Transfer of Ownership Guidelines
PREPARED BY THE MICHIGAN STATE TAX COMMISSION
Issued October 30, 2017
TABLE OF CONTENTS
Background Information 3
Transfer of Ownership Definitions 4
Deeds and Land Contracts 4
Trusts 5
Distributions Under Wills or By Courts 8
Leases 10
Ownership Changes of Legal Entities
(Corporations, Partnerships, Limited Liability Companies, etc.) 11
Tenancies in Common
12
Cooperative Housing Corporations
13
Transfer of Ownership Exemptions
13
Spouses 14
Children and Other Relatives 15
Tenancies by the Entireties 18
Life Leases/Life Estates 19
Foreclosures and Forfeitures 23
Redemptions of Tax-Reverted Properties 24
Trusts 25
Court Orders 26
Joint Tenancies 27
Security Interests 33
Affiliated Groups 34
Normal Public Trades 35
Commonly Controlled Entities 35
Tax-Free Reorganizations 37
Qualified Agricultural Properties 38
Conservation Easements 41
Boy Scout, Girl Scout, Camp Fire Girls
4-H Clubs or Foundations, YMCA and YWCA 42
Property Transfer Affidavits 42
Partial Uncapping Situations 45
Delayed Uncappings 46
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Background Information
Why is a transfer of ownership significant with regard to property taxes?
In accordance with the Michigan Constitution as amended by Michigan statutes, a
transfer of ownership causes the taxable value of the transferred property to be uncapped
in the calendar year following the year of the transfer of ownership.
What is meant by “taxable value”?
Taxable value is the value used to calculate the property taxes for a property. In general,
the taxable value multiplied by the appropriate millage rate yields the property taxes for a
property.
What is meant by “taxable value uncapping”?
Except for additions and losses to a property, annual increases in the property’s taxable
value are limited to 1.05 or the inflation rate, whichever is less. In the year following a
statutory transfer of ownership, that limitation is eliminated and the property’s taxable
value is set at 50% of the property’s true cash value (i.e., the state equalized value).
This is what is meant by “taxable value uncapping”. See Michigan Compiled Laws
(MCL) 211.27a(3).
Note: A property’s true cash value is usually not the same as its sale price for a
variety of reasons. An assessor must determine the true cash value of a property which
has sold in the same manner that the assessor determines the true cash values of
properties which have not sold. Therefore, an assessor may not automatically set an
assessed value or a taxable value at half of a property’s selling price. See State Tax
Commission Bulletin No. 19 of 1997 and State Tax Commission Memorandum dated
October 25, 2005 that describes the illegal and unconstitutional practice of “following
sales.”
Can an assessor disregard a statutory transfer of ownership (i.e., can an assessor
decide not to uncap a property’s taxable value in the year following a transfer of
ownership)?
No. By statute an assessor must uncap a property’s taxable value in the year following
the transfer of ownership of that property. The assessor shall set the property’s taxable
value for the calendar year following the year of the transfer of ownership as the
property’s state equalized valuation for the calendar year following the transfer. See MCL
211.27a(3).
If two sections of MCL 211.27a(6) or (7) appear to be in conflict, how should that
conflict be resolved?
MCL 211.27a(6) includes a non-exhaustive list of conveyances that will constitute a
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transfer of ownership, and MCL 211.27a(7) lists conveyances that do not constitute such
a transfer. When two statutory provisions conflict and one is specific while the other is
only generally applicable, the specific provision prevails.
Transfer of Ownership Definitions
What is a transfer of ownership?
Central to the concept of transfer of ownership is a change in the beneficial use of the
property. Michigan statute defines “transfer of ownership” generally as the conveyance
of title to or a present interest in property, including the beneficial use of the property,
the value of which is substantially equal to the value of the fee interest. MCL 211.27a(6)
(a)-(j) provides a variety of examples of what constitutes a transfer of ownership for
taxable value uncapping purposes. If a transfer of property (or ownership interest) meets
one of these definitions and does not fall under one of the exceptions or exemptions
noted in the law, that transfer is a transfer of ownership. Transfer of ownership
definitions and transfer of ownership exceptions are contained in MCL 211.27a(6)(a)-
(j) (See appendix). Transfer of ownership exemptions are contained in MCL
211.27a(7)(a)-(x). (See appendix)
Deeds and Land Contracts
Is a conveyance of a property by deed a transfer of ownership?
A transfer of property by deed is a transfer of ownership. See MCL 211.27a(6)(a).
Is a sale by land contract a transfer of ownership?
A transfer of property by land contract is a transfer of ownership. See MCL 211.27a(6)(b).
If a property is sold by land contract, when does the transfer of ownership occur?
The transfer of ownership occurs on the date the land contract is entered into—not the
date the land contract is recorded, nor the date the land contract is completed (paid in
full) and not the date a deed conveying title to the property is recorded in the office of
the register of deeds in the county in which the property is located.
Does a second transfer of ownership occur when a land contract is paid in full and
a deed in fulfillment of the land contract is given?
No. The law specifically states that a property’s taxable value is not to be uncapped when
a deed conveying title to the property is subsequently recorded with the register of deeds.
Is the assignment of a seller’s interest in a land contract a transfer of ownership?
No, this is considered a transfer of a security interest and is exempt by law from being a
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transfer of ownership.
Is the assignment of a buyer’s interest in a land contract a transfer of ownership?
Yes, the assignment of a land contract buyer’s interest in a property conveys equitable title
to the property and a change in the beneficial use of the property occurs resulting in
a transfer of ownership.
Trusts
Is a conveyance of property to a trust a transfer of ownership?
Yes, pursuant to MCL 211.27a(6)(c), a conveyance to a trust after December 31,
1994, is a transfer of ownership. However, if the grantor stated on the deed is the
settlor (creator) of the trust or the settlor’s spouse or both and the sole present
beneficiary of the trust is the settlor of the trust or the settlor’s spouse or both, the
conveyance is not a transfer of ownership. See MCL 211.27a(6)(c)(i).
Beginning with conveyances on or after December 31, 2014, if the settlor or the settlor’s
spouse, or both, conveys residential real property to the trust and the sole present
beneficiary or beneficiaries are the settlor’s or settlor’s spouse’s mother, father, brother,
sister, son, daughter, adopted son, adopted daughter, grandson, or granddaughter and
the residential real property is not used for any commercial purpose following the
conveyance, the conveyance is not a transfer of ownership. See MCL 211.27a(6)(c)(ii).
What or who is a present beneficiary of a trust?
A present beneficiary of a trust is the person who has the enjoyment and beneficial use
of the property during the life of the trust.
What or who is a trustee of a trust?
A trustee of a trust is the person or agent who is appointed to administer the trust.
Note that banks are often trustees.
Is the trustee (or successor trustee) of a trust the same as the beneficiary of that trust?
Not necessarily. The trustee (or successor trustee) of a trust can be, and often is, a
completely different individual than the trust’s beneficiary. The beneficiary of a trust
is best determined from an examination of the trust instrument.
Is a transfer of property by a husband and wife to a trust on December 20, 2014,
with the husband and wife and their child as present beneficiaries a transfer of
ownership?
Yes. The child is a present beneficiary and is not the settlor of the trust or the settlor’s
spouse. MCL 211.27a(6)(c)(ii) does not apply as the conveyance occurred prior to
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December 31, 2014, when this exception went into effect.
Is a transfer of residential real property by a husband and wife to a trust on
January 14, 2015, with their child, John Smith, as the sole present beneficiary a
transfer of ownership?
No. Since the child is the settlor’s son and the conveyance of residential real property
occurs after December 31, 2014, the conveyance to the trust is not a transfer of ownership
provided the property is not used for any commercial purpose following the conveyance.
This conveyance falls within the exception outlined at MCL 211.27a(6)(c)(ii) and is not
a transfer of ownership.
Is a transfer of property by a husband and wife to a trust with the husband and
wife as present beneficiaries and their child as a contingent beneficiary a transfer of
ownership?
No. The child is not a present beneficiary. The only present beneficiaries are the settlor
of the trust and the settlor’s spouse. The husband and wife are the sole present
beneficiaries and fall within the exception outlined at MCL 211.27a(6)(c)(i).
What or who is a contingent beneficiary of a trust?
A contingent beneficiary of a trust is a person who does not currently have the enjoyment
and beneficial use of the property held in trust. The trust document names the contingent
event, such as, the beneficiary’s attaining a certain age, or death of the settlor. If and
when the contingent event occurs, the contingent beneficiary changes status to present
beneficiary, and gains beneficial use of the property held in trust.
Is a conveyance of property which constitutes a distribution from a trust a
transfer of ownership?
Yes. However, there are two exceptions when a distribution from a trust is not a
transfer of ownership. A conveyance of property which is a distribution from a trust
is not a transfer of ownership if the distributee is also the sole present beneficiary of
the trust or the spouse of the sole present beneficiary or both. See MCL 211.27a(6)(d)(i).
Beginning December 31, 2014, a distribution of residential real property to a distributee
who is the trust’s settlor or the settlor’s spouse’s mother, father, brother, sister, son,
daughter, adopted son, adopted daughter, grandson, or granddaughter and the
residential real property is not used for any commercial purpose following the
conveyance is not a transfer of ownership. See MCL 211.27a(6)(d)(ii).
Note: Not all transfers of property from trusts are distributions from the trusts. A
transfer of property from a trust to someone other than a beneficiary (or contingent
beneficiary) of that trust is not a distribution from that trust. It is simply a transfer of
property from a legal entity (the trust) to a person and the transfer should be considered
in that context.
