Governor Snyder has approved a bill that will increase the allowable exceptions to uncapping the taxable value for property transfers under MCL 211.27a. Public Act 310 of 2014, which goes into effect December 31, 2014, will allow certain transfers of real property to and from a trust without uncapping the taxable value.
This latest amendment to MCL 211.27a presumably rights an oversight by the previous amendment that went into effect December 31, 2013. The previous amendment provided an exemption from uncapping for the transfer of residential property to someone who is “related to the transferor by blood or affinity of the first degree,” as long as the property continues to be used as residential property after the transfer. Uncapping is also referred to as a “pop-up” of a parcel’s taxable value under the General Property Tax Act. Essentially, the taxable value of a property cannot increase from one year to the next by more than the lesser of the rate of inflation or 5%, until the property is transferred. Upon transfer, however, the taxable value “pops up” or “uncaps” to 50% of the market value, also known as the state equalized value or SEV. This uncapping can be a curse to those who inherit or are gifted property that has been in the family for years.
The Department of Treasury considers the term “affinity of the first degree” to include a spouse, parents, parents-in-law, children (including adopted children), stepchildren, and siblings. The 2013 amendment to the statute seemed like great news to residential property owners who could now, for example, transfer the family cottage to their children, stepchildren or siblings without uncapping the property’s taxable value for the recipient. The 2013 amendment, however, failed to address the transfer of property by trust or by will to someone related to the settlor or testator by “affinity of the first degree.” A bulletin issued by the State Tax Commission (STC) answered the question in the negative, stating the exemption does not apply to a trust, a limited liability company, or to a distribution from probate. In other words, if the family cottage were titled in a parent’s living trust, the taxable value of the cottage would uncap upon transfer to the beneficiaries, even if the beneficiaries were related by affinity of the first degree.
This amendment legislatively reverses the STC bulletin. The amendment provides that the conveyance of residential property to a trust or by distribution from a trust are not transfers that would cause uncapping where the beneficiary is the settlor’s or settlor’s spouse’s mother, father, brother, sister, son, daughter, adopted son, adopted daughter, grandson or granddaughter if the residential real property is not used for any commercial purpose following the conveyance. Likewise, no uncapping would occur for distribution under a will or by intestate succession of real property to a decedent’s or decedent’s spouse’s mother, father, brother, sister, son, daughter, adopted son, adopted daughter, grandson or granddaughter if the residential real property is not subsequently used for any commercial purpose. The amendment further provides that, upon request by the Department of Treasury or by the Assessor, the beneficiaries must furnish proof of meeting the requirements within 30 days of the request. A beneficiary who does not furnish proof within 30 days will be subject to a $200 fine.
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