Attorney Melisa M. W. Mysliwiec recently spoke to the Greater Lansing Association of Realtors on when taxable value uncaps and when it doesn't for purposes of property taxes. The presentation addressed what is considered a transfer of ownershipunder Michigan law, which results in uncapping of property taxes, and the several exemptions to what is considered a transfer of ownership. She also discussed the several new exemptions added over the past year, and some holes in the new exemptions. To learn more, contact attorney Melisa Mysliwiec at mmysliwiec@fraserlawfirm.com or 616-301-0800. Melisa works out of Fraser Trebilcock's Grand Rapids and Lansing offices, focusing her work in the areas of Elder Law and Medicaid planning, estate planning, and trust and estate administration. She was named a “Rising Star” in Michigan by Super Lawyers in 2013 and 2014.

1. TAXABLE VALUE UNCAPPING
RELATING TO TRANSFER OF
OWNERSHIP
Lansing • Detroit • Grand Rapids
www.fraserlawfirm.com
Melisa M. W. Mysliwiec
Practice Areas: Elder Law, including Medicaid
Planning; Estate Planning; and Trust and Estate
Administration
mmysliwiec@fraserlawfirm.com
616.301.0800 or 517.377.0887
517.482.5800

2. Overview
 Proposal A was adopted in 1994, amending
the Michigan Constitution. It caps annual
increases in the taxable value of real property
at the lesser of 5% or the rate of inflation.
 In the year following a transfer of ownership,
though, the cap is removed, and the taxable
value is then set at 50% of the property’s true
cash value (i.e. state equalized value).

3. Transfer of Ownership
 What constitutes a “Transfer of Ownership?”
 Under Michigan law, there are 10 types of
conveyances that are defined as a transfer of
ownership. (See MCL 211.27a(6)).

4. Transfer of Ownership
1. Conveyance by deed
2. Conveyance by land contract
 The transfer of ownership occurs on the date the
land contract is entered into—not the date the
land contract is recorded, nor the date the land
contract is completed (paid in full) and not the
date a deed conveying title to the property is
recorded in the office of the register of deeds in
the county in which the property is located.

5. Transfer of Ownership
3. A conveyance to a trust, with two exceptions
that will be discussed later.
4. A conveyance by distribution from a trust
distribution, with two exceptions that will be
discussed later.
5. A change in the sole present beneficiary or
beneficiaries of a trust, with two exceptions that
will be discussed later.

6. Transfer of Ownership
6. A conveyance by distribution under a will or
intestate succession, with two exceptions that will be
discussed later.
 Generally, the transfer of ownership occurs when the
property is conveyed by the personal representative
of the estate. If a significant amount of time passes
between the owner's death and the conveyance from
the probate estate, and in the interim someone
exercises dominion over the property (i.e., occupancy,
leasing, etc.), then the transfer will be deemed
effective as of the date the individual started living in
or leasing out the property.

7. Transfer of Ownership
7. Leases
 If the term of the lease exceeds 35 years,
including all options or the lease has a bargain
purchase option (i.e. the right to purchase the
property at the end of the lease for 80% or less of
the value at the end of the lease), then the lease
is a transfer of ownership. It is also important to
note that under the lease provision, a partial
uncapping of property may occur where only a
portion of the property is subject to the lease.

8. Transfer of Ownership
8. Entity Ownership Changes
 When more than 50% of the ownership interest in
an entity (i.e., a corporation, limited liability
company, partnership, etc.) is transferred, there
has been a transfer of ownership. This occurs
even if the title to the real property remains in the
same name of the entity.
 The Michigan State Tax Commission’s Transfer of
Ownership Guidelines indicate that the
percentage of ownership interest conveyed is
cumulative from the date of the last transfer of
ownership.

