Keeping The Family Cottage Affordable For The Next Generation

Keeping The Family Cottage Affordable For The Next Generation

One of the biggest barriers to passing a cottage to your children is affordability and more specifically property taxes. If transferring a cottage isn’t done in certain ways, the property taxes will be adjusted to the current value (or “uncapped” as we call it). This could result in a small change, but it more often will lead to a massive tax increase. I’ve worked with clients who would have otherwise seen property taxes increase between 200% and 1,100% upon their passing.

These are a few tips to keep in mind to avoid this property tax increase and make the cottage affordable for your children:

  1. Avoid Planning with an LLC. When the Michigan legislature changed the property tax laws, it didn’t make the LLC a favorable entity to use. When the ownership of an LLC changes by more than 50%, the property taxes for any real estate in that LLC will be 100% uncapped. LLCs can be an effective planning technique for transferring ownership in a way to avoid estate as well as gift taxes and limit liability from lawsuits. However, a change of ownership by more than 50% can lead to an unexpected property tax increase in the cottage.
  2. Avoid Ladybird or Transfer on Death Deeds. These types of deeds have become very common to protect real estate from creditors or Medicaid. However, current Michigan property tax law isn’t clear on whether a ladybird or a transfer on death deed is exempt from uncapping and this property tax increase. Until this issue has been clarified, it’s best avoid using these deeds for transitioning the ownership of a cottage.
  3. Do Not Plan to Rent the Cottage. Michigan law allows a cottage to be transferred to children or a trust that eventually benefits children and the property taxes will remain capped. However, this exemption no longer applies if the cottage is rented for 15 or more days a year. Also, this is an ongoing requirement of ownership. In other words, if renting is part of the financial plan for a cottage, the property taxes will increase and be uncapped.

If you have any questions regarding property taxes and transferring the cottage to children, feel free to contact me at phmulder@cunninghamdalman.com.

Author(s)

Cunningham Dalman, PC publishes this web site and its component parts to inform users about our firm, our attorneys and general new developments in the law. The web site and blogs are not intended as legal advice on any matter. There are many factors that may affect your situation. You should not act or refrain from acting because of information found here without first seeking appropriate legal or other professional advice from someone who is familiar with your particular circumstances.

In the operation of this web site and our blogs, we do not intend to create an attorney-client relationship with you and no such relationship shall be created by your use of this web site. Such a relationship can only be established to the extent an attorney at Cunningham Dalman, PC expressly agrees to undertake the relationship. Please do not communicate to us any information you regard as confidential unless and until we have established a formal attorney-client relationship with you. Any information you send to us before we establish an attorney client relationship may not be privileged or confidential. Information you send to us over the Internet may not be secure.

 

Recent Posts

Upcoming Events

Contact

Cunningham Dalman P.C.
PO Box 1767
321 Settlers Road
Holland, MI 49422-1767

Google Map

 

2019 Best of the Best Law Firm | Cunningham Dalman
Call Now Button Scroll to Top

Tell Us How We Can Help You

Send us a quick message or call us at 616.392.1821!