New ruling in ongoing Rosa Parks Trust dispute

Another chapter, perhaps the last chapter, in the ongoing disputes regarding the Rosa Parks Trust has now been written. The Michigan Court of Appeals issued its unpublished decision in the case entitled In re Rosa Louise Parks Trust on February 20, 2014. This is the third time that the parties to the dispute have been before the appellate courts. The parties to this appeal included Elaine Steele and the Rosa and Raymond Parks Institute for Self-Development, founded by Parks and Steele in 1987.

In the earlier decisions, the Supreme Court had upheld and ordered enforcement of a settlement agreement that the parties had previously negotiated and consummated, in particular the reinstatement of Elaine Steele and former judge Adam Shakoor as trustees and co-personal representatives of the estate, as nominated in the trust agreement. There had also been litigation over attorneys fees exceeding $120,000 incurred by a law firm.

After remand on the earlier decisions, the attorney for Steele and the Institute, not named in the opinion but identified in a Detroit Free Press article as Steven G. Cohen of Farmington Hills, Michigan, filed a petition naming the probate judge as a respondent, and charging that he had engaged in a conspiracy with the attorneys for other parties to disregard the trust's nomination of Steele and Shakoor and to replace them with "long-term probate court cronies." He then petitioned the probate judge to order his own disqualification based on claims that he was not impartial and that he was now a party to the proceedings. Other petitions followed.

In May 2012, the judge advised that he was taking the disqualification motion under advisement, and postponed the other petitions pending a decision on that motion. Thereafter, Cohen filed a proposed default and default judgment, submitted interrogatories (written questions) to the judge, and served him with a subpoena for deposition.

The probate judge ultimately denied the disqualification motion, dismissed the petition alleging conspiracy, and made rulings on other petitions.

The decision by the Court of Appeals includes the following rulings:

• The dismissal of the conspiracy petition was affirmed. The probate court had no jurisdiction to hear the conspiracy claim, since the issues in question had previously been ruled upon by the court, with no appeal filed. 
• The challenging parties had advanced no evidence to support claims of conflict of interest or inappropriate conduct which would warrant disqualification. Naming a judge as a party and then seeking his disqualification would open every litigated case to manipulation by any party, if permitted. 
• The court still had authority to make rulings on issues other than those directed by the previous appellate decisions reversing and remanding the case with instructions to enter one particular order. 
• The issues raised regarding the accountings filed by the fiduciaries were unsupported by legal arguments and thus were not preserved for appeal. 

In addition, on its own initiative, the Court of Appeals made a finding and ruling that Cohen's actions in seeking disqualification of the probate judge and pursuing the present appeal were entirely improper and that he had engaged in a vexatious appeal. The case was remanded for consideration of the proper sanction, which would involve the assessment of costs, attorneys fees, and punitive damages, and whether that sanction should be imposed on the client, the attorney, or both.

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.

Tax Commission addresses uncapping amendment

The Michigan Tax Commission has issued an updated version of its Transfer of Ownership Guidelines, dated December 2013, to address issues raised by the adoption of the amendment to MCL 211.27a under Public Act 497 (2012). The amendment applies to conveyances that take place after December 31, 2013.

MCL 211.27a incorporates the limitations on property taxes adopted with Proposal A, specifying the exceptions to the otherwise-applicable rule that a conveyance of real estate will "uncap" the limits on taxable value. 

Our initial posting on this amendment was made just over a year ago. The language used in the Public Act is that a conveyance is not subject to uncapping "if the transferee is related to the transferor by blood or affinity to the first degree." Our shorthand description of that exception in the post was "from a parent to a child (or vice versa)." While that is accurate, the exception turns out to be broader than that.

The phrase is not defined in the statute or anywhere else in the Michigan Compiled Laws. There appears to be some uncertainty and lack of agreement about which relatives are regarded as "first degree," so the MTC decided to address this issue.

It should be recalled that the statute uses very stilted language in declaring that certain conveyances are or are not a "transfer of ownership," triggering an uncapping of the property tax under Proposal A. The phrase is intended to have a precise technical meaning. A conveyance of land does indeed transfer ownership of the land, but the statute provides that certain transfers will not be called a "transfer of ownership" for Proposal A purposes.

The Guidelines include a section regarding conveyances to "Children and Other Relatives." The pertinent provisions under are:

Is a transfer of property from a parent to a child a transfer of ownership?
No, beginning with transfers occurring on and after December 31, 2013. However this is true only for property classified residential real and if the use of the real property does not change following the transfer of ownership.

Does this include adopted children?
Yes, P.A. 497 of 2012 indicated that beginning December 31, 2013, a transfer of residential real property is not a transfer of ownership if the transferee is related to the transferor by blood or affinity to the first degree and the use of the property does not change following the transfer of ownership. See MCL 211.27a(7)(s).

Does this include relatives other than those related by blood?
Affinity to the first degree includes the following relationships: spouse, father or mother, father or mother of the spouse, son or daughter, including adopted children, son or daughter of the spouse and stepchildren, stepmother or stepfather.

What is the definition of relationship by blood?
The State Tax Commission offers the following definition: a first degree blood relative is a person who shares approximately 50% of their genes with another member of the family. First degree blood relatives include parents, children or siblings.

Does this exemption apply to a trust, limited liability company or to distribution from probate?
No, due to the blood or affinity to the first degree relationship clause, the State Tax Commission has defined transferee and transferor as both being individuals.

Is a change in use limited to a change in property classification?
No, there are numerous changes that could be considered a change in use and a change in use is not limited to a change in property classification.