9. Transfer of Ownership
9. Transfer of property held as a tenancy in
common
 Tenancy in common is a form of property co-
ownership where each owner owns a partial
interest in the property with no right of
survivorship between them. When one tenant in
common dies, her interest passes to her heirs or
devisees; title does not pass to the surviving
tenant(s) in common (unless of course the other
tenant(s) in common are heirs to the estate). Any
conveyance of the property held as tenants in
common results in uncapping the taxable value,
which may result in a partial uncapping, because
it only applies to that portion of the property

10. Transfer of Ownership
10. A conveyance of an ownership interest in a
cooperative housing corporation
 A cooperative housing corporation is a type of
ownership in which the corporation holds title to a
housing complex and individual stock holders
have the right to occupy an individual apartment,
house, or condominium in the complex.
Conveyance of an ownership interest in a
cooperative housing corporation is a transfer of
ownership and will result in a partial uncapping
because it only applies to that portion of the
property ownership conveyed.

11. Transfer of Ownership
Exemptions
Depending on the situation, there may be a
number of exemptions available that will prevent
a property’s taxable value from uncapping upon
a transfer of ownership. There are 24 different
exemptions listed in the enabling statute; 7 of
these are new exemptions that were added to
the statute over the past year.

12. Transfer of Ownership
Exemptions
1. Spouses
 Transfers of property from one spouse to another,
including transfers from a deceased spouse to the
surviving spouse.
 Note: transfers to a former spouse do not qualify
for this exemption.

13. Transfer of Ownership
Exemptions
2. Tenancy by the entireties.
 Any conveyance whose sole purpose is to create
or terminate a tenancy by the entireties.
 A tenancy by the entireties is a form of co-
ownership between husbands and wives. Upon
the death of one spouse, the other spouse
automatically becomes the sole owner of the
property. Neither spouse may sell the property
without the consent of the other spouse.

14. Transfer of Ownership
Exemptions
3. Life estates and life leases
 A transfer of that portion of property subject to a
life estate or life lease is not a transfer of
ownership, until expiration or termination of the
life estate or life lease.
 A life estate or lease occurs when a property
owner conveys the property to another person but
retains the right to use, occupy and control the
property during his/her lifetime.

15. Transfer of Ownership
Exemptions
4. Foreclosure
 A transfer of property resulting from a financial
institution or land contract seller taking back the
property is not a transfer for purposes of
uncapping. Likewise, a deed in lieu of foreclosure
is not a transfer of ownership.
 The property is uncapped on the sooner of: at the
point that the financial institution sells the property
to a third party or one year after the expiration of
the redemption period.

16. Transfer of Ownership
Exemptions
5. Redemptions of Tax-Reverted Properties.
 Tax-Reverted properties are those in which the
owner has not paid the property taxes and they
have reverted to the taxing authority. Generally,
there is a period of redemption where the owner
may pay back all of the delinquent taxes and
fees. Any such redemption is not considered a
change in ownership.

17. Important Definitions
 Family Member = mother, father, brother, sister, son,
daughter, adopted son, adopted daughter, grandson, or
granddaughter.
 Residential Real Property = real property classified as
residential real property, which includes the following:
platted or unplatted parcels, with or without buildings, and
condominium apartments located within or outside a village
or city, which are used for, or probably will be used for,
residential purposes; parcels that are used for, or probably
will be used for, recreational purposes, such as lake lots
and hunting lands, located in an area used predominantly
for recreational purposes; and a home, cottage, or cabin on
leased land.

18. Transfer of Ownership
Exemptions
6. Conveyance to a trust – the two exceptions:
 If the grantor of the real property is the creator of the
trust, the spouse of the creator, or both and the sole
present beneficiary of the trust is either the creator, the
creator’s spouse, or both, then the transfer is not a
transfer of ownership and the taxable value does not
come uncapped.
 Beginning with conveyances on or after December 31,
2014, for residential real property only, if the grantor of
the real property is the creator of the trust, the spouse of
the creator, or both and the sole present beneficiary or
beneficiaries of the trust are a Family Member of the
creator or the spouse of the creator and the residential
real property is not used for any commercial purpose
following the conveyance, then the transfer is not a
transfer of ownership and the taxable value does not
uncap.

