Iowa Supreme Court Affirms Severance of Joint Tenancy
In a January 27, 2023, opinion, the Iowa Supreme Court found that a joint tenancy with rights of survivorship was converted to a tenancy in common when one of the owners transferred her undivided interest to a revocable living trust. The Court also ruled 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. The case, Grout v. Sickels, No. 21-0556 (Iowa 2023), is an important read for anyone owning property in joint tenancy with rights of survivorship or anyone transferring jointly owned property into a revocable living trust.
Helen Schardein was a lifelong resident of Mount Ayr who passed away in 2019 at the age of 98. During her lifetime, Helen worked as a real estate broker and as the owner of an abstracting company. Her husband predeceased her and she had no children. In 2012, Dan Sickels moved to Mount Ayr and rented a house from Helen. He later agreed to buy the house on contract. Dan performed handy man services on Helen’s properties and stopped billing for the services when the two became close friends. Dan also drove Helen around town for errands and shopping and accompanied her on trips to Florida.
In 2014, Helen purchased a lot on Sun Valley Lake for $85,000. She deeded the property to herself and Dan as joint tenants with right of survivorship. As a former real estate professional, Helen fully understood the meaning of a joint tenancy.
In 2018, Helen suffered a serious stroke and was unable to speak or move well. While she was in a rehab facility, her nephew from Oregon flew to Des Moines to visit her. Helen then executed (with assistance) a general power of attorney in favor of the nephew and a declaration of trust. The documents were read to her and signed by the spouse of her attorney at Helen’s direction.
The revocable living trust was to be used for Helen’s benefit for her life and was to be distributed in accordance with her will at her death. Under the will, 35 percent of Helen’s assets were to go to the nephew and his sister, 35 percent of the assets were to go to the nieces and nephews of her deceased husband, 20 percent of the assets were to go to charity, and 10 percent were to go to other individuals.
The trust declaration stated that all of Helen’s real estate was to be transferred into the trust. Using his general power of attorney, the nephew executed a warranty deed conveying all of Helen’s undivided interest in the lake property to the trust.
Helen died four months later, and Dan (unaware of the trust) filed an affidavit of surviving joint tenant and listed the lake property for sale. The title review uncovered the warranty deed. The property was sold, but the proceeds were placed into escrow pending resolution of ownership.
Lower Court Decisions
In May of 2020, the nephew filed a petition for partition of the lake property, naming Dan as the defendant. He sought partition and an award of all of the proceeds from the sale of the property because Helen had provided all of the consideration for the purchase of the property.
The trial court concluded that the transfer of the lake property into the revocable living trust had severed the joint tenancy. The court also found that the trust was entitled to 100 percent of the sales proceeds under “equitable adjustment” principles. Specifically, the court decided that because Dan had not contributed anything to the cost of the property and because Helen had maintained it, her trust was entitled to all of the proceeds from the sale. The Iowa Court of Appeals affirmed on the same grounds, and Dan appealed.
Supreme Court Decision
The Joint Tenancy was Severed
On review, the court affirmed the finding that Helen’s power of attorney had severed the joint tenancy when he transferred her interest into the trust. In reaching this decision, the Court relied upon In re Estate of Johnson, 739 N.W.2d 493 (Iowa 2007), which adopted an intent-based test for determining whether a joint tenancy has been created, severed, or terminated. This intent, the Court stated, must be drawn from an instrument that is legally effective to carry out the intent.
The Court reasoned that Helen had made a legally valid conveyance of her interest in the lake property to a separate entity—the trust. Given that conveyance, the Court explained that the joint tenancy was severed. A trust is not a natural person and cannot “die.” In fact, the Court noted that the trust outlived Helen. As such, the valid transfer of Helen’s interest in the lake property to the trust severed the joint tenancy and created a tenancy in common between Dan and the trust.
Dividing the Interests
The Court next found that the district court and the court of appeals committed legal error when they offset Helen’s purchase price against the value of the proceeds from the sale. This approach erroneously placed the parties in the position they were before Helen created the joint tenancy.
Instead, the Court ruled that when property has been held in joint tenancy with rights of survivorship, a partitioning court should begin with an equal division of proceeds. In short, the Court explained, the creation of a two-party joint tenancy with rights of survivorship leads to a presumption that each of the parties owns a one-half proportional interest in the property. Here, no evidence suggested that Helen intended a different arrangement when she created the joint tenancy in 2014. Once a proportional or fractional interest in property is established, that proportion does not change merely because other cotenants may have paid more for their interests or may have invested more in improvements on the entire property.
The Court ruled that it is only after the equal division that courts may make equitable adjustments of shares based on expenses incurred during the joint tenancy. Specifically, a court should consider value-enhancing contributions that occurred during the joint tenancy, such as improvements made to the property by one of the joint tenants or debt payments made by one of the joint tenants. The burden of proof to establish the right to such an adjustment falls upon the person seeking the adjustment.
Here, the evidence showed that Helen had paid property taxes and homeowners’ association dues totaling $9,756 after establishing the joint tenancy. The Court ruled that this amount could be deducted from the total proceeds before dividing them in two shares. After the adjustment, the Court awarded $41,534.27 of the net proceeds to the trust and $31,778.27 of the proceeds to Dan.
In this case, the Court well decided the questions before it and clarified Iowa law on some important issues. The nagging issue not before the Court, however, was the fact that the transfer by the power of attorney after Helen’s stroke largely unwound Helen’s intent that Dan would become the sole owner of the property upon her death. Because of her advanced age, she presumed that she would predecease him. The facts tell us that Helen chose the joint tenancy transfer because she did not want to have to amend her will. This case reminds those planning with joint tenancies to consider the possibility of severance.
The Center for Agricultural Law and Taxation does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. The Center's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.