence of a “conditional estate,” however, depends upon “the happening or not happening of some uncertain event, whereby the estate may be originally created, or enlarged, or defeated.”   Black’s Law Dictionary, 547 (6th ed. 1991).

One of the most common forms of real property ownership is fee simple.  Owning property in fee simple means that the property is owned without any limitation as to duration, disposition, or descendability.  The term “fee” refers to an estate “which a man has where lands are given to him and to his heirs absolutely without any end or limit put to his estate.”  Black’s Law Dictionary, 615 (6th ed. 1991).  A fee simple estate refers to a pure fee, “an absolute estate of inheritance clear of any condition or restriction to particular heirs . . . .  It is the largest estate and most extensive interest that can be enjoyed in land.”  Id.

In some cases, however, a fee simple estate in land may be held by two or more persons.  Where real estate is concurrently owned by two or more persons the nature of the concurrent ownership itself must be defined, and each form of concurrent estate has its own benefits and drawbacks.

 

Tenants in Common, Tenants by the Entireties, Joint Tenants, and Joint Tenants with Full Rights of Survivorship

Where two or more unmarried persons hold title under a deed which does not specify their concurrent interest, the law presumes that the deed created a tenancy in common amongst the grantees.  See MCL 554.44.  Under a tenancy in common, the deceased tenant’s interest will be conveyed either to the tenant’s heirs at intestacy or under the tenant’s will at testacy.  There is no right of survivorship for tenants in common.  Tenants in common hold distinct titles but under a unity of possession.  Real property held by tenants in common may be partitioned.  See MCL 600.3304 (“All persons holding lands as joint tenants or as tenants in common may have those lands partitioned.”).  “A partition is generally implemented by physically dividing the property so that each cotenant may obtain possession of a separate, sole estate in specific real estate.”  See Hrit v McKeon, unpublished per curiam opinion of the Court of Appeals, issued February 3, 2015 (Docket No 317988), 2015 WL 447474.  If an equitable division of the property cannot be made, then a court may order the property sold and divide the proceeds.  Id.

Where two persons who are legally married hold title under a deed which does not specify a different concurrent interest, the law presumes that the deed created a tenancy by the entireties.  See DeYoung v Mesler, 373 Mich 499, 504; 130 NW2d 38 (1964).  Under a tenancy by the entireties, the deceased tenant’s interest terminates at the tenant’s death, and the deceased tenant’s estate possesses no interest in the property.  In re Renz’ Estate, 338 Mich 347; 61 NW2d 148 (1953).  Even though neither tenant has an interest separate from the other, both tenants have a right of survivorship conditioned on the death of the other.  Lilly v Schmock, 297 Mich 513, 517; 298 NW 116 (1941).  A tenancy by the entireties may not be severed by either party, standing alone.  John G. Cameron, Jr., Michigan Real Property Law, § 9.14 (3rd ed 2005).  If the marriage is terminated by divorce, the parties become tenants in common with respect to the property.  MCL 552.102.  Even if the marriage is not terminated, the Michigan Supreme Court has held that under certain circumstances a spouse that exclusively maintains property held as a tenancy by the entireties may look to the other spouse for contribution of such maintenance expenses under unjust enrichment and contribution theories.  See Tkachik v Mandeville, 487 Mich 38, 50-51; 790 NW2d 260 (2010).

Notwithstanding the presumptions above, Michigan law also permits the creation of a joint tenancy.  There are two basic forms of joint tenancy: (i) a joint tenancy; and (ii) a joint tenancy with a full right of survivorship.  A joint tenancy can be created by a conveyance to two or more persons “as joint tenants” or “as joint tenants and not as tenants in common.”  An express declaration of a joint tenancy is required in order to avoid the presumption of MCL 554.44.  Michigan Land Title Standards 5th  6.2.  A joint tenant enjoys a right of survivorship, which means that if a joint tenant dies, all other joint tenants succeed to his or share in equal proportions.  All joint tenants hold an equal, undivided, share of the property, and a joint tenancy is subject to an action for partition.  MCL 600.3304.

The main difference between a joint tenancy and a joint tenancy with full right of survivorship is that a joint tenancy may be severed, but a joint tenancy with a full right of survivorship cannot be severed by an act of only one of the joint tenants.  This is similar to the right of survivorship under a tenancy by the entireties.  A joint tenancy with a full right of survivorship “can only be destroyed by an act of all the parties.”  John G. Cameron, Jr., Michigan Real Property Law, § 9.11 (3rd ed 2005).