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What happens if the sole present beneficiary of a trust changes?
A change in the sole present beneficiary of a trust is a transfer of ownership, unless the
following occur: (i) the change merely adds or substitutes the spouse of the sole present
beneficiary (and provided that no other statutory exception or exemption applies); or
(ii) the change in the sole present beneficiary or beneficiaries of a trust occurred on
or after December 31, 2014, for residential real property, and the change in
beneficiaries adds or substitutes the settlor’s or the settlor’s spouse’s mother, father,
brother, sister, son, daughter, adopted son, adopted daughter, grandson, or
granddaughter and the residential real property is not used for any commercial purpose
following the conveyance See MCL 211.27a(6)(e)(i) and MCL 211.27a(6)(e)(ii).
Is a conveyance of property to a trust a transfer of ownership if: The grantor is the
settlor (creator) of the trust or the settlor’s spouse or both. The sole present
beneficiary of the trust is the settlor of the trust or the settlor’s spouse or both.
No. If the grantor stated on the deed is the settlor (creator) of the trust or the settlor’s
spouse or both and the sole present beneficiary of the trust is the settlor of the trust or
the settlor’s spouse or both, the conveyance is not a transfer of ownership. See MCL
211.27a(7)(g).
If the present beneficiary of a trust changes on March 1, 2015, to the settlor’s
daughter, Jill, and her neighbor, Sarah, is the change in the present beneficiaries a
transfer of ownership?
Yes. A change in beneficiaries of a trust is a transfer of ownership. Beginning December
31, 2014, conveyances would not be a transfer of ownership if the property were
residential real property, the property was not used for any commercial purpose
following the conveyance, and the change adds or substitutes the settlor’s or settlor’s
spouse’s mother, father, brother, sister, son, daughter, adopted son, adopted daughter,
grandson or granddaughter. The exception under MCL 211.27a(6)(e)(ii) does not apply
for the reason that the change adds the neighbor, who does not meet any of the family
members qualified for this exception under this subsection. The real property should
uncap 100% in the year following the change in the beneficiaries.
What is “residential real property”?
Residential real property as used in this section means real property classified as
residential real property under MCL 211.34c. See MCL 211.27a(11)(h).
Can the assessor request the sole present beneficiary or the beneficiaries of a trust
furnish proof that there has been a conveyance, distribution or change in
beneficiaries of a trust that qualifies as an exempt transfer under MCL
211.27a(6)(c)(ii), MCL 211.27a(6)(d)(ii) or MCL 211.27a(6)(e)(ii) ?
Yes. The assessor or the Department of Treasury can request the sole present
beneficiary or beneficiaries furnish proof within 30 days that the sole present beneficiary
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or beneficiaries meet the requirements to allow the conveyance to be an exempt
transfer of ownership. See MCL 211.27a(6)(c)(ii), MCL 211.27a(6)(d)(ii) and MCL
211.27a(6)(e)(ii).
Is there a deadline for the sole present beneficiary or beneficiaries to furnish proof
that the conveyance is not a transfer of ownership under MCL 211.27a(6)(c)(ii),
MCL 211.27a(6)(d)(ii) or MCL 211.27a(6)(e)(ii)?
Yes. The law requires that the sole present beneficiary or beneficiaries furnish proof
that the conveyance is not a transfer of ownership within 30 days of the Department
of Treasury or assessor’s request.
Is there a fine if the sole present beneficiary or beneficiaries do not furnish proof?
Yes. If a present beneficiary fails to comply with a request by the Department of Treasury
or the assessor, that present beneficiary is subject to a fine of $200.00.
Distributions Under Wills or By Courts
Is a conveyance of a deceased person’s property as directed by a will or as directed
by a court (when there is no will) a transfer of ownership?
Yes. Subject to any probate administration that may occur if real property assets are
needed to satisfy debts of the decedent’s estate, title to a decedent’s real property
generally passes at the time of his or her death to any devisees or heirs.
However, the conveyance is not a transfer of ownership if the person receiving the
property is the deceased person’s spouse, See MCL 211.27a(6)(f)(i); or beginning
December 31, 2014, for residential real property, if the distribute is the decedent’s or
the decedent’s spouse’s mother, father, brother, sister, son, daughter, adopted
son, adopted daughter, grandson, or granddaughter and the residential real property
is not used for any commercial purpose following the conveyance. See MCL
211.27a(6)(f)(ii).
Note: An exemption from an uncapping exists for judgments or orders of a court of
record (without specific monetary consideration for the transfer) are not a transfer of
ownership. However, the transfer of ownership definition regarding distributions under
a will or by intestate succession is considered more specific thanand therefore
overridesthis transfer of ownership exemption (even though both statutory provisions
may apply).
Can the assessor request the sole present beneficiary or the beneficiaries to furnish
proof that the conveyance by distribution by will or by intestate succession is not
a transfer of ownership under MCL 211.27a(6)(f)(ii)?
Yes. The assessor or the Department of Treasury can request the sole present
beneficiary or beneficiaries furnish proof within 30 days that the sole present beneficiary
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or beneficiaries meet the requirements to allow the conveyance to be an exempt
transfer of ownership. See MCL 211.27a(6)(f)(ii).
Is there a deadline for the sole present beneficiary or beneficiaries to furnish proof
that the conveyance is not a transfer of ownership under MCL 211.27a(6)(f)(ii)?
Yes. The law requires that the sole present beneficiary or beneficiaries furnish proof
that the conveyance is not a transfer of ownership within 30 days of the Department
of Treasury or assessor’s request.
Is there a fine if the sole present beneficiary or beneficiaries do not furnish proof?
Yes. If a present beneficiary fails to comply with a request by the Department of Treasury
or the assessor, that present beneficiary is subject to a fine of $200.00.
In the case of a distribution of a property under a will or by a court, when does the
transfer of ownership (if any) occur? (Does the transfer of ownership occur upon
the death of the individual involved, upon the distribution of the property, or at some
other time?)
The transfer of ownership, if any, typically occurs when the property is probated and
conveys the decedent’s title to real property as of the time of death, whether by will or
by intestate succession. However, it is possible for a significant amount of time to pass
between an individual’s death and the distribution of that person’s property under a
will or by a probate court. If the distribution process has not proceeded in a typically
timely manner after a person’s death but before the distribution of that person’s property
and the person’s heir exercises dominion over the property, a transfer of ownership to
the heir is considered to have occurred when dominion was first exercised by the heir.
(Provided no statutory exception or exemption applies.)
Dominion in this context means control or beneficial use of a property, including
occupancy, receipt of rents, etc. The relevant considerations when there is a delay in
distribution of the decedent’s estate are whether the distribution process has advanced in
a typically timely manner and whether/when the heir had dominion over the property.
Additional information regarding the progression of the probate estate may best be
obtained by reviewing the probate court files.
Jane Doe dies on January 3, 2015, and her real property, which is classified as
industrial real property, is conveyed by distribution under a will to her daughter
Sally. Is this conveyance a transfer of ownership?
Yes, this is a conveyance by distribution under a will and is a transfer of ownership.
No exception or exemption applies to this conveyance. MCL 211.27a(6)(f)(ii) does not
apply because this exception is only applicable to residential real property that is
distributed to the decedent’s or decedent’s spouse’s mother, father, brother, sister,
son, daughter, adopted son, adopted daughter, grandson, or granddaughter and the
residential real property is not used for any commercial purpose following the
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conveyance. “Residential real property” is defined as real property classified as residential
real property under MCL 211.34c. See MCL 211.27a(6)(f)(ii) and MCL 211.27a(11)(h).
Assessors should review the classification of the real property in the year of the
conveyance.
Leases
Can the execution of a lease be a transfer of ownership?
Yes. A lease of real property, entered into after December 31, 1994, is a transfer of
ownership if one or both of the following conditions exists:
1. The lease term exceeds 35 years, including all options to renew the lease. OR
2. The lessee has a bargain purchase option. A bargain purchase option is defined by law
as the right to purchase the leased property at the end of the lease for 80 percent or
less of what the property’s projected true cash value at the end of the lease. Even if the
lease agreement qualifies as a “transfer of ownership” under MCL 211.27a(6)(g), the
lessee is still required to follow the notification requirements under 211.27a(10), which
states the transferee must notify the assessing officer on the proscribed form within 45
days of the transfer of ownership, to qualify as a transfer of ownership by the taxing
unit. See Walgreen’s Co. v. Macomb Twp, 280 Mich App 58; 760 NW2d 594 (2008).
Can the leasing of personal property be considered a transfer of ownership?
Generally, no. However, the leasing of personal property that a leasehold improvement,
or a leasehold estate can be a transfer of ownership.
When a lease is initiated covering only a portion of a real property parcel, and the
lease is for more than 35 years (or contains a bargain purchase option), does a
transfer of ownership occur?
Yes. However, only the taxable value for that part of the property subject to the
lease is uncapped in the year following the transfer of ownership. In other words, a partial
uncapping of the parcel’s taxable value occurs.
If a lessee assigns the lessee’s interest in a lease which had an original term of more
than 35 years and which has a remaining term of more than 35 years at the
time of the lease assignment, does a transfer of ownership occur?
Yes, this is a conveyance by lease of a property with a lease term of more than 35 years
and is a transfer of ownership.
If a lessee assigns the lessee’s interest in a lease which had an original term of more
than 35 years and which has a remaining term of 35 years or less at the time of the
lease assignment, does a transfer of ownership occur?
