Friday, February 7, 2014

The lion cub, revisited

We recently posted our commentary on the use of a so-called “lion cub” deed, noting that two or more people who are granted ownership of real estate “as joint tenants” in unequal shares cannot be regarded as true joint owners under the common law. The common law interpretation of a joint tenant is, by definition, someone who has an equal and undivided interest in the real estate in question.

A colleague has recently brought our attention to a case decided by the Michigan Court of Appeals in 1984. The decision was In re Ledwidge Estate, 136 Mich App 603, 358 NW2d  18 (1984). In that case, the original owner of a parcel died in 1948, leaving it to his six surviving children in equal shares. Some of the children bought out the interests of others, and by 1968 Veronica Ledwidge was the owner of two shares and John C. Ledwidge was the owner of four, as tenants in common between them. In 1968, the two of them joined in a deed purporting to convey the land to themselves as joint tenants with rights of survivorship between them, with a recitation “and not as tenants in common” with a specified ¼ interest held by Veronica and a ¾ interest held by John.

On the death of John Ledwidge in 1979, the probate court held that the joint tenancy was valid and effective, and that it operated to pass the fee interest to Veronica, free of any claim of any other person.

This decision was challenged by the “residuary beneficiaries”, the persons to whom the remainder of the estate passed after other specific gifts had been made. They argued that the attempt to create a new joint tenancy in 1968 had been ineffective, because of the attempt to create unequal shares of ownership, and that they continued to own the land as tenants in common. The ¾ interest owned by John Ledwidge, they argued, should be an asset of the estate and distributed to them.

The Court of Appeals disagreed. The court recognized the common law rule that the interests of the owners had to be equal – using arcane legal parlance, the owners had to have a “unity of time, title, interest, and possession” – but it held that the enactment by the legislature of MCL 565.49 abolished that common law requirement.

MCL 565.49 provides:
“Conveyances in which the grantor or one or more of the grantors are named among the grantees therein shall have the same force and effect as they would have if the conveyance were made by a grantor or grantors who are not named among the grantees. Conveyances expressing an intent to create a joint tenancy or tenancy by the entireties in the grantor or grantors together with the grantee or grantees shall be effective to create the type or ownership indicated by the terms of the conveyance.”
We are not convinced that the court’s analysis was accurate. The apparent intent of MCL 565.49 was to abolish the then-needed practice of conveying a parcel of land from one owner to a “straw man” who would then convey the land to the original owner and one or more other persons as joint tenants. The legislature does have the power to abolish or modify common law rules, but unless this is done, the Michigan Constitution of 1963 provides that the common law rules continue in force and effect in Michigan. It is not clear that the Legislature so intended in this instance.

There is also a highly technical rule, MCR 7.215-J, which provides that decisions of the Michigan Court of Appeals rendered before November 1990 do not have the same precedential authority as decisions rendered after that date.

Nonetheless, it is true that Ledwidge specifically recognized and gave effect to a declaration of joint tenancy in unequal shares, and declared that the established intention of the grantor will control over the rules applied at common law. No other court in Michigan has followed Ledwidge, but no court has rejected it, either.

The concept of the unequal joint tenant has thus been given a blessing by one court of record in Michigan and may well be found valid for planning purposes. The client who wishes to utilize this approach should be familiar with the possible drawbacks.

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