She Bought Her Dream Home. Then a ‘Sovereign Citizen’ Changed the Locks.
https://www.nytimes.com/2021/09/26/nyregion/moors-newark.html
Showing posts with label real estate. Show all posts
Showing posts with label real estate. Show all posts
Saturday, January 29, 2022
Sunday, September 24, 2017
Protecting against real estate fraud
Several Registers of Deeds in Michigan, including Marquette County, now offer a free Property Fraud Alert service. This will send you an alert any time that a document relating to your home or other real property is filed.
Surprising as it may seem, one of the ways that identity thieves can defraud banks and disrupt the accounts of individuals is to apply for a home equity line of credit in the name of a homeowner, without his knowledge. When a mortgage or other document is recorded, there is no legal requirement that notice given to the landowner that the recording has taken place. (The Register of Deeds will return the document, after recording, to the address as directed on the document itself.)
How often does this happen? The answer is not clear. There are several known varieties of mortgage fraud, and the reports indicate that this one is relatively uncommon. But it has been reported in several jurisdictions.
If a fraudulent mortgage is given to a lender by a fraudster pretending to be the homeowner, there can be a long delay before it becomes apparent that the damage has been done. The thief will be long gone, and the issuing bank will often have accumulated a number of missing payments, before the issue comes to the attention of the homeowner. The first clue can be the discovery that the homeowner's credit rating has been seriously impaired. The work needed to convince the bank that the mortgage it thinks it holds was not in fact executed by the homeowner can take months.
The Property Fraud Alert service will provide a notice, by email or by telephone, of any filing made in the name of the subscribing participant. This will give him or her early notice and allow for corrective action before the problem grows to unmanageable proportions.
Only 13 of Michigan's 83 counties offer this free service. In the Upper Peninsula, this includes Marquette and Houghton counties.
If you want to find out right now what real estate documents are on file under your name, you can visit the Marquette County Register of Deeds DirectSearch page.
Surprising as it may seem, one of the ways that identity thieves can defraud banks and disrupt the accounts of individuals is to apply for a home equity line of credit in the name of a homeowner, without his knowledge. When a mortgage or other document is recorded, there is no legal requirement that notice given to the landowner that the recording has taken place. (The Register of Deeds will return the document, after recording, to the address as directed on the document itself.)
How often does this happen? The answer is not clear. There are several known varieties of mortgage fraud, and the reports indicate that this one is relatively uncommon. But it has been reported in several jurisdictions.
If a fraudulent mortgage is given to a lender by a fraudster pretending to be the homeowner, there can be a long delay before it becomes apparent that the damage has been done. The thief will be long gone, and the issuing bank will often have accumulated a number of missing payments, before the issue comes to the attention of the homeowner. The first clue can be the discovery that the homeowner's credit rating has been seriously impaired. The work needed to convince the bank that the mortgage it thinks it holds was not in fact executed by the homeowner can take months.
The Property Fraud Alert service will provide a notice, by email or by telephone, of any filing made in the name of the subscribing participant. This will give him or her early notice and allow for corrective action before the problem grows to unmanageable proportions.
Only 13 of Michigan's 83 counties offer this free service. In the Upper Peninsula, this includes Marquette and Houghton counties.
If you want to find out right now what real estate documents are on file under your name, you can visit the Marquette County Register of Deeds DirectSearch page.
Thursday, August 27, 2015
Little-known property tax exemptions
It is time to pay summer property taxes. Most municipalities give residents until September 15 to pay.
Many people are unaware of special exemptions that apply under Michigan law.
Under MCL 211.7b, the homestead of a disabled veteran who was discharged under honorable conditions is exempted from all property taxes. To qualify, the veteran must have one of the following:
There are numerous other exemptions under Chapter 211 as well.
Many people are unaware of special exemptions that apply under Michigan law.