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No, since the remaining term of the lease is not more than 35 years.
Ownership Changes of Legal Entities (Corporations, Partnerships, Limited
Liability Companies, etc.)
Can the conveyance of an ownership interest of a legal entity (such as a
corporation, a partnership, etc.) which owns property be a transfer of ownership
even though title to the property remains unchanged?
Yes, a conveyance of an ownership interest in a legal entity (such as a corporation, a
partnership, etc.) which owns property is a transfer of ownership of that property provided
that the ownership interest conveyed is more than 50 percent of the total ownership
interest. See MCL 211.27a(6)(h). However, this is not applicable to cooperative housing
corporations (discussed separately).
A limited liability company owns real property and conveys of 25.0 percent of the
ownership interest in 2011. In January of 2012, a conveyance of 25.1 percent
of the ownership interest of the limited liability company occurred. Did a transfer
of ownership of the real property occur? If so, when?
A transfer of ownership of the property owned by the limited liability company
occurred in January of 2012 since at that point; more than 50.0 percent of the
ownership interest in the limited liability company had been conveyed. The property’s
taxable value is to be 100% uncapped for 2013.
As of January of 2011, 50.1 percent of the ownership interest of a limited liability
company was been conveyed and the taxable value of the property was uncapped
for 2012. If, in March of 2013, 50.0 percent of the ownership interest in the limited
liability company is conveyed, does another transfer of ownership occur?
No. The percentage of ownership interest conveyed is cumulative from the date of
the last transfer of ownership. Between January of 2011 and March of 2013, not more
than 50.0 percent of the ownership interest is conveyed. Therefore, no transfer of
ownership occurs as of March of 2013.
Company A owns all the membership interest in a limited liability company. The
limited liability company owns a piece of real property. In 2011, Company A sells
and conveys its ownership interest in the limited liability company to Company
B. Did a transfer of ownership of the property occur?
A transfer occurred when Company A sold and transferred its membership interest in the
limited liability company to Company B. Therefore, the property’s taxable value shall
be uncapped for 2012. See Signature Villas, LLC v. City of Ann Arbor, 269 Mich App
694; 714 NW2d 392 (2006).
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Tenancies in Common
What is a tenancy in common?
A tenancy in common is a form of property co-ownership in which two or more persons
own the property with no right of survivorship between them. When one tenant in
common dies, her interest passes to her heirs or devisees. In this type of shared
ownership arrangement title does not automatically to the surviving tenant(s) in common.
Does a tenancy in common require that the tenants in common have equal
ownership shares of the property involved?
No. A tenancy in common does not require equal shares. A different, unequal
percentage of ownership interest may be established for each tenant in common under a
tenancy in common.
Is a conveyance of an ownership interest of property held as a tenancy in
common a transfer of ownership?
Yes. However, the transfer of ownership is only for that portion of the property
ownership which is conveyed; meaning a partial uncapping of the property’s taxable
value in the year following the transfer of ownership is possible with tenancies in
common. See MCL 211.27a(6)(i).
Example: Individuals A, B, and C owned a property as tenants in common. Individual A
had a 50 percent undivided interest in the property and individuals B and C each had
a 25 percent undivided interest. In 2012, individual A conveyed his/her interest to
individual B (and this conveyance was a transfer of ownership). Under these
circumstances, a partial, 50% uncapping of the property’s taxable value occurs for 2013.
How is a tenancy in common established?
A tenancy in common is generally established by means of a deed or land contract
conveyance. The language relating to the grantees of the deed or land contract
establishes the tenancy in common.
Examples: If John Doe conveys property to John Doe and Jim Smith “as tenants in
common” a tenancy in common is created and Mr. Doe and Mr. Smith are the tenants in
common. Likewise, if John Doe conveys property to John Doe and Jim Smith and no
language is provided regarding the nature of their ownership, a tenancy in common is
created between Mr. Doe and Mr. Smith.
If a property is conveyed to a man and a woman and no information is provided
regarding the nature of their ownership, a tenancy in common is formed, unless the
man and the woman are married at that time, in which case a tenancy by the entireties is
created.
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How can the percentages of undivided ownership interest of the tenants in
common be determined?
Often the deed or land contract establishing the tenancy in common will specify the
percentages of undivided ownership interest of the tenants in common. In the absence
of language on the deed or land contract specifying the percentages of ownership interest
of the tenants in common, assessors are advised that it is presumed to be divided
equally between the owners unless evidence to the contrary is presented by the grantor.
Cooperative Housing Corporations
What is a cooperative housing corporation?
A cooperative housing corporation is a type of property ownership in which the
corporation holds title to a housing complex and individual stock holders in the
corporation have the right to occupy an individual dwelling in that housing complex.
Is a conveyance of an ownership interest in a cooperative housing corporation a
transfer of ownership?
Yes. However, the taxable value of that portion of the property not subject to the
ownership interest conveyed is not uncapped in the year following the conveyance. In
other words, a partial taxable value uncapping can occur for a cooperative housing
corporation. See MCL 211.27a(6)(j).
Note: The law states that a transfer of ownership occurs when more than 50 percent
of the ownership interest of a corporation changes. Beginning in 1997, this law was no
longer applicable to cooperative housing corporations.
What happens if a cooperative housing corporation, during 2012, conveys 15 out
of 100 shares of stock?
A transfer of ownership occurs. Since 15 of 100 shares transferred in 2012, 15 percent
of the taxable value of the cooperative housing corporation is to be uncapped for 2013.
Transfer of Ownership Exemptions
What is a transfer of ownership exemption?
Michigan law specifies that certain transfers of property and ownership interests are not
transfers of ownership for taxable value uncapping purposes. These types of transfers
are known as exempt transfers and the statutes that provide for these exempt transfers
are known as transfer of ownership exemptions. Transfer of ownership exemptions are
contained in MCL 211.27a(7)(a)-(x).
It is a solidly established principal that property tax “exemption statutes are to be
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strictly construed in favor of the taxing unit and against the exemption claimant.”
Association of Little Friends, Inc. v City of Escanaba, 138 Mich App 302; 362 NW2d
602 (1984); Town & Country Dodge Inc. v Dep’t of Treasury, 420 Mich 226; 362
NW2d 618 (1984); Inter Co-op Council v Dep’t of Treasury, 257 Mich App 219; 668
NW2d 181 (2003).
It is also well established that a person or entity seeking a property tax exemption must
demonstrate entitlement to the exemption by a preponderance of the evidence and that a
property tax exemption cannot be inferred or implied. Holland Home v City of Grand
Rapids, 219 Mich App 384, 394; 557 NW2d 118 (1996); Michigan United
Conservation Clubs v Lansing Township, 129 Mich App 1, 11; 342 NW2d 290 (1983).
Since a transfer of ownership exemption is simply a form of property tax exemption,
it is the opinion of the State Tax Commission that the principals which apply to
general property tax exemptions also apply to transfer of ownership exemptions.
Therefore, transfer of ownership exemption statutes must be strictly interpreted against
the person or entity claiming the exemption and in favor of the local taxing unit.
Assessors must not infer a transfer of ownership exemption or grant a transfer of
ownership exemption based on implication.
Spouses
Is a transfer of property from one spouse to the other spouse a transfer of
ownership?
No, generally a transfer of property from one spouse to another spouse is not a
transfer of ownership. See MCL 211.27a(7)(a) and MCL 211.27a(7)(t).
Is a transfer of property from a deceased spouse to a surviving spouse a transfer
of ownership? See MCL 211.27a(7)(a).
As a general rule, a transfer of property from a deceased spouse to a surviving spouse
is not a transfer of ownership.
Is a transfer of property between former (divorced) spouses a transfer of ownership?
Yes. No transfer of ownership exemption exists for property transfers between divorced
spouses. However, recently divorced spouses often must convey property to one another
as part of the divorce proceedings and these transfers of property may be exempt
transfers if the conveyances are solely to terminate a tenancy by the entireties (covered
later in this publication).
Is a transfer of property from one spouse to a limited liability company with the
other spouse as the only member of the limited liability company a transfer of
ownership?
Yes. Even though the second spouse completely controls the limited liability company,
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the limited liability company is not the second spouse. A limited liability company is a
separate and distinct legal entity, different from a person. Therefore, such a situation is
not a transfer between spouses and a transfer of ownership applies.
Children and Other Relatives
Is a transfer of property from a parent to a child a transfer of ownership?
No. From December 31, 2013, through December 30, 2014, this would be an exempt
conveyance only if the property conveyed was classified residential real and if the use
of the real property does not change following the transfer of ownership. See MCL
211.27a(7)(t).
Transfers from a parent to a child occurring on or after December 31, 2014, would also
not be a transfer of ownership provided the property is classified residential real property
and the residential real property is not used for any commercial purpose following the
conveyance. See MCL 211.27a(7)(u).
Does this include adopted children for transfers occurring from December 31,
2013 to December 30, 2014?
Yes, P.A. 497 of 2012 indicated that beginning December 31, 2013, a transfer of
residential real property is not a transfer of ownership if the transferee is related to the
transferor by blood or affinity to the first degree and the use of the property does not
change following the transfer of ownership. A transfer of residential real property is not a
transfer of ownership if the transferee has one of the following relationships to the
transferor:
spouse, father or mother, father or mother of the spouse, son or daughter,
including adopted children, son or daughter of the spouse and stepchildren, stepmother
or stepfather. See MCL 211.27a(7)(t).
