Transfer of Property into Trust Severed Joint Tenancy with Right of Survivorship

NOTE: In a January 27, 2023, opinion, the Iowa Supreme Court reversed the Court of Appeals decision finding that the severance of the joint tenancy created a presumption of two equal shares, with equitable adjustments allowed only for contributions made after the creation of the joint tenancy.

On March 2, 2022, the Iowa Court of Appeals affirmed a district court decision finding that the transfer of a joint tenant’s interest in real property into a trust severed the joint tenancy.

Background

Helen Schardein owned an insurance, real estate, and abstracting company, as well as several rental units. She became friends with handyman and tenant, Dan Sickels. As the two became friends, Dan stopped charging her for his work. Because Helen could not drive, Dan also helped her with errands and took her to doctor’s appointments.

In 2014, Helen purchased a lake property for $85,000. In the warranty deed, Helen listed her and Dan as joint tenants with full rights of survivorship. Dan testified Helen did this because she “wanted to do something for [him]” after she passed away, but did not want to change her will. Dan and Hellen both paid to insure the property, but Helen paid the property taxes, HOA dues, water and sewer herself.

Helen suffered a stroke in 2018. The next month, Helen executed several legal documents. First, she executed a power of attorney naming her nephew, who lived in Oregon, as her agent. She also established a revocable trust into which she would convey all of her real and personal property. Helen’s nephew, acting as her agent, executed a warranty deed conveying “all of [her] undivided interest in and to” the lake property to the trust. The deed stated that it was “given for estate planning purposes.” Helen passed away in 2019 at the age of ninety-eight. Helen’s estate planning documents did not name Dan as a beneficiary.

Shortly after Helen’s death, Dan filed an affidavit of surviving joint tenant for change of title to the lake property with the local recorder’s office. The affidavit was recorded, but the title was apparently not changed. Believing he was the sole owner of the property, Dan listed the lake property for sale and accepted an offer for $80,000. The title opinion showed that the trust owned a one-half interest. As the trustee, the nephew petitioned for a partition by sale and requested that the net proceeds of the sale be awarded to the trust since Helen had made all of the contributions to the property.

Dan field a motion for summary judgment claiming that the joint tenancy was not severed and that the trust no longer had an interest in the property upon Helen’s death. The district court disagreed finding that the declaration of trust showed Helen’s intent to sever the joint tenancy. Because Dan financially contributed very little to the property, the court awarded all of the net proceeds to the trust. Dan appealed.

Severance of Joint Tenancy

On appeal, Dan claimed that joint tenancy was not severed because Helen did not expressly state her intent to do so; therefore, he argued that he became the sole owner of the lake property upon Helen’s death. “[A] joint tenant owns an undivided interest in the entire estate to which is attached the right of survivorship.” In re Est. of Bates, 492 N.W.2d 704, 706 (Iowa Ct. App. 1992). However, a joint tenant may choose to end the joint tenancy and, thus, the right of survivorship.

Under the “intent-based approach,” there must be an action or instrument corroborating the intent to sever joint tenancy. Dan argued that the purpose of the deed was to avoid probate by transferring Helen’s joint tenancy interest into the trust. However, the court reasoned that such a transfer was not necessary. As joint tenants, Dan would inherit Helen’s share as the surviving joint tenant without the need for probate.

Here, the court found that the declaration of trust showed Helen’s intent to sever joint tenancy. Additionally, Helen’s action conveying her interest in the lake property into the trust was inconsistent with the right of survivorship. Therefore, joint tenancy was severed converting Dan’s interest to a tenancy in common.

Division of Sale Proceeds

Next, Dan argued that even if joint tenancy was severed, he still retained an ownership interest as a tenant in common and should receive half of the net proceeds from the sale. The court disagreed asserting that while severance of joint tenancy leaves each party with an equal interest, “[t]his does not mean . . . that each party is simply entitled to one-half of the proceeds.” Coyle v. Kujaczynski, 759 N.W.2d 637, 642 (Iowa Ct. App. 2008). A party may be reimbursed for costs contributed on behalf of the property. Helen paid for most of the costs the lake property. Dan did not provide evidence of either financial or non-economic contributions. Because the sale was less than Helen’s total contribution, the court affirmed the award of the net proceeds to the trust.

The Center for Agricultural Law and Taxation is a partner of the National Agricultural Law Center (NALC) at the University of Arkansas System Division of Agriculture, which serves as the nation’s leading source of agricultural and food law research and information. This material is provided as part of that partnership and is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.