Historically as the value of real estate has risen the transfer of real property – especially the family home or cottage – from one generation to another has resulted in an increased tax burden upon the next generation. That’s been particularly true in Michigan where property transfers have “uncapped” the limits put on assessment increases as a result of the adoption of Proposal A.

To determine whether this exemption may apply to your particular situation it’s important to consider two key elements of the law:

First, the transferee must be related to the transferor by blood or affinity to the first degree which means, according to the Michigan Department of Treasury, the transferee (recipient of the property) is a spouse, father or mother, father or mother of the spouse, son or daughter, including adopted children, and son or daughter of the spouse, and
Second, the property must be considered residential, including vacation second homes and may not be income property
Like so much that comes from the Legislature, the law is complex and reading it can cause your head to spin. That said, with proper planning, this exemption may provide a useful means by which to transfer residential property (including recreational lands) from one generation to the next without uncapping the property tax. Each case will differ and that requires a careful analysis of the law and the individual situation, yet it can be well worth the time and money spent to do an analysis of the law and its possible benefit. If you are considering a transfer of residential property to someone you think may qualify for the exemption, it’s important to contact both legal counsel as well as your tax adviser.

The Lady Bird Deed
An alternative estate planning idea to consider is a Lady Bird Deed, a type of transaction reportedly invented by or for Lady Bird Johnson, wife our 36th President. In the past many people sought to avoid Probate by simply putting a child’s name on the deed to the farm, or home place. Lawyers have usually recommended against doing so because of the risks inherent in the joint ownership of property, for example: subjecting it to potential future liabilities of another person. A Lady Bird Deed seeks to avoid many of those problems. It transfers all of Grantor’s interest in the real property with the exception of an extremely broad Life Estate by which the Grantor retains the absolute right to unilaterally cancel the transaction and convey the property to someone else at any time during his or her lifetime.

It’s not clear whether a Lady Bird Deed would enjoy the uncapping exemption passed by the Michigan Legislature in 2013 if only because the recipient of the property would not have any present rights to possession. Those could be unilaterally withdrawn by the transferor of the property at any time.

If you have property that you plan to transfer to family members at some point we would be happy to consult with you about the estate planning options that are available. To schedule an appointment give us a call at 231- 941-5878.