Under MCL 211.7b, the homestead of a disabled veteran who was discharged under honorable conditions is exempted from all property taxes. To qualify, the veteran must have one of the following:
- a 100% disability rating based on a service-related disability
- a certificate from the VA for monetary assistance for specially adapted housing, or
- a rating by the VA as "individually unemployable."
There are numerous other exemptions under Chapter 211 as well.
Monday, November 3, 2014
New limits on uncapping property taxes
A recent law signed by the Governor (Public Act 310) has once again amended MCL 211.27a, the statute which determines when a transfer of real estate will "uncap" the taxable value and allow property taxes to rise.
Under Proposal A, passed in 1994, increases in the taxable value of a parcel of land are "capped" at 5% per year. Over a period of time, if the home increases in value at a higher rate, the "capped" taxable value can be much lower than the "assessed value," which is supposed to be 50% of the home's true value. A home worth $100,000 when it is bought, for example, and worth $200,000 now, may have an assessed value of $100,000 (one-half of actual value) but a taxable value of only $68,000. Since property taxes are calculated as a percentage of the taxable value, the cap results in significant tax savings. Often, the owner is an elderly person, living on a fixed income, who could not afford to pay a higher property tax.
Under the statute, transfer of the land, whether by sale or gift, will often "uncap" the taxable value, allowing it to once again match the assessed value. But there have always been exceptions to uncapping. Early on, exceptions were provided for limited categories of conveyances, including conveyances to and from certain trusts and conveyances creating or ending joint tenancies in certain cases.
A couple of years ago, though, the statute was amended to provide that a transfer (whether by gift or by sale) to certain family members would also be excepted from the uncapping rule. The new section (s) read:
On the "first degree" criterion, one source said:
The new provision, which will apply to conveyances after December 30, 2014, is much more understandable and has been expanded:
Whether occasional rental of a cabin would be characterized as a "commercial" purpose will no doubt, once again, have to be decided by the courts when a case arises.
Under Proposal A, passed in 1994, increases in the taxable value of a parcel of land are "capped" at 5% per year. Over a period of time, if the home increases in value at a higher rate, the "capped" taxable value can be much lower than the "assessed value," which is supposed to be 50% of the home's true value. A home worth $100,000 when it is bought, for example, and worth $200,000 now, may have an assessed value of $100,000 (one-half of actual value) but a taxable value of only $68,000. Since property taxes are calculated as a percentage of the taxable value, the cap results in significant tax savings. Often, the owner is an elderly person, living on a fixed income, who could not afford to pay a higher property tax.
Under the statute, transfer of the land, whether by sale or gift, will often "uncap" the taxable value, allowing it to once again match the assessed value. But there have always been exceptions to uncapping. Early on, exceptions were provided for limited categories of conveyances, including conveyances to and from certain trusts and conveyances creating or ending joint tenancies in certain cases.
A couple of years ago, though, the statute was amended to provide that a transfer (whether by gift or by sale) to certain family members would also be excepted from the uncapping rule. The new section (s) read:
(s) Beginning December 31, 2013, a transfer of residential real property [does not uncap] if the transferee is related to the transferor by blood or affinity to the first degree and the use of the residential real property does not change following the transfer.This language was far from clear. What was meant by "the first degree"? The reference was obviously to the "first degree of consanguinity" but still needed explanation. Certainly the parent-child relationship was included, but what about transfers between siblings? Some sources say these are also first-degree, but that is not a unanimous view. And what was meant by "change of use"? A change from residential to commercial use is obvious; a change from year-round residential to seasonal use, or vice versa, is less so. In several cases, homeowners have had to go to court to get an answer, resulting in a lot of expense and uncertainty.
On the "first degree" criterion, one source said:
Relationships, through either blood (consanguinity) or marriage (affinity) were recorded, and marriage dispensations were granted, by "degree". A first degree relationship would indicate siblings; a second degree relationship would indicate first cousins. . .Another source:
The percentage of consanguinity between any two individuals decreases fourfold as the most recent common ancestor recedes one generation. Consanguinity, as commonly defined, does not depend on the amount of shared DNA within two people's genome. It rather counts the number of meioses separating two individuals. Because of the effects of pedigree collapse, this does not directly translate into the amount of shared genetic substance.There was the answer: simply count the meioses.