Further, Bulletin 23 was issued on December 16, 2013, and provides:

The Commission’s position is that it was legislative intent that the phrase “related to the transferor by blood or affinity to the first degree” intended to apply the first degree test to both affinity and to blood relationships. Therefore, the Commission is including the following definition:

A first degree blood relative is a person who shares approximately 50% of their genes with another member of the family. These relatives include parents, children or siblings.

Simply put, a transfer of residential real property is not a transfer of ownership if the transferee has one of the following relationships to the transferor and the use of the property does not change:

1. Spouse
2. Father or Mother
3. Father or Mother of the Spouse
4. Son or daughter
5. Adopted son or daughter
6. Son or daughter of the spouse
7. Siblings

We have found the Genetics Home Reference, published by the U.S. National Library of Medicine, which provides two accepted definitions and which may be the source of the definition adopted by the MTC:

Any relative who is one meiosis away from a particular individual in a family (i.e., parent, sibling, offspring)
Definition from: GeneReviews - from the University of Washington and the National Center for Biotechnology Information

A first degree relative is a family member who shares about 50 percent of their genes with a particular individual in a family. First degree relatives include parents, offspring, and siblings.
Definition from: Talking Glossary of Genetic Terms - from the National Human Genome Research Institute

Note that the MTC Transfer of Ownership Guidelines do not have the force of law. They are of persuasive value and are commonly followed by assessors and equalization departments in implementing the provisions of the property tax laws.

Lion Cub deeds - myth vs. reality

The Lion Cub deed is an elusive creature. It is fleetingly mentioned on the web sites of some Michigan estate planning and real estate attorneys, but there is very little detail provided at any of them.

The idea, it appears, is to structure real estate ownership so that one party (the "lion," typically the parent who originally owns the land) owns a high majority share of real estate, 90% to even 99%, while the small conveyed percentage passes to the other (the "cub," typically the child or children of the original owner). This conveyance is an event that would generate a divestment penalty if done within the 60-month lookback period that applies for Medicaid coverage for nursing home expenses, but the fact that only a small fraction of ownership is divested means that the disqualification period would be quite short. If the land in question is worth $400,000, for example, conveying a 1% interest would result in a divestment penalty of $4,000, well under the cost of one month of nursing home care.

The problem is that these conveyances may not be made in a manner which is effective under Michigan law. The strategy does not work if done using joint tenancy as the ownership vehicle. The "lion" and the "cub" must take ownership as tenants in common, not as joint tenants, if they want to create a proportional ownership. Yet we have seen promotional materials in attorneys' offices which say that the deed will be done to convey the land "in joint tenancy" with a 90-10% or 99-1% split. The promise is that the client can get the best of both worlds - probate avoidance and avoidance of Medicaid divestment penalties.

The concept described simply does not exist under Michigan real estate law. There is no such thing as a joint tenancy with an assigned ownership percentage. The interests of each co-owner must be equal under a joint tenancy. Further, although clients may think otherwise, two people who own land in joint tenancy do not each own 50%. Four joint owners do not each own 25%. (The fact that taxing authorities or the agency administering the Medicaid program might treat it that way does not change this rule.) Instead, each owns an equal and undivided interest in the entire parcel of land, with a right of survivorship among all co-owners. As each joint owner dies, his or her interest in the parcel ends. The survivor among all joint owners emerges as the full owner of the entire parcel.

It is hard to understand what benefit a landowner would derive from conveying a tiny percentage of ownership, as a tenant in common, to one or more of the landowner's children. Joint ownership of real estate is a method that is widely used to avoid having the land pass by will or intestacy in probate court - see our earlier posting entitled "Reasons Not to Do It" - but it is entirely inconsistent with the idea of fractional or proportional ownership of real estate. Conveying a parcel of land to a parent and child as tenants in common, with a significantly disproportional ownership balance, may be effective to avoid Medicaid penalties when nursing home care is needed, but it does nothing to avoid probate. The 90% or 99% interest of the parent, owned by him or her as a tenant in common with the child, would still have to be assigned under a will or pass by intestacy, and this would require a filing in probate court. Depending on how many children are involved in the two transactions, the end result could be quite complex.

Each of these approaches may work to achieve a desired result, and each should be explained by counsel. But confusing the two is likely to lead to unexpected and unplanned consequences.

Useful site for Social Security information

One of the very useful sources of information on the web is well-hidden. Larry Kotlikoff is Professor of Economics at Boston University and is the author of Ask Larry, a weekly column posted at the PBS web site. The column, posted somewhat irregularly, answers questions from readers and viewers on some of the finer points of social security benefits. Highly recommended, although a caveat is warranted. The advice that is given does have occasional inaccuracies, so it should be double-checked with the Social Security Administration's own web site.

More Medicare and ACA scams

It was inevitable. The Wall Street Journal has posted: 

Fraudsters Are Exploiting New Health Law
One Con: Telling Medicare Beneficiaries They Must Choose New Plans

A selection:

According to a recent survey. . . a significant portion of Medicare recipients has misconceptions about the ACA. While there have been no changes to Medicare's annual open-enrollment procedures, 20% of Americans age 65 and over incorrectly believe they can enroll in Medicare through one of the new state-based health-insurance exchanges, which actually cater to individuals under 65. Seventeen percent believe exchange-based policies are replacing Medicare, according to the survey.

David Lipschutz, a policy attorney at the nonprofit Center for Medicare Advocacy, says Medicare employees "as a rule" don't contact beneficiaries. He says Medicare rules prohibit most insurers, brokers and agents from initiating contact with Medicare beneficiaries.

How to handle a death

An Arizona law firm has posted a useful reference guide called What to do when someone dies. The tasks are listed in stages - what should be done immediately, within 24 hours, within a couple of weeks, etc.