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Michigan Real Estate Tax – UPDATED New Transfer of Ownership Rules

Michigan Real Estate TaxAt the end of 2013, Michigan added a new real estate tax law that said a transfer of residential real property is not a transfer of ownership for purposes of real estate tax uncapping if the buyer and seller are related by blood or affinity to the first degree. There were 2 main questions that immediately arose from the text of the legislation:

  1. Who all is included in the category of “blood or affinity to the first degree?”
  2. What about transfers directly from a revocable living trust , or transfers from a probate estate?

At the time, the Michigan State Tax Commission said the new uncapping exemption did not apply to transfers from a trust or a probate estate, and it also surprisingly included siblings in the class of persons who could transfer between themselves without uncapping.

On October 9, 2014, Michigan Governor Rick Snyder signed off on new legislation that gave clarity to these 2 questions. Beginning in 2015, the revised law replaces the phrase “related by blood or affinity to the first degree” with the following specifically listed relationships:

  1. Spouse
  2. Parent
  3. Sibling
  4. Child (including adopted)
  5. Grandchild

And the new legislation also includes as an uncapping exemption a transfer directly from a person’s trust to one of the above categories of relatives.

As a real world example of this new legislation’s benefits, earlier this year one of our clients held a vacation property in her trust and wanted to transfer it to her grandson. In order to keep the property taxes capped in 2014, we had to prepare and record 3 deeds: 1. From her trust to herself. 2. From herself to her son. 3. From her son to her grandson. With the new rules for 2015, we can now deed the property directly from her trust to her grandson without uncapping the property taxes.

Even though this new law can provide a great tax savings for future generations, every family is unique and there are still important considerations to think through. For example, if the seller still intends to live at the property, there may be homestead exemption issues and the property will be subject to the buyer’s creditors.

Attorney Adam Zuwerink specializes in real estate and estate planning issues, and would be happy to answer any specific questions you have about transferring your property to family members. He can be reached at 231-457-4235 or adam@westmichiganlaw.com