19. Transfer of Ownership
Exemptions
7. Conveyance from a Trust – the two exceptions:
 If the distributee is the sole present beneficiary of the
trust, the spouse of the sole present beneficiary of the
trust, or both, then the distribution is not a transfer of
ownership and there is no uncapping of the taxable
value.
 Beginning with conveyances on or after December 31,
2014, for residential real property only, if the
distributee is a Family Member of the creator of the
trust or the spouse of the creator of the trust and the
residential real property is not used for any
commercial purpose following the conveyance, then
the transfer is not a transfer of ownership and the
taxable value does not uncap.

20. Transfer of Ownership
Exemptions
8. A change in the sole present beneficiary of a trust
where property is titled to the trust – the two
exceptions:
 If the change merely adds or substitutes the spouse
of the sole present beneficiary, it is not a transfer of
ownership.
 If the change occurred on or after December 31,
2014, for residential real property only, and the
change in sole present beneficiary or beneficiaries
adds or substitutes a Family Member of the creator
of the trust or the spouse of the creator of the trust
and the residential real property is not used for any
commercial purpose following the conveyance, it is
not a transfer of ownership.

21. Transfer of Ownership
Exemptions
9. Distribution from a Probate Estate (whether
pursuant to a will or the laws of intestate
succession) – the two exceptions:
 If the person receiving the property is the deceased
person's spouse, the conveyance is not a transfer
of ownership.
 Beginning December 31, 2014, for residential real
property only, if the distributee is the decedent’s or
the decedent’s spouse’s Family Member and the
residential real property is not used for any
commercial purpose following the conveyance, then
the transfer is not a transfer of ownership and the
taxable value does not uncap.

22. Transfer of Ownership
Exemptions
10. Court-Ordered Transfer.
 Generally, a transfer of property pursuant to an
order or judgment of a court is not a transfer of
ownership.
 If the value of the property is specified or ordered
by the court in the transfer order, though, a
transfer would occur resulting in the uncapping of
the property (unless another exemption is
available).

23. Transfer of Ownership
Exemptions
11. Joint Tenancy.
 A joint tenancy is a form of property interest created with an
express declaration in the language of the deed. In a joint
tenancy, each owner owns an equal, partial interest in an entire
property (i.e., five people each own 20% of the property) and the
surviving owner has the right to the whole estate. For the
exemption to apply, each party must own equal ownership
interests.
 A transfer creating a joint tenancy is not a transfer if at least one
of the joint owners was an original owner before the joint tenancy
was initially created.
 A transfer which expands, shrinks or terminates a joint tenancy is
not a transfer if the following rules are met: (1) at least one of the
persons was an original owner and became a joint tenant when
the joint tenancy was initially created; and (2) that person
remained a joint tenant since the joint tenancy was initially
created.

24. Transfer of Ownership
Exemptions
 Klooster v City of Charlevoix, 486 Mich 932
(2011):
 Husband and Wife to Husband = no transfer of
ownership (terminating tenancy by the entireties)
 Husband to Husband and Son 1 as joint tenants with
rights of survivorship = no transfer of ownership
(creating joint tenancy b/c Husband was an original
owner before the joint tenancy was initially created)
 Husband died = no transfer of ownership (terminates
a joint tenancy b/c Husband was an original owner
and became a joint tenant when the joint tenancy was
initially created)

25. Transfer of Ownership
Exemptions
12. Security Interest.
 An example of a security interest would be a mortgage or
deed of trust whereby a borrower gives a security interest
to a bank to secure a loan. A transfer to establish,
relinquish or assign a security interest is not a transfer of
ownership for purposes of uncapping the taxable value.
13. Affiliated Groups.
 An affiliated group is one or more corporations connected
to a parent corporation by stock ownership. The
exemption only applies to corporations and does not apply
to other types of entities (i.e., limited liability corporations,
partnerships, etc.). Any transfer among members of an
affiliated group is exempt from uncapping the taxable value
of real property.

26. Transfer of Ownership
Exemptions
14. Normal Public Stock Trading.
 Day-to-day trading of publicly held stock (even if the
transactions exceed 50% of the stock) are not
considered transfers if the ownership interests are
traded in multiple transactions and involve unrelated
individuals or entities.
 The following transactions could constitute a transfer
of ownership because they are not normal public
trading: (1) merger of one or more companies; (2)
acquisition of a company by another company; (3) the
initial public offering of the stock of a company; (4) a
secondary public offering of the stock of the company;
(5) trading of privately held stock; and (6) a takeover
involving a public offer to gain control of a company.

