10.4 Jointly Owned Property

• Library: Estate Planning in Virginia (Virginia CLE) (2022 Ed.)

10.4 JOINTLY OWNED PROPERTY

10.401 Introduction.

There are various forms of joint ownership, with or without a survivorship feature, and the estate planner must have a working knowledge of these variations. The following paragraphs discuss the various types of joint ownership, how they are created, their tax ramifications, and coordination with an estate plan.

10.402 Types of Joint Ownership.

A. Tenants in Common.

1. Undivided Fractional Interest.

A tenant in common owns an undivided fractional interest in the property that may be greater or lesser than the fractional interest or interests held by the other tenant or tenants in common.

2. No Survivorship.

There is no right of survivorship between tenants in common.

3. Alienable by Tenant During Life and at Death.

The interest of the tenant in common passes as part of his or her estate at death and is freely alienable by the tenant during life. Each tenant in common may also compel judicial partition or sale of the property under section 8.01-81 of the Virginia Code.

4. Termination.

A tenancy in common terminates when the fractional interests unite by gift, sale, death, or other disposition.

B. Joint Tenants with Right of Survivorship.

Assets held jointly with right of survivorship are the most widely used nonprobate assets due to their convenience, ease of creation, and probate-avoidance characteristics.

1. Undivided Equal Interests.

Unlike the tenancy in common, each joint tenant has an undivided equal interest in the property with the other joint tenant or tenants, acquired at the same time and by the same instrument.

2. Survivorship.

Upon the death of a joint tenant, his or her interest passes by survivorship to the surviving tenant or in equal shares to the surviving tenants. Absent clear intent that the right of survivorship attaches at creation of the title, a tenancy in common results. ¹⁴¹³

3. Alienable by Tenant During Life Only.

The joint tenant has the same rights of alienation as a tenant in common during his or her lifetime, including the right to compel a partition or sale, without the consent of any other joint tenant.

4. Termination.

The joint tenancy terminates in the same ways a tenancy in common terminates, except that a disposition by a joint tenant of his or her interest by transfer to a third party also terminates the tenancy, creating a tenancy in common. Divorce also converts the joint tenancy into a tenancy in common. ¹⁴¹⁴

C. Tenancy by the Entirety.

1. Joint Tenancy Between Spouses.

A tenancy by the entirety is a special form of a joint tenancy with right of survivorship that exists only between spouses.

If no survivorship is specified, a tenancy in common results. The United States Bankruptcy Court for the Eastern District of Virginia has held that a husband and wife owned property as tenants by the entirety because they owned it with their daughter "as joint tenants with the common-law right of survivorship" although the deed did not recite their marital relationship. ¹⁴¹⁵ In Kerr v. Dill, ¹⁴¹⁶ the Circuit Court of the City of Roanoke found that a husband and wife held a mutual fund account as tenants by the entirety where the account holders checked the box "Joint Tenants WROS"; there was no box listed for tenants by the entirety; the account application reflected the wife's status as wife; and a letter to the mutual fund company noted that the other shareholder was the wife.

As with the other forms of joint ownership, tenants by the entirety ownership may apply to both real and personal property. ¹⁴¹⁷ It can also apply to the proceeds of sale of entirety property. ¹⁴¹⁸ Section 55.1-136 of the Virginia Code provides that any spousal property held as tenants by the entirety and conveyed to their joint revocable or irrevocable trust, or to their separate revocable or irrevocable trusts, will have the same immunity from claims of their separate creditors as if it had remained a tenancy by the entirety as long as (i) they remain married to each other; (ii) the property continues to be held in trust or trusts; and (iii) both of the spouses are current beneficiaries of one trust that holds the entire property or each of the spouses is a current beneficiary of a separate trust and the two separate trusts together hold the entire property, even if other persons are also current or future beneficiaries of such separate trusts. ¹⁴¹⁹

2. Survivorship.

The death of one tenant vests the entire ownership in the survivor automatically by operation of law.

