5tax - University of Oklahoma College of Law



WHAT EVERY OKLAHOMA ELDER LAWYER SHOULD KNOW ABOUT

JOINT OWNERSHIP OF PROPERTY

By Alyssa D. Campbell

December 1, 2003

Joint ownership is defined as “ownership shared by two or more persons whose interests, at death, pass to the survivor or survivors by virtue of their right of survivorship.”[i] Joint ownership is also defined as “referring only to those situations in which two or more persons simultaneously have equal rights in the possession and use of land or chattels.”[ii] Joint ownership is a property law concept. Joint ownership, also known as concurrent ownership, has three basic types, currently. Those types are joint tenancy, tenancy in common, and tenancy by the entirety. Each type has its own characteristics and requirements, which will be discussed later.

This paper discusses the three basic types of joint ownership. In examining the basic types of joint ownership, this paper discusses each type’s characteristics. This paper also provides an examination of relevant Oklahoma law. Following that discussion, this paper explains how to create and dissolve joint ownerships. Finally, this paper analyzes a variety of issues that relate to the elderly client, and elder law attorneys.

The Three Basic Types of Joint Ownership

There are three basic types of joint ownership: joint tenancy, tenancy in common, and tenancy by the entirety.

Joint Tenancy

Joint tenancy is “a form of concurrent ownership of property in which each owner has an equal, undivided interest in the whole and holds a right of survivorship with respect to the interests held by the other co-owners.”[iii] A right of survivorship means that “upon death of one of the cotenants, the surviving tenant(s) become the sole owner of the entire estate.”[iv] For example, A and B each own a one-half interest in Blackacre as joint tenants with right of survivorship, and A dies. Upon the death of A, A’s interest automatically conveys to B, and B becomes the sole owner of Blackacre. Alternatively, A, B, and C each own a one-third interest in Blackacre as joint tenants with right of survivorship, and A dies. Then, A’s interest will automatically convey to B and C, and, subsequently, they will both own a one-half interest in Blackacre.

It is important to note that an interest in joint ownership does not pass under a deceased owner’s will.[v] A joint tenant may convey his or her interest to a third party, depending on applicable state law.[vi] This conversion would in effect terminate the joint tenancy and create a tenancy in common, which will be addressed later. For example, A and B enter into a joint tenancy with right of survivorship and each owning a one-half interest in Blackacre. A decides to convey his interest to C. Upon conveyance to C, A and B no longer have a joint tenancy with right of survivorship, but rather B and C have a tenancy in common. The right of survivorship does not transfer to C. “A joint tenant might accomplish the same result by transferring his joint interest to himself as a tenant in common.”[vii]

Joint tenancy has four characteristics that must be met. These characteristics are referred to as the four unities. The four unities are unity of time, unity of title, unity of interest, and unity of possession. Unity of time means that all tenants must receive their interests in the land at the same time.[viii] Unity of title means that all owners must receive their interest/title through the same event or from the same source.[ix] Unity of interest means that all the joint tenants must have equal undivided interests/shares in the land that is jointly held.[x] Unity of possession means that each joint tenant or owner has “the right to possess the whole.”[xi] In order for a joint tenancy to exist, all four of these unities and a right of survivorship must be present. Often when a party says that they have a joint tenancy, they mean they are joint tenants with right of survivorship. However, if the deed fails to provide for the right of survivorship language, then the presumption today is that a tenancy in common was created.

Tenancy in Common

Another form of concurrent ownership is tenancy in common. Tenancy in common refers to situations in which two or more persons own undivided interests in a portion of the property.[xii] In a tenancy in common, there is no right of survivorship. Upon death, an owner’s interest passes to his designated beneficiaries or heirs.[xiii] For example, A and B each own a one-half interest as tenants in common of Blackacre, and A dies. Upon A’s death, A’s one-half interest will pass to those he named in his will, or if he dies intestate, his interest will pass to those heirs determined by the state laws scheme of descent and distribution. Tenancy in common also does not require the four unities. Tenants in common may own different proportions of a property interest, meaning A and B do not have to own equal shares. Also, tenants in common do not have to acquire title at the same time, have access to the use of the whole property, nor obtain their interest from the same source.

