In a recent opinion, the Michigan Supreme Court clarified some instances where the death of a joint tenant, or the creation or termination of a joint tenancy may lead to an uncapping of the property’s taxable value.
In Michigan, a property’s tax bill is calculated by multiplying the applicable millage rate by the property’s taxable value. That taxable value remains “capped;” increasing only by the lesser of the rate of inflation or 5% in any one year, until the property is “transferred.” A transfer for property tax purpose is defined by statute. However, numerous exemptions from the definition of “transfer” exist.
In Klooster v. Charlevoix, the Michigan Supreme Court ruled that the death of a joint tenant will be exempt from being a “transfer,” leading to an uncapping of taxable value if: (a) the departing joint tenant was an “original owner;” and (b) the remaining joint tenant was a joint tenant when the joint tenancy was initially created, and has continuously remained a joint tenant. However, unless one of the new joint tenants is an “original owner,” the creation of a subsequent joint tenancy may lead to an uncapping. To be considered an “original owner,” a joint tenant must have continuously been an owner from the date the property’s taxable value was most recently uncapped.
The Klooster decision, although heralded in the media as a “victory” for municipalities, opens up substantial planning opportunities for owners of property to structure transactions in a manner that will not lead to an uncapping of the property’s taxable value. If you are interested in learning more about such opportunities, please contact of Demorest Law Firm.