Schaaf v. Forbes: MI Case on a Trust’s Authority to Convey Real Property

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Michigan recognizes a number of ways to own property jointly. One of these is a “joint tenancy with rights of survivorship.” In essence, what this means is that two or more joint tenants own equal shares of the property that were granted to them with the same deed at the same time. In a situation with two joint tenants who have a right of survivorship, when one dies, the other automatically becomes the full owner of the property. But what happens when one owner of a property…isn’t alive? Can a trust be a joint tenant with rights of survivorship?

On the one hand, there is a common-law rule preventing a corporation from serving as a joint tenant, because a corporation cannot die (and therefore, cannot be “survived”). But a trust, unlike a corporation, cannot exist perpetually.

The question of whether a trust can be a joint tenant with rights of survivorship came before the Michigan Court of Appeals in 2019, and again in 2021, in the case of Schaaf v. Forbes. Let’s take a look at the court’s reasoning, and the result.

Schaaf v. Forbes (2019)

In Schaaf v. Forbes, a deed was executed making the trustee of the Fitzpatrick Trust and multiple individuals joint tenants of a parcel of land with rights of survivorship. The plaintiffs in the case were individual joint tenants of the property. They filed a lawsuit arguing that a conveyance making a trust a joint tenant with rights of survivorship was not valid.

The circuit court which first heard the case agreed that “a Trust cannot hold Property as a joint tenant with rights of survivorship.” Accordingly, the Fitzpatrick Trust did not have the right to convey property as joint tenants with rights of survivorship. The court reasoned that because a trust has no measuring life, it cannot be party to such a deed. The defendant appealed this ruling.

On appeal, the Michigan Court of Appeals reversed the circuit court and held that a trust could be a joint tenant with rights of survivorship. The Court relied on the language of MCL 554.44 and MCL 554.55 to support its position, as well as the definition of “person” in MCL 8.3l; the dissenting justices countered that the majority’s interpretation of those statutes was incorrect, and that the outcome required by the majority’s decision was contrary to logic and common sense.

The decision of the Court of Appeals was itself appealed to the Michigan Supreme Court, which vacated the decision and sent the case back to the Court of Appeals for reconsideration.

Schaaf v. Forbes (2021)

On reconsideration, the Michigan Court of Appeals observed that “both this Court and our Supreme Court have consistently defined and applied the right of survivorship as it relates to the life and death of one joint tenant.” It went on to say that survivorship rights addressed the interests of natural persons and the uncertainties relating to their life spans.

While it is true that a trust, unlike a corporation, cannot exist perpetually, it can exist far past a natural person’s life span. As such, if a trust were to hold property as a joint tenant with rights of survivorship, it would make the survivorship rights of joint tenants who were natural persons essentially an illusion.

The Court of Appeals went on to assert that the “literal, physical death” of a joint tenant was essential to the purpose of the law creating joint tenancy with rights of survivorship. While a trust may end, it does not die. The statute that deals with deeds by surviving joint tenants , MCL 565.48, specifically references death certificates and proof of death.

In other words, according to the Court, “death” in this context means literal death of a natural person — not the termination of a trust. Accordingly, the Court of Appeals found that the trial court’s conclusion was correct: as a matter of law, a trust may not hold real property as a joint tenant with rights of survivorship.

Understanding Michigan Trust Law and Real Property Management

In short, a trust can do many things with respect to real property management that an individual owner could do. However, a trust is not a natural person, and there are some limitations. One of those is a trust’s inability to hold real property as a joint tenant with natural persons. Common sense dictates that allowing a trust to be a joint tenant with rights of survivorship would effectively defeat the survivorship rights of any human joint tenants.

If you have any questions about this case or about Michigan trusts in general, please contact our law office to schedule a consultation.

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