Tenancy by the Entirety

Unlike tenancy in common, the third form of joint ownership, tenancy by the entirety, must meet several requirements. Tenancy by the entirety is a form of joint ownership that is limited to spouses.[xiv] For example, as tenants by the entirety, husband and wife would each own a one-half interest in Blackacre. Tenancy in the entirety also requires that the four unities be present.[xv] It requires unity of time, unity of title, unity of interest, and unity of possession. Joint tenancy and tenancy by the entirety each must have the four unities. However, tenancy by the entirety must have a fifth unity and that unity is called unity of person.[xvi] This derives from the fact that historically when a husband and wife were married, the wife lost her legal identity and the husband and wife became one person with the husband having the power to manage the property.[xvii] Tenancy by the entirety is also subject to the right of survivorship feature.[xviii] If one spouse dies, then the surviving spouse becomes the sole owner of the property held in joint ownership in a tenancy by the entirety. Tenancy by the entirety differs from joint tenancy in at least two ways. First, tenancy by the entirety requires unity of person (i.e. only a husband and wife may be tenants by the entirety) and a tenancy by the entirety may not be severed unilaterally by one party.[xix] It requires both owners consent to transfer property ownership.

“In some states, property of the husband and wife that is acquired during the marriage is treated as communal property.”[xx] These states are known as community property states; however, Oklahoma is not a community property state.[xxi] There are a number of issues that arise in relation to tenancies by the entirety, and these will be addressed later.

Other Types of Joint Ownership

While joint tenancy, tenancy in common, and tenancy by the entirety are the basic forms of joint ownership today, there have been other forms that existed. At common law, there existed a fourth type of joint ownership known as tenancy by coparcenary.[xxii] Tenancy by coparcenary occurred with the descent of land to two or more persons.[xxiii] Coparceners did not have the right of survivorship, but they had the “ability to force the division of the jointly-held land by a procedure known as partition.”[xxiv] Partition was finally permitted in other joint ownership types in 1539.[xxv] Today, tenancy by coparcenary is treated the same as a tenancy in common.[xxvi] A fifth type of joint ownership that has been recognized is tenancy in partnership.[xxvii] Today, the Uniform Partnership Act governs property that would be considered owned jointly as a tenancy in partnership.[xxviii]

Joint Ownership in Oklahoma

Property law in the state of Oklahoma is governed by Oklahoma statute title 60.[xxix] Title 60 Okla. St. Ann. §1 provides for the definition of property as, “the ownership of a thing is the right of one or more persons to possess and use it to the exclusion of others. In this chapter the thing of which there may be ownership is called property.”[xxx] In the very first definition of property under Oklahoma statute, the state of Oklahoma recognizes the idea of joint ownership of property. In Oklahoma, joint tenancies have been “recognized as being part of the common law of the state.”[xxxi] Joint tenancy and tenancy by the entirety are also provided for in the Oklahoma statutes at 60 Okla. St. Ann. §74 (hereinafter referred to as §74).[xxxii] While §74 is titled joint tenancy and tenancy by the entirety, the statute also mentions tenancy in common. The first paragraph of §74 provides definitions of joint interest, joint tenancy, and tenancy by the entirety.[xxxiii] The second paragraph discusses how a joint tenancy or tenancy by the entirety may be created.[xxxiv] The last paragraph of §74 does address the issue of severance and states what constitutes a severance.[xxxv] The rest of §74 addresses formalities and procedural aspects of joint tenancies and tenancies by the entirety. For the creation of joint tenancy to be valid, §74 “requires an express declaration”.[xxxvi] The Oklahoma statute does not have any express provisions regarding the right of survivorship. However, if the document creating the joint tenancy is silent as to right of survivorship, it is possible that a court will interpret the document by presumption to be a tenancy in common.

