The Michigan Legislature enacted Public Act 310 (2014), which impacts transfers of real estate from Trusts. Under the General Property Tax Act (MCL 211.27a), the taxable value of a parcel of property is capped, meaning it cannot increase from one year to the next by more than the rate of inflation or five percent, whichever is less. However, when there is a transfer of ownership, the taxable value increases to 50% of the market value, as determined by the assessor of the local taxing authority. This is commonly known as “uncapping” the taxable value.
The new law, effective December 31, 2014, exempts certain lifetime transfers of real estate from “uncapping.” Specifically, the amendment provides that the conveyance of a residential real property to a trust, conveyance of residential real property by distribution from a trust, a change in sole present beneficiary of residential real property from a trust, and conveyance of residential real property by distribution under a will or by intestate succession are not transfers of ownership where the beneficiary is the settlor’s spouse, mother, father, brother, sibling, child, grandchild (or similar “step” relation), son-in-law, daughter-in-law, or legal ward, if the use of that residential real property does not change.
In short, the new law exempts uncapping of real estate taxable value for lifetime transfers and transfers to and from Trusts and probate estates, even after the death of the settlor (the person who created the Trust), as long as the transfer is to a relative (as defined above), and the property is residential. The amendment provides new succession planning tools to pass valuable real estate to the next generation.
If you have questions or would like more information about this new law, please contact us and we’d be happy to set up a time to talk with you.