27. Transfer of Ownership
Exemptions
15. Commonly Controlled Entities.
 This exemption may be utilized by any type of legal
entity and is not limited to corporations. In general,
entities are considered to be commonly controlled if
they are a parent-subsidiary, brother-sister or
combined group of businesses. Michigan Revenue
Administrative Bulletin 1989-48 contains the technical
qualifications to be considered commonly controlled.
Internal Revenue Service bulletins may also be
utilized, although certain Department of Treasury
publications indicate that they are not determinative.
In general, though, the exemption requires greater
than 80% ownership to apply.

28. Transfer of Ownership
Exemptions
16. Tax-Free Reorganization.
 Under section 368 of the Internal Revenue Code,
certain transactions are characterized as a tax-
free reorganization. If the transaction meets the
definition, such transaction would not result in the
uncapping of the taxable value. Section 368 only
applies to corporations. The requirements to
qualify as a tax-free reorganization are outside
the scope of this presentation.

29. Transfer of Ownership
Exemptions
17. Qualified Agricultural Property.
 Transfers of property that is: (1) unoccupied property
and related buildings classified as agricultural or (2)
unoccupied property and related buildings devoted
primarily to agricultural use is not considered a
transfer of ownership. The property must remain
qualified agricultural property after the transfer and
the buyer must file an affidavit with both the local
assessor and the register of deeds. 100% of the
property transferred must remain qualified agricultural
property after the transfer; if any portion of the
property is not used as agricultural property, the entire
property is uncapped.

30. Transfer of Ownership
Exemptions
18. Qualified Forest Property.
 Similar to the Qualified Agricultural Property
exemption, if the transferred property is qualified
forest property as defined in MCL 211.1031 to
211.1036, the transfer does not result in
uncapping the taxable value.

31. Transfer of Ownership
Exemptions
19. Conservation Easement/Contribution.
 If the land is the subject of a conservation easement
or the transfer is eligible for a deduction under the
Internal Revenue Code as a qualified conservation
contribution, the transfer will not result in uncapping
the taxable value. This exemption only applies to
transfers of land, not buildings or structures located
on the land.
 Additionally, beginning March 31, 2015, a conveyance
of land, by distribution from a trust or through a
probate estate, that is subject to a conservation
easement or eligible for a deduction under the Internal
Revenue Code as a qualified conservation
contribution, will also not result in uncapping the
taxable value.

32. Transfer of Ownership
Exemptions
20. Merger of Certain Non-Profits Corporations.
 A transfer resulting from consolidation or merger
of certain non-profit corporations will not uncap
the taxable value. The entities eligible for this
exemption are domestic nonprofit corporations
that are a boy or girl scout or camp fire girls
organization, a 4-H club or foundation, a young
men’s Christian association, or a young women’s
Christian association and at least 50 % of the
members of the organization are residents of
Michigan.

33. Transfer of Ownership
Exemptions
21. Stockholder Lessees.
 A change to the assessment role or tax roll
resulting from a change in percentage allocations
of taxable and assessed values to stockholder
lessees.

34. Transfer of Ownership
Exemptions
22. Blood or Affinity to the First Degree.
 For transfers of residential real property between
December 31, 2013, through December 30, 2014, if
the transferee is related to the transferor by blood or
affinity to the first degree and the use of the
residential real property doesn't change following the
transfer, the transfer does not result in uncapping the
taxable value.
 A first degree blood relative is a person who shares
approximately 50% of their genes with another
member of the family. These relatives include spouse,
father or mother, father or mother of spouse, son or
daughter, adopted son or daughter, son or daughter of
spouse, and siblings.

35. Transfer of Ownership
Exemptions
23. Family Members.
 Beginning with conveyances on or after
December 31, 2014, for residential real property
only, if the transferee is the transferor's or the
transferor's spouse's Family Member, as defined
above, and the residential real property is not
used for any commercial purpose following the
conveyance, then the transfer is not a transfer of
ownership and the taxable value does not uncap.