The new provision, which will apply to conveyances after December 30, 2014, is much more understandable and has been expanded:
(t) Beginning December 31, 2014, a transfer of residential real property [does not uncap] 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 conveyance. . .Not only is the relationship criterion made more understandable, the provision now more simply states that the capped taxable value will continue after the transfer as long as the land is not used for "any" commercial purpose.
Whether occasional rental of a cabin would be characterized as a "commercial" purpose will no doubt, once again, have to be decided by the courts when a case arises.
Saturday, April 12, 2014
Why use a lawyer?
"Why should I pay a couple hundred dollars to a lawyer when I can get this online form for $35?"
This is a fair question. A few recent examples will help to illustrate the answer.
This is a fair question. A few recent examples will help to illustrate the answer.
- Clients came in with a will prepared by Quicken WillMaker. The first several pages of the will provided detailed instructions for their funeral services, how their bodies are to be handled, etc. I explained to them that this may be useful as their requests to their children, but that none of this is binding on anyone. In Michigan, decisions on the handling of a dead body are made by the next of kin, not by the personal representative of the estate.
- A quit-claim deed done years ago to transfer a cabin, using a form found at an office supply store, was ineffective because the grantor was a married man at the time, and his wife did not join in the deed. The fact that the man had been single and the only grantee when he acquired the land did not change that outcome.
- In a recent reported case coming out of Florida, Ann Aldrich created a will using an "EZ Will Form" in 2004. The form did not include a residuary clause, a provision directing what should happen with the remainder of the individual's property after specific bequests are made. As a result, after her death, her two nieces received a substantial sum of money, even though the rest of the will showed that her brother was her intended beneficiary.
Friday, February 7, 2014
The lion cub, revisited
We recently posted our commentary on the use of a so-called “lion cub” deed, noting that two or more people who are granted ownership of real estate “as joint tenants” in unequal shares cannot be regarded as true joint owners under the common law. The common law interpretation of a joint tenant is, by definition, someone who has an equal and undivided interest in the real estate in question.
A colleague has recently brought our attention to a case decided by the Michigan Court of Appeals in 1984. The decision was In re Ledwidge Estate, 136 Mich App 603, 358 NW2d 18 (1984). In that case, the original owner of a parcel died in 1948, leaving it to his six surviving children in equal shares. Some of the children bought out the interests of others, and by 1968 Veronica Ledwidge was the owner of two shares and John C. Ledwidge was the owner of four, as tenants in common between them. In 1968, the two of them joined in a deed purporting to convey the land to themselves as joint tenants with rights of survivorship between them, with a recitation “and not as tenants in common” with a specified ¼ interest held by Veronica and a ¾ interest held by John.
On the death of John Ledwidge in 1979, the probate court held that the joint tenancy was valid and effective, and that it operated to pass the fee interest to Veronica, free of any claim of any other person.
This decision was challenged by the “residuary beneficiaries”, the persons to whom the remainder of the estate passed after other specific gifts had been made. They argued that the attempt to create a new joint tenancy in 1968 had been ineffective, because of the attempt to create unequal shares of ownership, and that they continued to own the land as tenants in common. The ¾ interest owned by John Ledwidge, they argued, should be an asset of the estate and distributed to them.
The Court of Appeals disagreed. The court recognized the common law rule that the interests of the owners had to be equal – using arcane legal parlance, the owners had to have a “unity of time, title, interest, and possession” – but it held that the enactment by the legislature of MCL 565.49 abolished that common law requirement.
MCL 565.49 provides:
There is also a highly technical rule, MCR 7.215-J, which provides that decisions of the Michigan Court of Appeals rendered before November 1990 do not have the same precedential authority as decisions rendered after that date.