What is the definition of relationship by blood?
The State Tax Commission offers the following definition: a first degree blood relative
is a person who shares approximately 50% of their genes with another member of the
family. First degree blood relatives include parents, children or siblings.
Does MCL 211.27a(7)(t) apply to a trust, corporation, limited liability company
or to distribution from probate?
No, due to the blood or affinity to the first degree relationship clause, the State Tax
Commission has defined transferee and transferor as both being individuals. The transfer
must be a conveyance of a present interest in real property that occurs during the
transferor’s lifetime.
Is a change in use under MCL 211.27a(7)(t) limited to a change in property
classification?
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No, there are numerous changes that could be considered a change in use and a change
in use is not limited to a change in property classification.
When does MCL 211.27a(7)(t) go into effect?
P.A. 497 of 2012 indicates that this provision is effective beginning December 31, 2013.
Therefore, it is in effect only for transfers that occur from December 31, 2013 to
December 30, 2014.
Is a transfer of residential real property on January 15, 2015, to the transferor’s
or the transferor’s spouse’s mother, father, brother, sister, son, daughter, adopted
son, adopted daughter, grandson, or granddaughter a transfer of ownership?
No, provided that the transfer occurred after December 31, 2014, is a transfer of
residential real property and the residential real property is not used for any commercial
purpose following the conveyance. The transferee must be the transferor’s or the
transferor’s spouse’s mother, father, brother, sister, son, daughter, adopted son, adopted
daughter, grandson, or granddaughter to qualify for this exemption. See MCL
211.27a(7)(u).
When does MCL 211.27a(7)(u) go into effect?
P.A. 310 of 2014 indicates that this provision is effective beginning December 31, 2014.
Therefore, it is in effect only for transfers that occur after December 31, 2014.
What is “residential real property”?
Residential real property as used in this section means real property classified as
residential real property under MCL 211.34c. This provision is not limited to homestead
property, meaning any residential real property regardless of residency, the application
of a principal residence exemption or how many residential real parcels the taxpayer
owns. See MCL 211.27a(11)(h).
What is a “commercial purpose”?
A commercial purpose as used in this section 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. See MCL 211.27a(11)(c).
John and Jane Doe transfer their residential real property to their daughter
Judy on December 1, 2013. Is this a transfer of ownership?
Yes, as long as no other exemption provisions apply because the transfer was prior
to the effective date of the P.A. 497 of 2012.
John and Jane Doe transfer their residential real property to their daughter
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Judy on January 15, 2014. Is this a transfer of ownership?
No, as long as Judy maintains the same use of the property. See MCL 211.27a(7)(t).
John and Jane Doe transfer their residential real property to their son Jack on
March 1, 2014. Jack decides he wants to turn the house into a vacation rental
home. Is this a transfer of ownership?
Yes, as long as no other exemption provisions apply because Jack has not maintained the
use of the property.
John and Jane Doe transfer their residential real property to their granddaughter
Sally on January 15, 2015. Is this a transfer of ownership?
No, as long as Sally does not use the residential real property for any commercial
purpose following the conveyance. See MCL 211.27a(7)(u).
John and Jane Doe transfer their residential real property to their grandson Sam on
January 15, 2015, and Sam subsequently decides to rent the property to a friend for
20 days in 2015. Is this a transfer of ownership?
Yes. Sam renting the property for 20 days is using the property for a commercial purpose
and would result in a transfer of ownership that would uncap the taxable value for the 2016
tax year.
John and Jane Doe transfer their commercial real property to their granddaughter
Sally on January 15, 2015. Is this a transfer of ownership?
Yes, this conveyance is a transfer of ownership. MCL 211.27a(7)(u) does not apply
as the property is classified commercial real property and this exemption only applies to
residential real property.
Can the assessor request the transferee to furnish proof that the conveyance is
not a transfer of ownership under MCL 211.27a(7)(u)?
Yes. The assessor or the Department of Treasury can request the transferee to furnish
proof within 30 days that the transferee meets the requirements of this provision to
be an exempt transfer of ownership. See MCL 211.27a(7)(u).
Is there a deadline for the transferee to furnish proof that the conveyance is an
exempt transfer of ownership under MCL 211.27a(7)(u)?
Yes. The law requires that the transferee is required to furnish proof that the conveyance
is not a transfer of ownership within 30 days of the Department of Treasury or assessor’s
request.
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Is there a fine if the transferee does not furnish proof?
Yes.
If the transferee fails to comply with a request by the Department of
Treasury or the assessor, that transferee is subject to a fine of $200.00.
Tenancies by the Entireties
What is a tenancy by the entireties and how are they established?
A tenancy by the entireties is a form of concurrent ownership that can be created only
between a husband and wife, holding as one person. When the husband or wife dies, the
surviving spouse automatically becomes the sole owner of the property. In a tenancy by
the entireties, neither the husband nor the wife may sell the property unless the other
consents to the sale. Tenancies by entireties enjoy the same rights of survivorship as joint
tenancy.
A tenancy by the entireties is established by means of a deed or land contract conveyance.
The language relating to the grantees on the deed or land contract establishes the
tenancy by the entireties.
Example: If John Doe conveys property to John Doe and Jane Doe “his wife”, a tenancy
by the entireties is created. Likewise, if Jane Doe conveys property to John Doe and Jane
Doe “husband and wife” or “as tenants by the entireties”, a tenancy by the entireties
is created. Similarly, if John Doe conveys property to John Doe and Jane Doe and no
language is provided regarding the nature of their ownership, a tenancy by the entireties
is formed—provided that John Doe and Jane Doe are, in fact, husband and wife.
Is a property conveyance completed solely to create or end a tenancy by the
entireties a transfer of ownership?
No. A transfer from a husband, a wife, or both whose sole purpose is to create or
disjoin (terminate) a tenancy by the entireties is not a transfer of ownership. See MCL
211.27a(7)(b).
John Doe and Jane Doe are married. They acquire property from a third party,
creating a tenancy by the entireties. Is this acquisition of property a transfer of
ownership?
Yes. Although a tenancy by the entireties is created by the Does when they acquire the
property, the creation of the tenancy by the entireties is not the sole purpose of the
transaction (the main purpose of the transaction is for the Does to acquire the property)
and a transfer of ownership occurs.
John Doe and Jane Doe were married and owned property as husband and wife.
They divorce and (directly associated with the divorce) they deed the property from
themselves as husband and wife to Jane Doe, a single woman. Is this conveyance
a transfer of ownership?
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No, since its purpose was solely to terminate the tenancy by the entireties.
John Doe owns a parcel and then marries Jane Smith who decides to take the
surname “Doe”. John Doe then conveys the parcel to John Doe and Jane Doe, as
husband and wife. Is this conveyance a transfer of ownership?
No, since its purpose is solely to create a tenancy by the entireties in the Does.
John Doe and Jane Doe are married and own a property as husband and wife. They
sell the property to a third party. Is this sale a transfer of ownership?
Yes, the purpose of the conveyance is to sell the property and not solely to end the
tenancy by the entireties.
If a divorce occurs in a tenancy by the entireties situation, does the form of
ownership change?
Yes. If two people own property as husband and wife, become divorced, and continue
to own the property, the form of ownership is converted to a tenancy in common. A
conveyance from a former spouse to a former spouse is considered a transfer of ownership.
Example: John Doe and Jane Doe owned a lakefront cottage property as husband and
wife. They divorce, but both John Doe and Jane Doe continued to own the lakefront
cottage property for several years. The nature of their ownership was changed from a
tenancy by the entireties to a tenancy in common by the fact of their divorce. Under these
circumstances, a transfer of John Doe’s undivided (tenant in common) interest to Jane
Doe would be a transfer of ownership and a partial uncapping of the lakefront cottage
property’s taxable value would result.
If a man and woman who are not married own property and subsequently become
married, is the nature of their ownership of the property automatically converted to
a tenancy by the entireties?
No. Based on court decisions and the Michigan Land Title Standard, a tenancy by the
entireties cannot be created by a conveyance to two people who later marry. See
William v Dean, 365 Mich 426; 97 NW2d 42 (1959).
Life Leases/Life Estates
What is a life lease?
A life lease generally occurs when an owner transfers ownership of his/her property to
someone else but keeps the right to use, occupy, and control the property during his/her
lifetime. A life lease must be in writing.
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What is a life estate?
A life estate is an estate that has the potential duration of one or more human lives. The
usual life estate is measured by the grantee’s life. Where the estate is measured by the
life of someone other than the owner of the life estate, it is classified as a life estate pur
autre vie. For taxable value uncapping purposes, a life estate is treated the same as a life
lease. A life estate must also be in writing.
Is a conveyance of a property with the grantor retaining a life lease a transfer of
ownership?
Generally, a conveyance of a property subject to a life lease retained by the grantor
is not a transfer of ownership. However, this transfer of ownership exemption only
applies to that portion of the property conveyed that is subject to the life lease. Any
portion of the property conveyed that is not subject to the life lease does experience a
transfer of ownership upon the conveyance of the property. A partial uncapping can,
therefore, occur with conveyances involving life leases. See MCL 211.27a(7)(c).
Does the termination of a life lease or life estate result in a transfer of ownership?
Generally, the termination of a life lease or life estate results in a transfer of ownership. See
MCL 211.27a(7)(c). However, for life estates or life leases on residential real property
occurring after December 31, 2014, the termination of a life lease or life estate does not
result in a transfer of ownership if the transferee is the transferor’s or the transferor’s
spouse’s mother, father, brother, sister, son, daughter, adopted son, adopted daughter,
grandson, or granddaughter and the residential real property is not used for any commercial
purpose following the transfer. See MCL 211.27a(7)(d).
