Under Michigan law, a property’s taxable value is capped and may not increase by more than the rate of inflation until ownership of the property is transferred.
However, there are certain types of transfers of ownership that are exempt from this rule and will not cause an uncapping of the taxable value. These no-transfer-of-ownership exemptions are listed in the General Property Tax Act, Section 211.27a(7).
One particular exemption that has been the subject of recent litigation in Michigan is set forth in Section 211.27a(7)(h). This exemption has to do with a transfer that creates or terminates a joint tenancy. It has been widely assumed that the death of a joint tenant is considered a transfer that “uncaps” the taxable value of a property and is not exempt under Section 211.27a(7)(h).
However, in December 2009, the Michigan Court of Appeals reversed the decision of the the Michigan Tax Tribunal in the case of Klooster v City of Charlevoix, holding that the death of one joint tenant, even though it terminated the joint tenancy, was not a “conveyance” because there was no instrument that affected title. In that case, husband and wife first acquired property, wife then quitclaimed to husband, husband then quitclaimed to himself and his son as joint tenants, and the husband/father subsequently died. It is the death of the father as joint tenant that is the issue of the dispute. The court disagreed with the City of Charlevoix and the Tax Tribunal’s contention that the death constituted a “transfer” under Michigan statutes.
Just this month, the Michigan Court of Appeals in Klevorn v. City of Boyne City, using Klooster as precedent and citing the similarity of the facts, held that the death of one joint tenant (mother) and the subsequent transfer the other joint tenant with rights of survivorship (son) was not a “conveyance”. Therefore, the Court held that the property value upon transfer to the son should not have been uncapped and he was entitled to the no-transfer-of-ownership exemption in MCL 211.27a(7)(h).
The Klooster decision has been appealed to the Michigan Supreme Court. In the meantime, there is precedent to argue that upon the death of a joint tenant, the remaining joint tenant with rights of survivorship is not subject to an uncapping of the property’s taxable value.
This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.
