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Oct 2013
21
October 21, 2013

Cottage Law Update


A new Michigan law may provide an opportunity to keep vacation property that has experienced a large increase in value since the initial purchase in the family.

Effective Dec. 31, residential real property may be transferred to children of the owners without uncapping property taxes.  Property taxes are “capped” while the owner possesses the property and may only be increased each year by a certain amount, even if the value of the property increases at a greater rate.  However, this “cap” on increases in property tax disappears upon a transfer of ownership, which means the taxable value of the property can be adjusted to its assessed value, unless the transfer qualifies for an exception.

The new law creates an exception for transfers of “residential real property” from one owner to another “who is related by blood or affinity to the first degree,” provided that the use of the property does not change following the transfer.

The new law is narrowly written and only covers direct transfers from a parent to a child.  The law does not include transfers:

  • To grandchildren or more remote descendants
  • From trusts, estates or LLCs to children
  • To trusts for children or LLCs owned by children 

Nonetheless, the new exception may provide an important planning opportunity if you are looking for ways to transfer cottage ownership to the next generation. 

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