MAY 9, 2016 VOLUME 23 NUMBER 18
First, a short primer on “joint tenancy with right of survivorship”:
In Arizona, there are two main ways that two or more people can own property together (assuming they are not married). One choice is for the owners to be “tenants in common.” The other is to be “joint tenants.”
What is the difference? There are several, but two stand out:
- Joint tenants must have an equal interest, while tenants in common can have any variation they choose (60%/40%, or any other variation they can come up with), and
- Tenants in common can leave their interests to the other tenant in common, or to anyone they choose. Joint tenancy automatically includes a “right of survivorship,” so that the surviving joint tenants automatically receive the share belonging to a deceased joint owner.
It is that second element — the right of survivorship — that most distinguishes joint tenancy. If three people own the property as joint tenants, and one of them dies, the two survivors are now 50/50 joint owners, with the right of survivorship as between themselves. So, for instance, if a married couple decides to transfer their home into joint tenancy with the wife’s daughter (from a first marriage) as joint tenants, and then the married couple both die before the daughter/stepdaughter, she is the sole owner of the property.
But here’s the less-known thing about joint tenancy: any of the joint tenants can, unilaterally and semi-secretly, turn the joint tenancy into tenancy in common. How? Simply by transferring their fractional interest to another person — even if the recipient promptly transfers the interest back to the original joint owner. In some states (including Arizona), the joint tenant can even transfer his interest to himself and get the same result. Of course, the transfer should be filed with the County Recorder (in Arizona, at least) to be effective, but no notice to the other joint tenants is required.
That’s what happened to Janet Smith (not her real name). Her mother and stepfather (we’ll call them Edna and Greg) owned their home, and Janet lived with them. In 2002, the couple transferred their home into three names: Greg, Edna and Janet, as joint tenants (with right of survivorship).
Edna died in 2006, and Janet continued to live in the home with Greg. She helped take care of him, and helped him to stay at home, until his death in 2013. Sometime before his death, however, Greg had transferred his one-half interest in the home into a trust, which named his two children (from his first marriage) as beneficiaries.
Janet filed a claim against the estate. She alleged that the care she had provided to Greg after her mother’s death was worth at least $100,000, and that there had been an understanding that Greg would not change the joint tenancy arrangement after Edna’s death. Part of the reason her name was put on the house in the first place, she said, was that Edna and Greg relied on her to take care of them, and that she was to receive the house in return.
Greg’s son, as personal representative of Greg’s estate, denied Janet’s claim. The probate court agreed with the disallowance of the claim, and granted summary judgment in favor of the estate. Janet appealed.
The Arizona Court of Appeals affirmed the probate court ruling. The appellate court first noted that there would likely be a problem with Janet’s claim in any event, since an agreement involving real estate ownership would ordinarily have to be in writing. But, since the appellate court agreed with the probate court on Greg’s ability to terminate the joint tenancy, the lack of a written agreement did not have to be considered.
The Court of Appeals ruled that Greg and Edna’s belief and expectation at the time they established the joint tenancy was simply unknown. Janet claimed that Greg had repeatedly told her that she would be “taken care of” after his death; that vague assurance was insufficient to support any agreement not to take the property out of joint tenancy. Janet’s claim failed again at the Court of Appeals level. Show v. Otto, May 3, 2016.
It is important to remember that Janet was not completely disinherited by the outcome. Upon her mother’s death she became an owner of a half interest in the property, and Greg’s later termination of the right of survivorship did not divest her of that interest. She just did not receive the entire property, as she had apparently expected. In fact, the Court of Appeals opinion mentions that the property was sold and the proceeds split. Her share of the proceeds will no doubt be reduced by the amount of attorney’s fees awarded against her by the appellate court decision.
Though the joint tenancy/tenancy in common distinction is most often thought of in the context of real estate, the same rules apply to personal property as well. The distinction is often, if somewhat imprecisely, characterized as a difference between “and” and “or” on a title. If, for instance, a vehicle title indicates that an auto is owned by “Greg AND Janet”, that amounts to tenancy in common — it takes both Greg and Janet to transfer the vehicle to a buyer, and if either of them has died then the decedent’s interest must be dealt with (by probate proceedings or otherwise). But if the auto title is “Greg OR Janet”, either can sign the title, and the result is equivalent to a joint tenancy (with right of survivorship).
And, just to confuse things further (sorry about that), there is an entirely different set of considerations when property is held by a married couple. But that’s a story for another day.