3. Alienable Jointly During Life.

Neither tenant can alienate entirety property without the joinder of the other tenant. Neither tenant may compel a partition of the property. ¹⁴²⁰ Generally speaking, entirety property is immune from the creditors of either tenant during the lifetime of the nondebtor spouse, but not from the creditors of both tenants. ¹⁴²¹ In United States v. Craft, ¹⁴²² however, the United States Supreme Court ruled that a federal tax lien could attach to one tenant's rights in the property. The IRS subsequently issued a Notice to address collection issues created by the Craft decision. ¹⁴²³

In Evans v. Evans, ¹⁴²⁴ the Virginia Supreme Court considered the question of whether one spouse could effectively convey his or her ownership in property held as tenants by the entirety to the other spouse when the other spouse did not join in the deed. In 1976, the husband conveyed to his wife "all of his interest" in property that he and his wife owned as tenants by the entirety. The deed was not recorded until 1979. ¹⁴²⁵ The Virginia Supreme Court stated that the husband's execution of the 1976 deed demonstrated his intent to divest himself of his tenancy by the entirety ownership in the property and thereby give his wife sole fee simple ownership. ¹⁴²⁶ The court acknowledged there was no evidence as to "how, when or to whom the deed was delivered" nor who had recorded it. ¹⁴²⁷ However, the court ruled that when the wife executed a deed in 1993 conveying the property to her trust, she showed her intent to accept the 1976 deed and thereby consented to the dissolution of the tenancy by the entirety to create fee simple ownership of the property in the wife. ¹⁴²⁸

Section 55.1-136 of the Virginia Code states that, except as otherwise provided by statute, no interest in real estate held as tenants by the entirety may be severed unless by a deed signed by both spouses as grantors. ¹⁴²⁹

4. Termination.

The tenancy by the entirety terminates upon a joint conveyance by the spouses. As with the joint tenancy with survivorship, divorce converts the tenancy by the entirety into a tenancy in common. ¹⁴³⁰

10.403 How Created.

A. Instrument of Title.

Creation of joint ownership requires the formalities of a deed, will, trust, assignment, or other conveyance. To create survivorship rights with a joint tenancy or tenancy by the entirety, intention of survivorship must be manifest in the instrument or a tenancy in common will result. For intangible personal property, the instrument is typically a certificate, account card, or both.

B. United States Government Bonds and Other Securities.

The United States Treasury issues savings bonds in the name of co-owners only in the alternative, such as "John Doe or Mary Doe." The Treasury will pay the bond to either co-owner at either owner's request and upon presentation of the bond. Death of a co-owner vests ownership in the survivor. For other securities held in certificate form, the specific form of title should be listed on the certificate itself. For securities held in "street name," the brokerage account agreement controls.

C. Clarity Critical.

Clarity of title is critical in establishing joint accounts. The form of ownership controls as to the nonprobate status of the asset as well as to the gift tax consequences at creation. If survivorship is intended, it should be expressed in the instrument of conveyance, certificate, or governing account agreement; otherwise, a tenancy in common may result. For intangible personal property not in certificate form, the client should also be clear about whether one or both parties can convey the asset.

10.404 Multiple-Party Depository Accounts.

A. Governed by Statute.

Sections 6.2-604 through 6.2-620 of the Virginia Code control the relationship between co-depositors and the depository institution during lifetime and at death. These sections were enacted to impose uniformity on the statutory and decisional law governing joint accounts. They apply to all multiple-party accounts in existence on, or created after, July 1, 1980. They do not, however, affect the common law presumption of convenience between persons not married to each other in joint accounts created before July 1, 1980, insofar as the ownership of the fund and right of survivorship are concerned. ¹⁴³¹

B. Definitions. ¹⁴³²

1. Account.

"Account" includes all forms of deposit contracts, including checking, savings, and share accounts, and certificates of deposit.

2. Fiduciary.

The term "fiduciary" includes any one or more of the following: (i) a fiduciary as defined in section 8.01-2, (ii) an agent under a power of attorney, or (iii) an attorney acting under an attorney-client relationship.

3. Fiduciary Account.

A "fiduciary account" means (i) an estate account for a decedent, (ii) an account established by one or more agents under a power of attorney or an existing account of a principal to which one or more agents under a power of attorney are added, (iii) an account established by one or more conservators, (iv) an account established by one or more committees, (v) a regular trust account under a testamentary trust or a trust agreement that has significance apart from the account, or (vi) an account arising from a fiduciary relationship such as an attorney-client relationship. "Multiple-fiduciary account" means a fiduciary account where more than one fiduciary is authorized to act. The statute adds that "Fiduciary account" does not include a trust...