In my practice, I oftentimes meet with clients who are “apologetic” for taking my time given their perception that they “… really don’t have that much [in assets]” but have come to see me based on the encouragement from friends or relatives.
All Adults 18 Years and Older Need Planning
This week’s article, “Are Your Beneficiary Designations Current?” is the first in a series of four articles discussing key information on estate planning matters. The following articles will also be included in this series:
Part 2: Updated Planning for Clients with Married Separate Trusts
Over the last several weeks I have written articles concerning various topics of cottage law – succession planning, charitable giving, tax planning and the effect of the new federal estate and gift tax law. As we approach the end of the year I will focus my thoughts and articles on estate planning and related topics that you may find helpful as you reflect on this past year and look forward to the future.
One of the most critical issues in any cottage succession plan is “when,” “how” and “to whom” can common owners of the family cottage transfer their ownership interest. Absent specific planning rules to govern these issues, transfers of ownership and decisions of an owner to sell his/her ownership in the family cottage is usually the most significant threat to keeping the cottage in the family.
Restrictions Usually Require “Intra” Family Transfers
Many of you have been there. You tell your children, “Please clean up your room” and get the response, “But I just cleaned it!”
One of the challenges I often encounter in my practice, particularly in cottage succession planning and family business situations, is that clients tend to focus on how things work in the present. They assume that present methods of management, problem-solving, payment of expenses, use of the family cottage and how ownership interest would be transferred will work the same way in the future. That is a risky assumption.
Insurance coverage is an important item to be addressed with respect to Cottage Law and Cottage Succession Planning. Every cottage has insurance to cover risks of loss due to damage of property and liability to individuals who may be injured on the premises. Insurance coverage is extremely important and, in most cases, is required by banks or lenders that hold the mortgage on a cottage or vacation property. So the question becomes, “What should an individual or family engaged in a cottage succession plan do with respect to their insurance coverage?”
Transfers of Ownership and Property Tax Uncapping
As a general rule, when there is a transfer of title of property in Michigan, the value of the property is "uncapped" and increased for the assessment of property tax. This results in a significant increase of property taxes, oftentimes to the point that the next generation of new owners in a family cannot afford to keep the family cottage.
A common concern among parents wishing to transfer ownership of cottages and other legacy-type residences to their children is the "uncapping" of real estate taxes that occurs upon transfer of ownership. The general rule is that as long as someone owns real estate, the "taxable value" of the real estate remains "capped" and increases only incrementally against a statutory capped amount on an annual basis.
New Michigan Law Expands Exemptions from Uncapping Property Tax Values for Transfers Between Parents and ChildrenSun, 08/11/2013 - 10:44 — superadmin
The Michigan legislature recently added an exemption to the definition of "Transfer of Ownership" under the uncapping provisions of the General Property Tax Act. The new law provides that beginning December 31, 2013, transfers of residential real property from a transferor to a transferee who is related by blood or affinity to the first degree are not "transfers of ownership" and do not "uncap" the taxable value of the property provided that the use of the property does not change following the transfer. (MCL 211.77(a)(7)(s))