New Real Estate Succession Planning Options

Recent amendments to the property tax statute expand planning opportunities for family property succession.

By: Christopher G. Rogers, Attorney

Whether your family property is a rustic camp in the U.P., a cozy cottage on Little Glen, a hunting cabin in Eastern Lower Michigan, or a house in Traverse City – to your family, your property likely has a “family meaning value” far in excess of its fair market value.

A consideration when planning to keep property in your family for generations is its annual carrying cost, a major component of which is the annual property taxes. The longer you’ve owned your property, the greater the likelihood that without careful planning your property taxes could uncap (increase significantly) for future generations of owners. The unfortunate result can be a forced sale by your children or grandchildren who can’t afford the carrying costs.

With family property in mind, the Michigan Legislature enacted Public Act 310 in October of 2014, which broadened the transfer exemptions available to property owners under MCL 211.27a. Common exemptions used prior to the recent amendments (and still available) include joint tenancy planning and transfers between spouses. However, the new transfer exemptions provide more planning options.

Five components of the new transfer exemptions of which you should be aware are:

      1. The “who”: Your eligible transferees now include your and your spouse’s
        • Parents
        • Siblings
        • Children
        • Adopted Children
        • Grandchildren
      2. The “when”: Your transfer must occur on or after December 31, 2014.
      3. The “how”: You can now transfer your property in the following manners to eligible transferees:
        • Outright transfer
        • Conveyance to a trust
        • Conveyance by distribution from a trust
        • Change the sole present beneficiary(ies) of a trust
        • Conveyance by distribution under a will
        • Conveyance by distribution by intestate succession
      4. The “what!”: Regardless of the eligibility of the transferees or the manner in which you accomplish the transfer, the new exemptions only apply to residential real estate. (Residential real estate includes vacant and improved property.)
      5. The other “what!”: The transferee(s) must not use the property for any commercial purpose following the conveyance.

To ensure that all transferees comply with the five components stated above, the Michigan Department of Treasury or assessor can request them to provide proof of compliance within 30 days. Failure to do so by a transferee can result in a $200 fine and possible uncapping of the taxable value of the property.

Regardless of whether you have a camp, cottage, or cabin, the recent amendments to the property tax statute may be beneficial to you and your future generations. We would be happy to assist you and your family with any questions you may have about your family property succession planning.

This article is for informational purposes only and is not legal advice.