Estate Planning often involves transfer of real property. Care must be taken to avoid incurring unnecessary property taxes as an asset protection plan is carried out.

One of the biggest obstacles to overcome is the so-called uncapping of property taxes. In Michigan, property taxes can only increase by a fixed percentage each year, regardless of the increase in fair market value of the real estate so long as the real estate is owned by the same person or joint owners. For those who have held real property for a long time, this rule has helped to keep their property taxes down.

When real property is transferred to another person, such as through a sale or a gift, the property tax values will generally be reset at the fair market value of the real estate at the time of the transfer. Knowing the exceptions to these rules and how to retain sufficient interest in the property by the grantor can be critical to obtaining the best possible asset protection result without incurring additional property taxes.

One example of how an uncapping of property taxes can be avoided is through the creation of joint tenancy. Under MCL 211.27a (h), the creation of a joint tenancy does not create an uncapping under most circumstances:

A transfer creating or terminating a joint tenancy between 2 or more persons if at least 1 of the persons was an original owner of the property before the joint tenancy was initially created and, if the property is held as a joint tenancy at the time of conveyance, at least 1 of the persons was a joint tenant when the joint tenancy was initially created and that person has remained a joint tenant since the joint tenancy was initially created. A joint owner at the time of the last transfer of ownership of the property is an original owner of the property. For purposes of this subdivision, a person is an original owner of property owned by that person’s spouse.

One way of reading this paragraph would allow for avoiding the uncapping of property taxes indefinitely. If Annie and Barrie own property that they transfer to Charlie by creating a joint tenancy, no uncapping results. Furthermore, if Annie, Barrie and Charlie convey to Annie, Barrie, Charlie and Danny as joint tenants, one could argue that Charlie is an “original owner” for purposes of MCL 211.27a(h) and that at the passing of Annie and Barrie, Charlie and Danny will continue to pay property taxes at the “capped” rate, i.e., without regard to the fully appreciated value of the property. So what prevents Charlie and Danny from conveying the property to Eve as joint tenants and continuing to avoid the uncapping of property taxes?

This technique is one example of how a careful understanding of Michigan’s property tax law can result in significant savings and maximize the value of an asset protection plan.

Retirement for many people is defined as the time when they are able to live off of the income from their assets combined with Social Security and perhaps a pension. But anything from a car accident to a stay in long-term care can quickly deplete retirement assets and jeopardize the fruits of a lifetime’s work. This can be particularly devastating for a married couple when one of the spouses falls ill and the assets of both must be devoted to the care of one. Medicaid law permits the Community Spouse (the spouse not in long-term care) to retain a maximum of $104,400.00 in non-exempt assets, but without planning, in many cases that amount can be lower.

Modern estate planning offers solutions to this problem and provides financial security in retirement. This form of estate planning is far more than naming beneficiaries on accounts or providing a list what is to go to whom. It is a matter of restructuring an estate to be sure that assets are protected and preserved for their intended purposes. These techniques allow security, tax benefits, and even asset protection for one’s heirs.

One often hears of estates consumed by the cost of long term care. See, for example this story. A modern estate plan can help you to ensure that you will receive the benefits of your assets without exposing those assets to the claims of creditors or the cost of nursing home care.