With a joint tenancy (without a full right of survivorship), when a joint tenant conveys their interest to a third party it will sever that interest from the other joint tenants and create a tenancy in common between the conveying joint tenant’s grantee and the remaining joint tenants.  The right of survivorship will only remain as between any remaining original joint tenants.  As between the collective remaining original joint tenants and the conveying joint tenant’s grantee, there will be a tenancy in common.  The severance of a joint tenancy can result from both the voluntary transfer of a joint tenant’s interest and the involuntary levy and sale of a joint tenant’s interest by a joint tenant’s creditor.  Accordingly, it is possible to destroy the right of survivorship of a joint tenancy and a joint tenancy is subject to partition.  See MCL 600.3304.

With a joint tenancy with full right of survivorship, however, when a joint tenant conveys their interest to a third party that third party acquires only the interest of the conveying joint tenant, including their right of survivorship.  The life span of a joint tenant’s grantee has no bearing on the nature or effect of the right of survivorship.  Cameron, § 9.11.  In Albro v Allen, 434 Mich 271; 454 NW2d 85 (1990), the Michigan Supreme Court stated that such interests are “joint life estates with dual contingent remainders.”  Further, since the contingent remainder element cannot be destroyed by the act of another joint tenant and is not a possessory estate, that element of the estate is not subject to partition.  However, since a conveyance of the possessory estate has no bearing on the contingent remainder, the “joint life estate element” is subject to partition.  Albro, 434 Mich at 285.

 

The Dangers of Conveying Property as Joint Tenants with Full Rights of Survivorship

The separate principles underlying the above forms of property ownership can create unintended consequences if the relationships between the cotenants adversely change over time, and some of the most significant consequences arise out of a joint tenancy with a full right of survivorship.  Parties that hold property as tenants in common may petition a court for partition of the property.  Parties that hold property as tenants by the entireties may petition a court for a divorce, and, once obtained, they will then hold the property as tenants in common and can avail themselves of the right of partition.  Parties that hold property as joint tenants can freely transfer their property and enjoy a right of partition.  But tenants that hold property as joint tenants with a full right of survivorship do not enjoy a full right of partition.  The estate that exists cannot be fully destroyed without the willingness of the other parties to the arrangement because the contingent remainders cannot be affected by the unilateral act of one of the cotenants.

In Hrit v KcKeon, supra, for example, two women owned a lake house as joint tenants with a full right of survivorship.  After thirty (30) years the relationship ended and one cotenant sought to partition the property.  Both the trial court and the Court of Appeals refused to do so.  Because the dual contingent remainders could not be destroyed, and because of the perceived absence of a viable market for a life estate of unknown duration, the courts rejected the plaintiff’s effort to partition any portion of the property.  The Court of Appeals concluded that the only remedy for the plaintiff was to, in essence, do nothing and wait for the other party to die:

As in Wengel, 270 Mich App at 106, the remedy for plaintiff in this case is “to refrain from engaging in a costly legal battle or other confrontation with [the] occupying life tenant, deciding instead to take peaceful possession by invoking … her rights predicated on the contingent remainder upon the death of the life tenant.” This remedy, of course, requires that plaintiff survive defendant and may therefore seem wholly unsatisfactory. Nonetheless, on the facts of this case, it is the only real remedy available.

The outcome in Hrit, however, was later tempered by the decision of the Court of Appeals in Olson v Bosanac, unpublished per curiam opinion of the Court of Appeals, issued December 20, 2018 (Docket No 341478), 2018 WL 6709362.  In Olson, supra, the Court of Appeals clarified that Hrit did not establish a blanket rule prohibiting the partition of the joint life estates of a joint tenancy with full right of survivorship because to do so would ignore the Michigan Supreme Court’s ruling in Albro, supra, which had expressly permitted such a partition.  Each case must depend on its own set of facts.  While such a joint life estate may have little value, it cannot be said, as a matter of law, that partition is not available for that element of a joint tenancy with a full right of survivorship.  See Olson, supra, at *10 (“Although it may be logical to presume that such a life estate could have little value, this Court’s opinion in Hrit does not purport to make such a blanket statement that all such life estates are unmarketable but instead indicated that the conclusion was limited to the facts of that particular case. . . . The approach taken by the trial court in the instant case would, in essence, result in a resurrection of the rule that our Supreme Court overruled in Albro.”).  In addition, the Court of Appeals provided a potential avenue of relief for this type of partial partition:

In Frenzel v Hayes, 242 Mich 631, 636; 219 NW 740 (1928), our Supreme Court explained: “One cotenant may not recover rent from another cotenant who with his consent occupied the premises owned in common. But, where the question arises in partition proceedings in equity, and particularly when the possession has been exclusive, this court has recognized that in adjusting the equities of the parties the one who has had the exclusive occupation of the premises should account for its use and occupation.” However, the party who has had exclusive possession is still entitled to credit based on the expenses on the subject property, such as taxes, paid by that party.  Id. at 639, 219 NW 740. As stated earlier, partition proceedings may be brought by “[a]ny person who has an estate in possession.” MCL 600.3308. “An estate in possession, is where the owner has an immediate right to the possession of the land ….” MCL 554.8. The holder of a life estate interest is “entitled to the possession and rents, issues and profits” of the property. Pitcher v Douglas, 37 Mich 339, 341 (1877). Specifically, the joint life estate interest of a joint tenancy with full rights of survivorship is “a possessory, freehold estate with an immediate right to occupy the property.” Wengel, 270 Mich App at 99, 714 NW2d 371. “Each joint tenant shares in possession of the entire estate, and each is entitled to an undivided share of the whole.” Albro, 434 Mich at 274; 454 NW2d 85. And, as previously stated, our Supreme Court has expressly held that a cotenant of a joint tenancy with full rights of survivorship may seek partition of the life estate interest. Id. at 284, 286, 454 NW2d 85.  Accordingly, it follows that a cotenant of a joint tenancy with full rights of survivorship may be entitled to some amount of rent if excluded by another cotenant from the property in which both cotenants hold a possessory life estate interest.  (Olson, supra, at *7).

However, the Court of Appeals in Olson also rejected an effort by the plaintiff to utilize the equitable remedies of quantum meruit and unjust enrichment to address perceived in equities in the use of the property.  Such remedies are not available in the presence of a contract on the same subject matter, and a warranty deed creating a joint tenancy with full right of survivorship is considered a contract.  Therefore, the Court of Appeals in Olson concluded that “[b]ecause the deed . . . governs the same subject matter and parties involved . . . quantum meruit and unjust enrichment [were] inapplicable . . . .”  Olson, supra, at *12.  While it appears that this aspect of the Olson decision may seem inconsistent with the holding in Tkachik that unjust enrichment was available to co-tenants by the entirety, (and, therefore, should also be available to joint tenants with a right of survivorship), the Olson court had already concluded that with respect to the partition of joint life estates, “the party who has had exclusive possession is still entitled to credit based on the expenses on the subject property, such as taxes, paid by that party.”  Olson, supra, at *7 (citing Frenzel, 242 Mich at 639).  Further, the Olson court does not appear to have expressly undertaken an analysis under Tkachik and it remains to be seen whether another panel would agree with the cursory analysis of Olson on this issue.  Nevertheless, at least substantively, it appears that Olson maintains the rationale of Tkachik even if it utilized a different approach.

Because of the indestructibility of the dual contingent remainders, the use of a joint tenancy with a full right of survivorship presents significant risks for the parties involved.  By agreeing to hold such an estate, the parties are agreeing to be bound by a relationship that will only end upon either the mutual agreement of all parties or the death of all of the parties except for one.  While Olson, and potentially Tkachik, provide possible avenues of recourse for one joint tenant against the other when there is a dispute, the outcome in Hrit demonstrates that, in some cases, there may be no remedy at all except to recognize the impermeability of the estate.

Summary

When real property is to be held by several persons, the parties must decide the nature of the estate under which the real property will be held.  A joint tenancy with a full right of survivorship may appear to be an attractive means to defer and resolve a question of entitlement, without having to resort to probate court, but it is fraught with danger if a dispute between the parties were to arise.  Individuals thinking of using such an estate should consult with counsel to ensure that the joint tenancy with full right of survivorship is appropriate for their circumstances.

Matthew W. Heron is a Member at Hirzel Law, PLC where he concentrates his practice in real estate, community association law, condominium law, real estate litigation, and zoning and land use.  Mr. Heron also has extensive experience in a variety of litigation matters, including insurance coverage, non-compete agreements, automotive supplier disputes, and breach of contract.  He routinely appears in both federal and state courts throughout Michigan and has argued before the Michigan Court of Appeals and the Court of Appeals for the Sixth Circuit. 

 

 

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