Creation and Dissolution of Joint Ownership

Creation of Joint Ownership

Joint ownership of property can be created in a number of ways. The first thing to be considered when creating a joint ownership is what type of joint ownership is the client wishing to create. Second, an attorney should consider whether the prospective joint owners meet the requirements, if any, of that type of joint ownership. Third, an attorney must address the issue of what kind of property will be put into joint ownership. If a person wanted to create a joint tenancy over a bank account or other type of account, often only a new signature card needs to be provided with valid signatures. If parties wish to become joint owners of real property, then the creation of joint ownership is a little more complex. To create joint ownership in realty usually requires changing the deed to the real property to reflect both parties as owners. This in essence will give title to the property, and the Land Title will reflect the joint ownership.

Deeds are used to convey land and create joint ownerships. There are two major types of deeds, quitclaim deeds and warranty deeds. One of the most common deeds used to create joint ownerships is the quitclaim deed. A quitclaim deed is “a deed that conveys a grantor’s complete interest or claim in certain real property but that neither warrants nor professes that the title is valid.”[xxxvii] On the other hand a warranty deed is “a deed containing one or more covenants of title.”[xxxviii] More specifically, it is “a deed that expressly guarantees the grantor’s good, clear title and that contains covenants concerning the quality of title, including warranties of seisin, quiet enjoyment, right to convey, freedom from encumbrances, and defense of title against all claims.”[xxxix] These cover the most common ways to convey property to joint owners.

Dissolution of Joint Ownership

Although joint ownership creation is relatively simple, the dissolution of joint ownerships is more complex. The dissolution methods are limited to only a few. The first is death of one of the joint owners. If one party dies, then the joint ownership ceases. The property will convey accordingly if there is a right of survivorship present. If no right of survivorship exists, then the property will pass according to the decedent’s will.

Severance

The second form of dissolution is called severance. Severance is “the termination of a joint tenancy by converting it into a tenancy in common.”[xl] In practice, severance will occur if “one of the joint tenants conveys his or her interest to a third party.”[xli] This act dissolves the right of survivorship and also converts the joint tenants into tenants in common. In order to determine what acts are considered severance action, an individual needs to look at state law. However, there is a major issue that arises with severance actions. A tenancy by the entirety cannot be severed by a unilateral conveyance of one of the parties.[xlii] The right of survivorship still exists, and, therefore, the property cannot be conveyed unless both husband and wife convey their interest. On the other hand, in the event that divorce occurs, courts have dissolved the right of survivorship interest and converted the tenancy by the entirety into either joint tenancy or tenancy in common depending on the state.[xliii]

Partition

Severance is not the only way to terminate a joint ownership of property. The most common type of dissolution is called partitioning. Partitioning is “the act of dividing; esp. the division of real property held jointly or in common by two or more persons into individually owned interests.”[xliv] There are a few types of partition. First, there is a partition in kind. A partition in kind occurs when there is a physical division of the jointly owned property. “Each cotenant receives a separate geographic portion of the property.”[xlv] A physical partition or a partition in kind can be achieved by court action or by joint owner agreements.[xlvi] The second type of partition occurs when the property cannot be partitioned in kind. In this instance, the joint owners petition a court for a partition.[xlvii] The court by judicial process sells the property and divides the proceeds between the parties according to their ownership interests.[xlviii] A partition will often occur in situations where the joint owners enjoy the property and wish to keep part of it but do not wish to be joint owners with the other parties. Partitions are often used in divorce cases when the parties cannot agree as to who is entitled to the property or when the parties agree that neither party should keep the property.

Effects and Issues in Elder Law

As millions of Americans grow older and begin entering their elder years, a number of issues that are associated with joint ownership arise. Often elderly people are unaware of the consequences of putting property into a joint ownership arrangement. Elder lawyers have a duty to inform their clients of the risks and benefits associated with joint ownership. Today a number of issues that arise in relation to elderly clients and joint ownership exist.

One issue is the belief that joint ownership is a suitable replacement for a guardianship. Joint ownership may be appropriate in certain situations, especially when the elder client has had the opportunity to plan before the need for a guardianship.[xlix] Joint ownership can, under the proper circumstances, “manage a person’s financial affairs when that person is no longer willing or able to do so.”[l] For the elder client, a common concern is how they will pay for medical care or how they will continue to maintain their lives outside of an institution.