What is “residential real property”?
Residential real property as used in this section means real property classified as residential
real property under MCL 211.34c. This provision is not limited to homestead property,
meaning any residential real property regardless of residency, the application of a principal
residence exemption or how many residential real parcels the taxpayer owns. See MCL
211.27a(11)(h).
What is a “commercial purpose”?
As used in MCL 211.27a, 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. See MCL 211.27a(11)(c).
In 2011 Jane Doe conveys her residential property to her neighbor, John Smith,
retaining a life estate on the entire parcel. In 2015, Jane Doe dies. Does the death of
Jane Doe result in a transfer of ownership?
Yes. A transfer of ownership occurs upon the death of Jane Doe since her death
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terminated the life estate. The taxable value of the property must be uncapped for the
2015 tax year.
In 1983 Jane Doe conveyed her residential property to her neighbor, John Smith,
retaining a life estate on the entire parcel. In 2015 Jane Doe dies. Does the death of
Jane Doe result in a transfer of ownership?
Yes. A transfer of ownership occurs upon the death of Jane Doe since her death
terminated the life estate. The fact that the life estate was established prior to Proposal
A is not relevant. Beneficial use and full ownership of the property changed to Jane
Doe’s neighbor upon her death. The taxable value of the property must be uncapped for
the 2016 tax year.
In 2011 Jane Doe conveys 80 acres to her neighbor, John Smith, retaining a life estate
on 2 of the 80 acres and a house located on the 2 acres. Is this conveyance a
transfer of ownership?
Yes and no. A transfer of ownership occurs with regard to the 78 acres which are not
subject to the life estate. No transfer of ownership occurs, however, with regard to the
2 acres and the house, which are subject to the life estate (until termination of the life
estate). Therefore, a partial transfer of ownership occurs and a partial uncapping must
occur for tax year 2012.
John and Sandy Smith own property and grant John Smith’s best friend, Sam Doe,
a life estate for this property. Is the conveyance of the life estate to John Smith’s
best friend a transfer of ownership?
Yes. In this case, the life estate was not retained by the grantors as required by the
law. Beneficial use of the property changed from John and Sandy Smith to John Smith’s
best friend and a transfer of ownership occurred.
In 2013 Jane Doe conveyed her residential property to her son, Noah, retaining a life
estate over the entire parcel. Jane Doe dies in November 2014. Does the death of Jane
Doe result in a transfer of ownership?
Yes. Although Noah is Jane Doe’s son, the life estate terminated prior to December 31,
2014. Therefore the taxable value of the property must be uncapped for the 2015 tax year.
In 2013 Jane Doe conveyed her residential real property to her son, Noah, retaining a
life estate over the entire parcel. In 2015 Jane Doe dies and Noah maintains the
residential use of the property. Does the death of Jane Doe result in a transfer of
ownership?
No. A transfer of ownership does not occur upon the death of Jane Doe since the life estate
terminated after December 31, 2014, Noah was her son and the subject property is classified
as residential real property. This conveyance falls within the exception to the general rule
that the termination of a life estate results in a transfer of ownership. The taxable value of
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the property remains capped for the 2016 tax year. See MCL 211.27a(7)(d).
In 2013 Jane Doe conveyed her commercial real property to her son, Noah, retaining
a life estate over the entire parcel. In 2015 Jane Doe dies. Does the death of Jane Doe
result in a transfer of ownership?
Yes. Jane Doe’s death terminated the life estate and, because the property was commercial
real property rather than residential real property, the exception set forth in MCL
211.27a(7)(d) is inapplicable. The taxable value of the property must be uncapped for the
2016 tax year.
Can an individual who has retained a life estate convey that life estate to someone else?
Yes. All privileges granted by the life estate will transfer to the new holder of the life
estate. This is not a transfer of ownership. The life estate remains in effect until
mutually terminated by the owner of the property and the new life estate holder or until
the death of the individual who had originally retained the life estatenot the death of
the new life estate holder. The life estate would come to an end when the measuring life
ends.
Can a life estate be retained for other than residential purposes? If so, does a life
estate retained by the grantor for other than residential purposes result in a taxable
value uncapping?
A life estate can be retained for a specific purpose other than a residential purpose. The
types of specific purposes (other than residential purposes) are almost limitless. A life
estate retained by the grantor for other than residential purposes does not result in a taxable
value uncapping for the portion of the property covered by the life estate, until termination
of the life estate—or until use of the property for the stated purpose of the life estate
is not possible. Any portion of the property not covered by the life estate is subject to
taxable value uncapping.
If circumstances preclude the possible use of a property for the purpose of a life estate
(whatever that may be), the life estate is to be disregarded by a local assessor when
considering transfer of ownership issueseven though the life estate may legally be in
effect.
Example: John Doe conveys an unimproved 80 acre parcel in the northern Lower
Peninsula to his son, Joe and retains a life estate over half of the parcel for the stated
purpose of grazing cattle. Under these circumstances, a partial transfer of ownership
occurs upon the conveyance, with the taxable value of the portion of the property covered
by the life estate remaining capped and the taxable value of the portion of the property
not subject to the life estate being uncapped (provided no statutory exception or
exemption applies). This is the same treatment the property would receive if the life estate
were for residential purposes. If two years later the son, Joe Doe, constructs a convenience
store on 2 acres of the 40 acres covered by the life estate, a transfer of ownership occurs
for those 2 acres (provided no statutory exception or exemption applies). The reason for
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this is that the construction of the convenience store precludes the use of that portion of
the property by the father, John Doe, for grazing cattle (the specified purpose of the
life estate). Therefore, the life estate no longer applies to this portion of the property with
regard to transfer of ownership issues (even though it may still legally be in effect)
and another partial transfer of ownership occurs.
Foreclosures and Forfeitures
Is a transfer of property due to a foreclosure or forfeiture a transfer of ownership?
Generally, no. It is not a transfer of ownership when a financial institution or a land
contract seller takes a property back through foreclosure or forfeiture of a recorded
mortgage or land contract. See MCL 211.27a(7)(e). This response applies to foreclosures
of mortgages and land contracts through circuit court proceedings, the foreclosure of
mortgages by advertisement, and the forfeiture of property by summary proceedings.
A Sheriff’s Deed is utilized in foreclosure by advertisement and will be recorded
with the register of deeds. A redemption affidavit will also be recorded with the register
of deeds and will contain information regarding the redemption period and rights should
the homeowner redeem and recover his/her rights to the property. During the
redemption period, the purchaser holds equitable title to the property but the original
homeowner continues to have legal title and possession. Consequently, should the
homeowner redeem the property during the redemption period this would not be
considered a transfer of ownership.
Is a transfer of property through a deed or a conveyance in lieu of foreclosure or
forfeiture a transfer of ownership?
No. Such transfers and conveyances are to be treated in the same way as a foreclosure
or forfeiture.
When the entity or person (bank, land contract seller, etc.) that has taken a property
back through foreclosure or forfeiture later transfers the property, is that transfer
a transfer of ownership?
Yes.
Is there a time limit that a mortgagee (usually a bank) can hold a property, after
acquiring it through foreclosure, without a transfer ownership occurring?
Yes. If a mortgagee which has received a property through foreclosure does not
transfer or convey the property within one year of the expiration of the redemption period,
the taxable value of the property must be uncapped for the following assessment year.
The redemption period is the period during which the former owner may pay the debt
due and reclaim the property and is established by statute. The redemption period varies
24
in length and can range from one month to one year, but is usually six months.
The one-year time limit discussed does not apply to a land contract seller who has
reacquired property due to a foreclosure or forfeiture. A land contract seller who has
reacquired property through foreclosure or forfeiture may hold the property indefinitely
without a transfer of ownership occurring.
A property was sold on land contract in 2010. This sale was a transfer of ownership
and the property’s taxable value was uncapped for tax year 2011. In 2012 the
land contract seller takes the property back through foreclosure or forfeiture,
because the land contract buyer defaulted on the land contract payments. Should
the taxable value for 2011 and subsequent years be recapped as if the 2010 transfer
of ownership never occurred?
No. The 2010 transfer of property was a transfer of ownership. At that point, beneficial
use of the property transferred to the land contract buyer and the land contract buyer
acquired equitable title to the property. It should also be noted that the equitable title
held by the land contract buyer could have been mortgaged or conveyed to someone
else (subject to valid terms of the land contract). This transfer of ownership is not
undone when the land contract seller takes the property back. No statutory authority
exists to allow the recapping to be performed. The uncapped taxable value must
remain in place for 2011 and the 2011 taxable value must be used as the base for
subsequent taxable value determinations.
Redemptions of Tax-Reverted Properties
Public Act 123 of 1999 significantly altered the property tax reversion process and
establishes a three-year tax-reversion process. Annual tax-lien sales were eliminated in
favor of an annual forfeiture and judicial foreclosure process. Due process and
notification procedures were significantly strengthened and changes were made to
expedite the handling of abandoned tax-reverted properties.
What are tax-reverted properties?
Tax-reverted properties are properties with property taxes which have not been timely
paid and therefore the property owner no longer has clear title to the property.
What is meant by “redemption”?
Redemption occurs when the owner of a tax-reverted property buys back (redeems)
the tax- reverted property by paying appropriate delinquent taxes and related fees.