36. Transfer of Ownership
Exemptions
24. Natural Resources and Environmental
Protection Act.
 Effective April 30, 2015, a conveyance to a de
facto owner of certain land under the Natural
Resources and Environmental Protection Act is
not considered a transfer of ownership.

37. Legislative Intent
 It seems clear that the legislature's intent is to
prevent uncapping of property taxes of
residential real property in nearly any event
that the property is transferred to the owner's
or owner’s spouse’s Family Member (i.e.
mother, father, brother, sister, son, daughter,
adopted son, adopted daughter, grandson, or
granddaughter). This is beneficial to many for
estate planning purposes.
 But . . . a few types of specific transfers
involving family members were missed.

38. What’s Missing?
Step-children.
 Conveyances to step-children through a will or
trust could potentially result in uncapping of
property taxes even though distributions of
residential real property from a trust or probate
estate to a Family Member of the spouse of the
creator of the trust are exempt from uncapping.
Why? Because if one's spouse dies before them,
their step-children no longer fit the definition of
"spouse's Family Member" because a deceased
spouse is not considered a "spouse." Therefore,
while outright transfers to one's spouse's Family
Members are exempt from uncapping, transfers
to those same individuals through use of a will or
trust may not be.

39. What’s Missing?
Transfers between Trusts.
 If residential real property is distributed from a trust and the
distributee is the sole present beneficiary of the trust, the spouse of
the sole present beneficiary of the trust, or both, then the
distribution is not a transfer of ownership and there is no uncapping
of the taxable value, but if, instead, the distributee is a trust for the
benefit of the sole present beneficiary of the original trust, the
spouse of the sole present beneficiary of the original trust, or both,
this is a transfer of ownership and will uncap the property tax value.
 If residential real property is distributed from a trust and the
distributee is a Family Member of the creator of the trust or the
spouse of the creator of the trust, and the residential real property is
not used for any commercial purpose following the conveyance,
then the distribution is not a transfer of ownership and there is no
uncapping of the taxable value, but if, instead, the distributee is a
trust for the benefit of a Family Member, this is a transfer of
ownership and will uncap the property tax value.

40. What’s Missing?
Pour-Over Wills.
 Currently, residential real property that passes
through probate (whether pursuant to a will or the
laws of intestate succession) to the deceased
person's spouse or to the decedent's or the
decedent's spouse's Family Member is not a
transfer of ownership, but if, instead, it passes
through decedent's will to decedent's trust for the
benefit of decedent's or decedent's spouse's
Family Members (commonly referred to as a pour-
over will), this is a transfer of ownership and will
uncap the property taxes.

41. What’s Missing?
Family LLC's.
 If residential real property is conveyed to an
LLC, the membership of which is made up
entirely of one's Family Member's or one's
spouse's Family Members, this is a transfer of
ownership and will uncap the property tax
value of the property.

42. What’s Missing?
Lady Bird Deeds.
 Lady bird deeds are treated as life estates by the State Tax
Commission, regardless of who the property transfers to at the end
of the life estate. The conveyance used in a lady bird deed is
described more fully in Land Title Standard 9.3, but essentially it
creates a life estate coupled with a power of appointment retained
by the grantor and names a default beneficiary to take the property
in the event the power of appointment is not exercised. Sometimes,
it’s referred to as an enhanced life estate.
 The most recent Guidelines from the State Tax Commission on
Uncapping indicate that even if the ultimate transferee under a lady
bird deed is a Family Member, the death of the life estate holder
using a lady bird deed will cause an uncapping. Unless/until this
issue is resolved, lady bird deeds should be used cautiously, and
should not be used as an estate planning tool unless property tax
uncapping is not an issue. Instead, lady bird deeds should
generally only be used in Medicaid situations to avoid estate
recovery.

43. What’s Missing?
The Real Estate Committee of the Probate and
Estate Planning Council of the State Bar of
Michigan is actively working with legislators
toward drafting a bill that, if approved, would add
in some of the missed exemptions to the statute
on uncapping.

44. Thank you!
Melisa M. W. Mysliwiec
616.301.0800 or 517.377.0887
mmysliwiec@fraserlawfirm.com