11 January 2016

New Real Property Tax Legislation Fixes Hole in Uncapping Exemption

Much awaited legislation was passed before year-end addressing what real estate and estate planning practitioners believed was a “hole” in Michigan’s uncapping exemption: those transfers subject to a life estate or enhanced life estate (aka ladybird transfers). On December 22, 2015, Governor Snyder signed into law PA 243, which amends MCL 211.27a to include transfers of real estate to qualified family members, but subject to a life estate in the grantor, as exempt transfers from an uncapping of the taxable value.

Under the new law, where the grantor transfers a remainder interest in real estate to a qualified family member, but retains a life estate, the taxable value of real estate will not be uncapped at the grantor’s death if the real estate is not “used for any commercial purpose” following the transfer. It is not entirely clear on what constitutes use that is for a “commercial purpose”; however, the new legislation specifically excludes the rental of residential property for a period of less than 15 days per calendar year from the definition of commercial purposes.

A list of eligible family members that fall within the scope of qualified family members is provided in MCL 211.27a, and includes a grantor’s spouse, mother, father, sibling, children, adopted children, grandchildren, and adopted grandchildren.

The law also has retroactive application, as it is effective for transfers on or after January 1, 2015.

If you have any questions about this new law or the uncapping exemption in general, please contact one of the authors of this alert or your Miller Johnson attorney.