If the original owner redeems the tax-reverted property, has a transfer of ownership
occurred?
No. See MCL 211.27a(7)(f).
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Example: Taxes have not been paid on a property for two years, delinquent tax notices
have been sent to taxpayer, and a judicial foreclosure hearing for delinquent taxes is
schedule to be held on the last day of March. Prior to the last day in March, the owner
then redeems (pays the needed sum to clear the tax lien) within the redemption period.
The lien is removed from the property. Transfer by redemption by the owner is not a
transfer of ownership.
Trusts
Is a conveyance of property to a trust a transfer of ownership when:
(1) The grantor is the settlor (creator) of the trust or the settlor’s spouse or
both.
(2) The sole present beneficiary of the trust is the settlor of the trust or the
settlor’s spouse or both.
No. If the grantor stated on the deed is the settlor (creator) of the trust or the settlor’s
spouse or both and the sole present beneficiary of the trust is the settlor of the trust or
the settlor’s spouse or both, the conveyance is not a transfer of ownership. See MCL
211.27a(7)(g)(i).
Is a conveyance of property to a trust a transfer of ownership when the following
conditions are satisfied:
(1) The conveyance of property to a trust occurs on or after December 31,
2014.
(2) The property transferred is residential real property.
(3) The sole present beneficiary of the trust to whom the residential real
property conveyed is the settlor’s or the settlor’s spouse’s mother, father,
brother, sister, son, daughter, adopted son, adopted daughter, grandson,
or granddaughter.
(4) The residential real property is not used for any commercial purpose
following the conveyance.
No. Beginning December 31, 2014, conveyances to a trust if the sole present beneficiary
of the trust to whom the residential real property is conveyed is the settlor’s or
settlor’s spouse’s mother, father, brother, sister, son, daughter, adopted son, adopted
daughter, grandson or granddaughter and the property is not used for any commercial
purpose following the conveyance. See MCL 211.27a(7)(g)(ii).
Is a conveyance of property from a trust a transfer of ownership when:
(1) The conveyance of property from a trust occurs on or after December 31,
2014.
(2) The property transferred is residential real property.
(3) The person to whom the residential real property conveyed is the settlor’s
or the settlor’s spouse’s mother, father, brother, sister, son, daughter,
adopted son, adopted daughter, grandson, or granddaughter.
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(4) The residential real property is not used for any commercial purpose
following the conveyance.
No. Beginning December 31, 2014, conveyances from a trust if the person to whom the
residential real property is conveyed is the settlor or settlor’s spouse’s mother, father,
brother, sister, son, daughter, adopted son, adopted daughter, grandson or granddaughter
and the property is not used for any commercial purpose following the conveyance are
not considered a transfer of ownership. See MCL 211.27a(7)(v).
Can the assessor request the sole present beneficiary or the beneficiaries of a trust
furnish proof that there has been a conveyance to or from a trust that qualifies
as an exempt transfer under MCL 211.27a(7)(g)(ii) or MCL 211.27a(7)(v)?
Yes. The assessor or the Department of Treasury can request the sole present
beneficiary or beneficiaries furnish proof within 30 days that the sole present beneficiary
or beneficiaries meet the requirements to allow the conveyance to be an exempt
transfer of ownership. See MCL 211.27a(7)(g)(ii) and MCL 211.27a(7)(v).
Is there a deadline for the sole present beneficiary or beneficiaries to furnish proof
that the conveyance is not a transfer of ownership under MCL 211.27a(7)(g)(ii)
or MCL 211.27a(7)(v)?
Yes. The law requires that the sole present beneficiary or beneficiaries are required to
furnish proof that the conveyance is not a transfer of ownership within 30 days of the
Department of Treasury or assessor’s request.
Is there a fine if the sole present beneficiary or beneficiaries do not furnish proof?
Yes. If a present beneficiary fails to comply with a request by the Department of Treasury
or the assessor, that present beneficiary is subject to a fine of $200.00.
Note: See also the information regarding trusts contained in this publication.
Court Orders
Is a transfer of property made due to an order of a court of record a transfer of
ownership?
No, a transfer of property pursuant to a judgment or order of a court of record (any court
which has been designated as a court by the legislature is a court of record) making
or ordering the transfer is not a transfer of ownership—provided that no money is
specified or ordered by the court for the transfer. If a specific amount of money is
noted in the order or judgment for the transfer, a transfer of ownership occurs. See MCL
211.27a(7)(h).
If, as part of divorce proceedings, a court of record orders that a husband must
pay his wife $25,000 (or any other specific sum) for a property owned by them
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as husband and wife, would this be a transfer of ownership?
Generally, no. Even though the court order specifies an amount for the transfer, this is
generally not a transfer of ownership since the purpose of the transfer is to undo a tenancy
by the entireties (see also information under tenancies by the entireties contained in this
publication). The section of law dealing with court ordered transfers of property does
not apply to this transfer, but the tenancy by the entireties transfer of ownership
exemption does. Therefore, the transfer is not a transfer of ownership.
Joint Tenancies
What is a joint tenancy?
A joint tenancy is a form of concurrent ownership wherein each co-tenant owns an
undivided share of property and the surviving co-tenant has the right to the whole estate.
On the death of each joint tenant, the property belongs to the surviving joint tenants,
until only one individual is left.
Example: Five people own a property as joint tenants. Each joint tenant has a 20
percent interest in the property (100/5 = 20). If one of the five dies, his/her interest is
divided equally among the remaining four joint tenants, giving each of the remaining four
a 25 percent interest in the property.
Does a joint tenancy require that the joint tenants have equal ownership interests
in the property involved?
Yes. A joint tenancy requires that the joint tenants have equal ownership interests.
How is a joint tenancy formed?
A joint tenancy is formed by means of a deed or land contract conveyance with an
express declaration of the joint tenancy. The language relating to the grantees on the
deed or land contract establishes the joint tenancy.
When is there a transfer of ownership involved in a joint tenancy situation?
On March 10, 2011, the Michigan Supreme Court issued a decision in the case of Klooster
v City of Charlevoix, 488 Mich 289; 795 NW2d 578 (2011), regarding the interpretation
of MCL 211.27a(7)(i) and specifically which conveyances involving a joint tenancy are
or are not transfers of ownership.
James Klooster, the father, quit-claimed his property to himself and to his son, Nathan,
as joint tenants with rights of survivorship, on August 11, 2004. James died on
January 11, 2005, leaving Nathan as the sole owner. On September 10, 2005, Nathan
quit-claimed the property to himself and his brother, Charles, as joint tenants with
rights of survivorship. The assessor uncapped the taxable value for the 2006 assessment
year. The taxpayer appealed and the Tax Tribunal ruled that the taxable value should
28
have uncapped for the 2006 assessment year because Nathan was not an “original
owner,” or an already existing joint tenant before the August 11, 2004 joint tenancy
was created.
The Michigan Court of Appeals reversed the Tax Tribunal. The Court found the property
should not have uncapped because the death of a joint tenant does not constitute a transfer
of ownership, even if the joint tenant who dies was the sole original owner. The Court
concluded that a “conveyance” within the meaning of MCL 211.27a(7)(i) could not
occur unless there was a transfer of title by a written instrument.
The Michigan Supreme Court reversed the Michigan Court of Appeals’ decision. The
Supreme Court found that the death of the only other joint tenant is a conveyance
under the GPTA and does not require a written instrument beyond the deed initially
creating the joint tenancy. The Court also determined that MCL 211.27a(7)(i)
establishes requirements for an exception from the definition of transfer of ownership
in three separate and distinct types of conveyances: termination of a joint tenancy,
creation of a joint tenancy where the property was not previously held in joint tenancy
or the creation of a successive joint tenancy.
Definitions:
Joint Tenancy: A joint tenancy is a form of concurrent ownership wherein each co-tenant
owns an undivided share of property and the surviving co-tenant has the right to the
whole estate. On the death of each joint tenant, the property belongs to the surviving
joint tenants, until only one individual is left.
Initial Joint Tenant: A person whose interest in the property was obtained because he or
she was one of the joint tenants who became a co-owner as a result of the “initial” joint
tenancy and who has continuously held an interest in the property as a co-owner in joint
tenancy since the creation of the “initial” joint tenancy.
1
Original Owner: A sole owner at the time of the last uncapping event; a joint owner at
the time of the last uncapping event; or, the spouse of the either a sole or joint owner
of the property at the time of the last uncapping event.
How to Determine if a Property Should Uncap:
Step 1: Identify the “Conveyance at Issue
The first step is to determine if the “conveyance at issue” is the creation of an “initial”
joint tenancy, the creation of a successive” joint tenancy or the termination” of a
joint tenancy. The determination of whether a “conveyance at issue” is a transfer of
ownership that uncaps the taxable value of the property must be separately determined
after identification of the “conveyance at issue.” A conveyance will not constitute a
1
This phrase “initial joint tenant” is not specifically used in the Supreme Court’s decision, but is helpful in
explaining the decision.
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transfer of ownership under the General Property Tax Act if it is excluded under MCL
211.27a(7)(a) through (x).
Step 2: Determine if the Conveyance is the Creation of a Joint Tenancy
The creation of an “initial” joint tenancy occurs when a property held by a sole owner,
by a husband and wife holding as tenants by the entirety, or by tenants in common, is
conveyed to two or more persons as joint tenants.
If the person creating the joint tenancy held title to the interest being conveyed either as
a sole owner, as husband and wife, tenants by the entirety, or as tenants in common,
then the creation of a joint tenancy is not a transfer of ownership, if, at least one of
the persons conveying the interest and one of the persons receiving the interest was an
“original owner.”