Elder clients are more likely to enter into joint ownership agreements and often elder clients are victims of financial abuse involving joint ownership. How are elder clients victims of joint ownership? In a joint tenancy, “immediate unfettered control vests” in the new joint owner.[li] Many elder clients will create joint bank accounts or put their property in joint tenancy. The new joint tenant may act according to the elderly client’s wishes, and there may be a mutual understanding that the assets and/or accounts have been set up this way to simplify the task of managing the elder client’s affairs. However, the new joint tenant may take advantage of the elderly joint tenant’s trust.

The elder client needs to be aware that by placing property in joint ownership with another person, they, in essence, are effectuating a gift. The new joint owner or tenant has the legal right to possess and to use the property according to their own wishes.

In certain situations, these joint accounts or joint ownership arrangements are detrimental to the elderly client. “The new joint tenant has the ability to legally deplete bank accounts.”[lii] If the new joint owner is a tenant in common, the new joint owner may even dispose of real property. A problem occurs when the property has been depleted, disposed of, or accounts emptied. There may be no effective legal recourse for the elder client. With joint accounts, banking institutions have created options that are more favorable for elderly clients.

Another problem with joint ownership is that once the elderly client effectuates the joint ownership, the property is subject to the debts of the new joint owner.[liii] It is possible that the joint property may be used to satisfy the new joint owner’s obligations.[liv]

Even though there are some potential risks, there are also some facts that elder clients should also be informed of before making the decision to create a joint ownership. Raymond Bornhoft states that:

three distinct disadvantages must be understood by the client…First, counsel inform the elderly client that his asset will be subject to litigation when a child is sued. Second, if the child should become incapacitated the asset cannot be sold unless a valid Durable Power of Attorney has been made through a guardianship proceeding. Finally, even if the first two never happen, for your client to sell the asset the child must consent to the sale.[lv]

However, there are other facts that the client should know. First, joint tenancies and tenancies by the entirety are accompanied by a right of survivorship. The effect of this is that a deceased owner cannot defeat a survivor’s interest by a devise in the decedent’s will. In short, once a joint ownership is entered into, the elderly client should be aware that if the right of survivorship is present that upon their death, the joint owner will receive the property.

Second, there may be tax consequences associated with joint ownership.[lvi] There may be some tax liabilities incurred by joint owners of real property.[lvii] If the individual is wealthy, there may be Federal gift tax consequences that attach, but more often there will not be such tax liabilities.[lviii] Another tax consequence that is of concern is a Federal income tax consequence. While the elder client is alive, both tenants must report income from the property and pay taxes associated with that income.[lix] However, there is no tax consequence when one person dies and the surviving joint tenant becomes the sole owner.[lx] This is a major benefit to having joint ownership. It is often considered a way to avoid probate. This also means that family members may avoid costs associated with probate.

Conclusion

Joint ownership can be an effective estate planning and probate avoidance tool. Every day there are a number of elder law issues that arise in conjunction with joint ownership. Elder lawyers need to be aware of the needs of the elderly client, as well as the situation the elderly client is facing. The elder lawyer should be prepared to inform the elderly client about all the options and all the risks and consequences associated with joint ownership. Elderly clients should not become victims because they put their property into joint ownership without all the facts.

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[i] Black’s Law Dictionary 1131 (7th edition, 1999).

[ii] John E. Cribbet et al., Property: Cases and Materials, 316 (David L. Shapiro, ed., 7th ed. 1996).

[iii]Robert B. Danforth, Jointly Owned Property, in Estate Planning Strategies: A Lawyer’s Guide to Retirement and Lifetime Planning, 271-272 (Jay A. Soled, ed., American Bar Association, 2002). See also, Edwin G. Fee, Jr., New Disclaimer Regs, and Other Rules Affecting Jointly Owned Property, 25 Est. Plan. 117 (March/April 1998) reprinted in A. Kimberley Dayton et al., Elder Law: Readings, Cases, and Materials, 287 (2nd ed. 2003).

