New Uncapping Exemption for Ladybird Deed Transfers

We recently posted an article that outlined new exemptions for residential real estate owners to transfer property to relatives without triggering an “uncapping” of the property taxes. Following that recent change in Michigan law, there was some debate within the legal community regarding the continued viability of transfers via one popular estate planning tool—the ladybird deed.[1] Many attorneys were concerned that such transfers were not exempt from property tax uncapping. Fortunately, a recently enacted law has put those concerns to bed.

On December 22, 2015, Gov. Snyder signed PA 243, which formally exempts ladybird transfers to close family members from uncapping. Under the new law, an owner of residential real estate can retain a life estate in property and provide for its transfer to eligible family members upon his or her death, without uncapping the property’s taxable value for purposes of property taxes.

For this exemption to apply, the property must not be “used for any commercial purpose” following the transfer. As defined in the Act, “commercial purpose” means used in connection with any business or other undertaking intended for profit, but does not include the rental of residential real property for a period of less than 15 days in a calendar year.

Although the bill went into effect on December 22, 2015, this newly minted exemption will apply retroactively to all transfers by ladybird deed beginning December 31, 2014.

If you would like to learn more about this new exemption or any other real estate matters, feel free to contact the experienced attorneys at Dingeman & Dancer, PLC, 100 Park Street, Traverse City, MI 49684; (231) 929-0500; [email protected].

[1] The conveyance used in a ladybird 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.