If you determine the conveyance meets the requirements defined above, STOP. No
further review is necessary and the conveyance is not a transfer of ownership. If the
conveyance does not meet both requirements defined above, move to Step 3 and/or Step
4.
Step 3: Determine if the Conveyance “Terminates” a Joint Tenancy
A joint tenancy terminates when there is no “successive” joint tenancy. The termination
of joint tenancy is a transfer of ownership if the resulting owner is not an “initial joint
tenant.”
The termination of a joint tenancy is not a transfer of ownership if both of the following
are true:
At least one of the joint tenants in the joint tenancy being terminated was an
“original owner” before the joint tenancy was initially created; and
At least one of the joint tenants in the joint tenancy being terminated was an “initial
joint tenant” and has remained a joint tenant in successive joint tenancies.
Step 4: Determine if the “Conveyance at Issue” is the creation of a “Successive”
Joint Tenancy
A “successive” joint tenancy occurs when the conveyance is from one joint tenancy
directly into another joint tenancy. The creation of a “successive” joint tenancy may,
or may not, be a transfer of ownership.
The creation of a “successive” joint tenancy is not a transfer of ownership if both
of the following are true:
At least one of the individuals in the “successive” joint tenancy was an “original
owner”
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and
At least one of the joint tenants in the previous joint tenancy was an “initial joint
tenant” and has remained a joint tenant in successive joint tenancies.
Conclusion:
If a joint tenancy is created by an "original owner" and if that "original owner"
or their spouse are also co-tenants in the joint tenancy, then the taxable value does
not uncap.
If a "successive" joint tenancy is created and an "original owner" or their spouse
continue as co-tenants in the "successive" joint tenancy, then the taxable value
does not uncap.
If a joint tenancy is terminated by the death of an "original owner" or by the
"original owner" making a conveyance, resulting in the ownership again being
a sole ownership, and if that sole owner is an "initial joint tenant," then the taxable
value does not uncap.
If a joint tenancy is terminated by conveyance and the sole owner after the
termination is an "initial joint tenant" then the taxable value does not uncap.
Several examples of each of the scenarios described above are listed below. The list
should not be considered all inclusive. The State Tax Commission advises assessors
that taxpayers are protected by a right of appeal, and therefore, when in doubt if a
transfer of ownership should result in an uncapping, an assessor should consider
uncapping the property.
Assessors are directed to MCL 211.27a(4) and Bulletin 9 of 2005 for the procedures to
follow if they determine the taxable value has mistakenly uncapped for a past assessment
year.
Example # 1: Creation of a Joint Tenancy
John, who was a single man at all relevant times, purchased Blackacre in 2004. In 2005,
John conveyed Blackacre to himself and his son, Michael, as joint tenants, with rights of
survivorship. Did the taxable value uncap in 2006?
No, there was not a transfer of ownership. Since there was a transfer of ownership
which uncapped the taxable value when John purchased the property in 2004, John
was an “original owner” who continued to have an interest after the creation of the
joint tenancy. Michael became an “initial joint tenant” but he was not an “original
owner.” John’s status as an “original owner who continued to be a co-tenant as part of
the “initial” joint tenancy provides an exception to uncapping. Michael’s status as an
“initial joint tenant” is not a factor in the analysis.
Example # 2: Termination of a Joint Tenancy
John, who was a single man at all relevant times, purchased Blackacre in 2004. In 2005,
by quit claim deed, John conveyed to himself and his son, Michael, as joint tenants,
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with rights of survivorship. Several weeks later, but still in 2005, John died, leaving
Michael as the sole surviving co-tenant. Did the taxable value uncap in 2006?
No, there was not a transfer of ownership. Since John had previously held title as a sole
owner, the joint tenancy he created with Michael was an “initial” joint tenancy. Further,
since there was a transfer of ownership which uncapped the taxable value when John
purchased the property in 2004, John was an original owner.” John was an “original
owner” and an “initial joint tenant” when the joint tenancy was initially created in 2005.
Further, John remained a joint tenant from the creation of the “initial” joint tenancy until
the joint tenancy was terminated by the death of John. Since John was an “original
owner” who continued to be a co-tenant after the creation of the “initial” joint tenancy
and since Michael became a joint tenant when the “initial” joint tenancy was created,
and Michael’s interest continued uninterrupted until the death of John, the taxable value
did not uncap when John died.
Example # 3: Termination and a Non-Successive Joint Tenancy
John, who was a single man at all relevant times, purchased Blackacre in 2004. In 2005,
by quit claim deed, John conveyed to himself and his son, Michael, as joint tenants,
with rights of survivorship. Several weeks later, but still in 2005, John died, leaving
Michael as the sole surviving co-tenant. Michael immediately conveyed to himself and
his brother, Peter, as joint tenants, with rights of survivorship. Did the taxable value
uncap in 2006?
Yes, there was a transfer of ownership when Peter was added as a joint tenant. These
facts are, in substance, those in the Klooster case itself. Since John was an “original
owner” who continuously held his interest as a co-tenant in the joint tenancy since
the joint tenancy was initially created and since Michael became an “initial joint
tenant” when the “initial” joint tenancy was created, the taxable value did not uncap
when John died. However, when Michael, as the sole surviving co-tenant, created the
joint tenancy with his brother, Peter, the creation of the joint tenancy itself was an
uncapping event for the reason that Michael was not an “original owner” at the time of
the creation of the initial” joint tenancy with Peter. The reason that Michael was not
an “original owner,” was that he had not acquired his ownership interest in a transaction
that resulted in an uncapping of the taxable value.
Example # 4: Successive Joint Tenancy
John, who was a single man at all relevant times, purchased Blackacre in 2004. In 2005,
by quit claim deed, John conveyed to himself and his son, Michael, as joint tenants,
with rights of survivorship. In 2006, John and Michael conveyed to themselves and
Michael’s brother, Peter, as an additional joint tenant, thereby expanding the joint
tenancy by making John, Michael and Peter, joint tenants, with rights of survivorship.
Did the taxable value uncap in 2007?
No, there was not a transfer of ownership. John was an “original owner” arising from
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the fact that he obtained his interest in the property by a conveyance that resulted in the
uncapping of the taxable value. John and Michael became “initial joint tenant” when
the “initial” joint tenancy was created in 2005. Since John was an “original owner”
whose ownership interest has continued in the “successor” joint tenancy that added
Peter, and since both John and Michael were “initial joint tenants” whose interests as
co-tenants was continuous from the time of the “initial” joint tenancy, the taxable value
did not uncap when Peter was added.
Example # 5: Life Estate
John and Mary purchased Blackacre, as tenants by the entireties, in 2004. In 2005 John
and Mary conveyed to themselves and Michael, using language which indicated that “all
three (held title) as joint tenants.” However, in addition to creating the joint tenancy
among the three of them, John and Mary also reserved a life estate for their joint lives.
In 2006, both John and Mary died. Did the taxable value uncap in 2007?
Yes, there was a transfer of ownership. Although John and Mary were “original
owners” in Blackacre, arising from the fact that the taxable value uncapped in 2005, the
year following their purchase, no “present” joint tenancy was created by the 2005
conveyance. Instead, the instrument, by reservation, created a Life Estate during their
joint lives, with a remainder interest, in joint tenancy, among John, Mary and Michael.
MCL 211.27a(7)(c) provides an exception to uncapping for a conveyance of property
subject to a retained Life Estate “until the expiration or termination of the life estate…”
Therefore, it is the State Tax Commission’s interpretation that a separate and distinct
uncapping event, the expiration or termination of a retained life estate, occurred prior
to the joint tenancy becoming a present interest and that this uncapping event took
precedence over the exception to uncapping contained in MCL 211.27a(7)(i). MCL
211.27a(6) provides that a “transfer of ownership means the conveyance of title to or a
present interest in property, including the beneficial use of the property, the value of
which is substantially equal to the value of the fee interest.” In this example, by the
time the remainder interest becomes a present interest, Michael was the sole owner of the
property, not an “initial joint tenant.” It should also be noted that upon the death of
John and Mary, Michael becomes an “original owner.”
Example # 6: Partial Interest
John, who was a single man at all relevant times, purchased Blackacre in 2004. In 2005,
by quit claim deed, John conveyed to himself and his son, Michael, as joint tenants,
with rights of survivorship. Several weeks later, but still in 2005, John died, leaving
Michael as the sole surviving co-tenant. Michael immediately conveyed a 1% interest
in the property to his daughter, Roberta, as a tenant in common. At the time, Roberta
was a Michigan resident who resided on the property, and the conveyance was made
for the purpose of allowing her to claim the Principal Residence Exemption. In 2007,
Michael and Roberta conveyed to themselves, as joint tenants, with rights of survivorship.
Did the taxable value uncap in 2008?
Yes, there was a transfer of ownership as to an undivided 99% interest in the property.
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The original 1% conveyed to Roberta in 2005 resulted (or should have resulted) in an
uncapping of the undivided 1% interest which she received as a tenant in common.
This uncapping made Roberta anoriginal owner.” However, she was an “original
owner” of only an undivided 1% interest, as a tenant in common, with her father. When
the joint tenancy interest was created, the effect was that Michael, as the sole surviving
co-tenant of the previous joint tenancy with his father, John, could not rely on the
fact that he was an “initial joint tenant” to exempt the conveyance of the undivided
99% interest he still held, for the reason that when the previous joint tenancy
terminated, he was not an original owner. He was not an “original owner” for the reason
that he had not acquired his remaining 99% undivided ownership interest in a transaction
that resulted in an uncapping of the taxable value.