[iv] Roger Bernhardt, Real Property in a Nutshell, 89 (Jo Walker, ed., 3rd ed. 1993).

[v] Edwin G. Fee, Jr., New Disclaimer Regs, and Other Rules Affecting Jointly Owned Property, 25 Est. Plan. 117 (March/April 1998) reprinted in Dayton, supra note 3, at 287.

[vi] Danforth, supra note 3.

[vii] Edwin G. Fee, Jr., New Disclaimer Regs. and Other Rules Affecting Jointly Owned Property, 25 Est. Plan. 117 (1998). See also, In re Knickerbocker, 912 P.2d 969 (Utah, 1996).

[viii] Bernhardt, supra note 4, at 86. See also Cribbet, supra note 2, at 319.

[ix] Id.

[x] Bernhardt, supra note 4, at 87. See also Cribbet, supra note 2, at 319.

[xi] Bernhardt, supra note 4, at 88.

[xii] Edwin G. Fee, Jr., New Disclaimer Regs, and Other Rules Affecting Jointly Owned Property, 25 Est. Plan. 117 (March/April 1998) reprinted in Dayton, supra note 3, at 287. See also Cribbet, supra note 2, at 316.

[xiii] Fee, supra note 5.

[xiv] Fee, supra note 5. See also Cribbet, supra note 2, at 321 and Jon W. Bruce, et al., Cases and Materials on Modern Property Law, 323 (1984).

[xv] Charles Donahue, Jr., et al., Cases and Materials on Property, 566 (1974).

[xvi] Bernhardt, supra note 4 at 88

[xvii] Bruce, supra note 14, at 324.

[xviii] Bernhardt, supra note 4, at 88

[xix] Danforth, supra note 3, at 272.

[xx] Peter J. Strauss & Nancy M. Lederman, The Elder Law Handbook: A Legal and Financial Survival Guide for Caregivers and Seniors, 182 (1996).

[xxi] Id.

[xxii] Donahue, supra note 15 at 567.

[xxiii] Id.

[xxiv] Id.

[xxv] Id.

[xxvi] Id.

[xxvii] Id. at 568.

[xxviii] Id.

[xxix] Okla. Stat. tit. 60 (2002).

[xxx] Okla. Stat. tit. 60 § 74 (2002).

[xxxi] Van Foreman McClellan, Inter Vivos Transfers: Will They Stand Up Against the Surviving Spouse’s Elective Share?, 14 Okla. City U.L. Rev. 605, 610 (1989). See also, Peyton v. McCaslin, 417 P.2d 316 (Okla. 1966).

[xxxii] Okla. Stat. tit. 60 § 74 (2002).

[xxxiii] Id.

[xxxiv] Id.

[xxxv] Id.

[xxxvi] McClellan, supra note 31, at 605.

[xxxvii] Black’s Law Dictionary, supra note 1, at 424.

[xxxviii] Id.

[xxxix] Id.

[xl] Id. at 1378.

[xli] Bernhardt, supra note 4, at 91.

[xlii] Id. at 92.

[xliii] Id.

[xliv] Black’s Law Dictionary, supra note 1, at 141.

[xlv] Bernhardt, supra note 4, at 92.

[xlvi] Id.

[xlvii] Id. See also Cribbet, supra note 2, at 318.

[xlviii] Bernhardt, supra note 4, at 92.

[xlix] Lawrence A. Frolick & Richard L. Kaplan, Elder Law in a Nutshell 251 (3rd ed. 2003).

[l] Id.

[li] Id. at 254.

[lii] Id.

[liii] Id.

[liv] Id.

[lv] Raymond Bornhoft, Estate Planning, An Opportunity to Map the Future for an Elderly Client, 35-SPG Ark. Law. 12, 16 (2000).

[lvi] See generally John F. MacArthur & George S. Cabot, Tax Aspects of Creating Non-spousal Joint Tenancies, 65 Mich. B.J. 706 (1986).

[lvii] Id.

[lviii] Id.

[lix] Id. at 256.

[lx] Id.

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