Please note, however, if multiple grantors hold as tenants-in-common, each tenancy-in-
common interest must be analyzed separately, and it is possible for a partial uncapping
to occur, for the reason that a person may be an “original owner” as to one tenancy-in-
common interest, but not an “original owner,” as to the remainder of the tenancy-in-
common interests in the property.
Security Interests
What is a security interest?
A security interest is an interest in a property that is granted to ensure that a debt will
be paid. An example of a security interest is a mortgage to a bank, where the owner of a
property gives a security interest to the bank which allows the bank to foreclose on the
mortgage and eventually take the property involved if the required mortgage payments
are not made.
Is a transfer to establish, assign, or release a security interest a transfer of ownership?
No. A transfer to establish, assign, or relinquish a security interest is not a transfer of
ownership. See MCL 211.27a(7)(j).
The following are not transfers of ownership since these transactions establish, assign, or
relinquish a security interest:
A beginning of a mortgage
An end of a mortgage
An assignment of a mortgage by one financial institution to another
financial institution
An assignment of a seller’s interest in a land contract (see also the
information on land contracts)
An equitable mortgage
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What is an equitable mortgage?
An equitable mortgage resembles a deed but is, in fact, a mortgage.
Example: A land owner holds title to a parcel of vacant land and desires to have a
builder construct a home on the parcel. To ensure that the builder (or the bank
financing the home construction) can obtain title to the property if necessary due to
nonpayment, the land owner deeds the vacant land to the builderwith the expectation
that the property will be deeded back upon completion of construction. The builder then
constructs a home on the parcel for the land owner. The builder then conveys the
property (land and house) back to the land owner. This scenario is an example of an
equitable mortgage (since it would be recognized as a mortgage by a court even though
it differs from what may be commonly considered to be a typical mortgage).
Is a transfer of property involving a relocation company a transfer of ownership
(to the relocation company)?
Generally, no. A transfer of property (typically a residence) involving a relocation
company is generally not a transfer of ownership (to the relocation company). Such
a transaction may establish a security interest by the relocation company. It may take a
significant amount of time for a relocation company to find a final buyer for a property.
The amount of time the relocation company holds the property is not normally relevant
to a determination regarding transfer of ownership. Occasionally, the relocation holds
the property so long that it actually purchases the property and relocated previous owner
transfers the beneficial use and all his or her interest in the property. When this unusual
scenario comes to the attention of the assessor, it should be treated as a transfer of
ownership.
Affiliated Groups
What is an affiliated group?
An affiliated group is one or more corporations connected by stock ownership to a
common parent corporation.
Does an entity have to be a corporation to be part of an affiliated group?
Yes. Entities which are not corporations cannot be part of an affiliated group.
Is a transfer of a property between members of an affiliated group a
transfer of ownership?
No. Upon request by the State Tax Commission, a corporation shall furnish proof
within 45 days that the transfer meets the requirements of MCL 211.27a(7)(k). Failure
to comply with a request by the STC under this subsection is subject to a fine of $200.00.
See MCL 211.27a(7)(k).
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Normal Public Trades
What is normal public trading?
Normal public trading of shares of stock includes the usual day-to-day trading of
publicly held stock.
Can normal public trading of stocks or other ownership interests be a
transfer of ownership?
No. Normal public trading of shares of stock or other ownership interests in a
corporation or other legal entity is not a transfer of ownership if the ownership interests
are both:
1. Traded in multiple transactions and
2. Involve unrelated individuals, institutions, or other legal entities. See MCL
211.27a(7)(l).
This transfer of ownership exemption applies even if the trading cumulatively totals
more than 50 percent of the total ownership interest of the entity.
Are certain types of trading transactions considered not to be normal public trading?
Yes. The six trading situations listed below are not normal public trading. Any of these
six trading situations could result in a transfer of ownership (provided that no statutory
exception or exemption applies):
1. The merger of two or more companies
2. The acquisition of one company by another or by an individual
3. The initial public offering (IPO) of the stock of a company
4. A secondary public offering of the stock of a company (a secondary public
offering occurs when a company whose stock is already publicly traded issues
additional new stock for sale to the public)
5. The trading of the stock of a privately held company (a privately held
company is a company whose stock is not available for sale to the public)
6. A takeover involving a public offer by someone to buy stock from present
stockholders in order to gain control of a company
Commonly Controlled Entities
If entities are commonly controlled, is a transfer of property (or ownership
interests) among the entities a transfer of ownership?
No. See MCL 211.27a(7)(m).
With regard to entities under common control, what is meant by entities”?
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Entities” in this context means corporations, partnerships, limited liability companies,
limited liability partnerships, or any other legal entity.
When are entities considered to be commonly controlled?
The State Tax Commission has directed that Michigan Revenue Administrative Bulletin
1989-48 is to be used in determining whether entities are commonly controlled. This
bulletin is available on the Internet at www.michigan.gov/treasury. This bulletin details
three categories of common control:
1. A parent-subsidiary group of trades or businesses
2. A brother-sister group of trades or businesses
3. A combined group of trades or businesses (a specific combination of a parent-
subsidiary group and a brother-sister group of trades or businesses)
For entities to be commonly controlled under Michigan Revenue Administrative Bulletin
1989-48, the entities must be engaged in a business or trades activity. See C & J
Investments of Grayling, LLC v City of Grayling, unpublished opinion per curiam of the
Court of Appeals, issued November 13, 2007 (Docket No. 270989). The term common”
is defined as “belonging equally to, or shared alike by, two or more or all in question.”
Entities which are not engaged in a business activity cannot be entities under common
control under Michigan Revenue Administrative Bulletin 1989-48.
Example: A husband and wife own their personal residence together as tenants by the
entireties. For estate planning and other purposes, they convey the property to a limited
liability company of which the wife is the only member. The entities involved (the
husband and wife and the limited liability company) cannot be considered entities under
common control under Michigan Revenue Administrative Bulletin 1989-48 since no
business activity exists in this situation.
Note: Michigan Revenue Administrative Bulletin 1989-48 refers to Internal Revenue
Service regulations concerning constructive ownership (also commonly known as
ownership attribution). It is the opinion of the State Tax Commission that, although
Michigan Revenue Administrative Bulletin 1989-48 is to be used in determining entities
under common control, the Internal Revenue Service regulations concerning
constructive ownership are to be disregarded. Application of the regulations regarding
constructive ownership (ownership attribution) would result in transfer of ownership
exemptions that were clearly not intended by the legislature.
Is it possible for entities not to qualify as entities under common control under
Michigan Revenue Administrative Bulletin 1989-48 but still be considered entities
under common control?
Yes. If there is a business purpose, there are two circumstances that constitute a common
control situationeven though the entities involved may not qualify as entities under
common control under Michigan Revenue Administrative Bulletin 1989-48:
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1. Initial transfers by individuals of a fee simple interest in a property, made to an
entity such as a corporation, a limited liability company or a partnership, are
considered to be transfers between commonly controlled entities and not
transfers of ownership, if the ownership interests and extent of control which
the individuals have in the entity are identical to the ownership interest and extent
of control which each of the individuals had in the property prior to the initial
transfer. Transfers to limited partnerships would not qualify for the reason that
such transfers involve a change in control.
2. Transfers where the fee simple interest in a property is conveyed
(retransferred) from an initial transferee entity, as described in 1 above, to
the individuals who made the initial transfer to that entity, if the ownership
interests and extent of control which those individuals have in the entity at
the time of the retransfer are identical to the ownership interests and extent
of control which each of the individuals had in the property prior to the
initial transfer and those interests have not changed the between the time of
the initial transfer and the time of the retransfer.
In Sebastian J. Mancuso Family Trust v City of Charlevoix, 300 Mich App 1, 831 NW2d
907 (2013), the Court held that Trustees between trusts do not equate to the trusts being
commonly controlled. The Court stated: “property is transferred from one owner to a
wholly new owner. Exceptions are made for transfers from a trust settlor where the
settlor is the sole present beneficiary because ownership in such a situation does
not change. See MCL 211.27a(6)(c). Exceptions are also made for transfers of property
that substitute the transferor for the transferor’s spouse. See MCL 211.27a(6)(d), (e), and
(f). The exceptions in § 7 are similar in nature; they are triggered when property is
transferred from one owner to a wholly new owner. Reading the statute as a whole, it
is apparent that petitioner simply does not fall within the definition of “commonly
controlled” by virtue of having the same trustees for both the transferring trust and the
receiving trust.
Tax-Free Reorganizations
If a transfer of real property (or other ownership interest) results from a transaction
that qualifies as a tax-free reorganization under section 368 of the Internal
Revenue Code, 26 USC 368, is that transfer a transfer of ownership?
No. See MCL 211.27a(7)(n).
What is meant by “reorganization”?
“Reorganization” in this context can cover a number of situations such as the following:
corporate acquisitions, corporate mergers, corporate divisions, etc.
What types of entities (individuals, partnerships, limited liability companies,
corporations, etc.) are covered by section 368 of the Internal Revenue Code, 26 USC
368?
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Section 368 of the Internal Revenue Code, 26 USC 368, applies solely to corporations
and corporate reorganizations. This section of the Internal Revenue Code does not apply
to individuals, partnerships, limited liability companies, or any type of entity other
than corporations. Therefore, the transfer of ownership