Nonetheless, it is true that Ledwidge specifically recognized and gave effect to a declaration of joint tenancy in unequal shares, and declared that the established intention of the grantor will control over the rules applied at common law. No other court in Michigan has followed Ledwidge, but no court has rejected it, either.
The concept of the unequal joint tenant has thus been given a blessing by one court of record in Michigan and may well be found valid for planning purposes. The client who wishes to utilize this approach should be familiar with the possible drawbacks.
A colleague has recently brought our attention to a case decided by the Michigan Court of Appeals in 1984. The decision was In re Ledwidge Estate, 136 Mich App 603, 358 NW2d 18 (1984). In that case, the original owner of a parcel died in 1948, leaving it to his six surviving children in equal shares. Some of the children bought out the interests of others, and by 1968 Veronica Ledwidge was the owner of two shares and John C. Ledwidge was the owner of four, as tenants in common between them. In 1968, the two of them joined in a deed purporting to convey the land to themselves as joint tenants with rights of survivorship between them, with a recitation “and not as tenants in common” with a specified ¼ interest held by Veronica and a ¾ interest held by John.
On the death of John Ledwidge in 1979, the probate court held that the joint tenancy was valid and effective, and that it operated to pass the fee interest to Veronica, free of any claim of any other person.
This decision was challenged by the “residuary beneficiaries”, the persons to whom the remainder of the estate passed after other specific gifts had been made. They argued that the attempt to create a new joint tenancy in 1968 had been ineffective, because of the attempt to create unequal shares of ownership, and that they continued to own the land as tenants in common. The ¾ interest owned by John Ledwidge, they argued, should be an asset of the estate and distributed to them.
The Court of Appeals disagreed. The court recognized the common law rule that the interests of the owners had to be equal – using arcane legal parlance, the owners had to have a “unity of time, title, interest, and possession” – but it held that the enactment by the legislature of MCL 565.49 abolished that common law requirement.
MCL 565.49 provides:
“Conveyances in which the grantor or one or more of the grantors are named among the grantees therein shall have the same force and effect as they would have if the conveyance were made by a grantor or grantors who are not named among the grantees. Conveyances expressing an intent to create a joint tenancy or tenancy by the entireties in the grantor or grantors together with the grantee or grantees shall be effective to create the type or ownership indicated by the terms of the conveyance.”We are not convinced that the court’s analysis was accurate. The apparent intent of MCL 565.49 was to abolish the then-needed practice of conveying a parcel of land from one owner to a “straw man” who would then convey the land to the original owner and one or more other persons as joint tenants. The legislature does have the power to abolish or modify common law rules, but unless this is done, the Michigan Constitution of 1963 provides that the common law rules continue in force and effect in Michigan. It is not clear that the Legislature so intended in this instance.
There is also a highly technical rule, MCR 7.215-J, which provides that decisions of the Michigan Court of Appeals rendered before November 1990 do not have the same precedential authority as decisions rendered after that date.
Nonetheless, it is true that Ledwidge specifically recognized and gave effect to a declaration of joint tenancy in unequal shares, and declared that the established intention of the grantor will control over the rules applied at common law. No other court in Michigan has followed Ledwidge, but no court has rejected it, either.
The concept of the unequal joint tenant has thus been given a blessing by one court of record in Michigan and may well be found valid for planning purposes. The client who wishes to utilize this approach should be familiar with the possible drawbacks.
Monday, January 27, 2014
Tax Commission addresses uncapping amendment
The Michigan Tax Commission has issued an updated version of its Transfer of Ownership Guidelines, dated December 2013, to address issues raised by the adoption of the amendment to MCL 211.27a under Public Act 497 (2012). The amendment applies to conveyances that take place after December 31, 2013.
MCL 211.27a incorporates the limitations on property taxes adopted with Proposal A, specifying the exceptions to the otherwise-applicable rule that a conveyance of real estate will "uncap" the limits on taxable value.
Our initial posting on this amendment was made just over a year ago. The language used in the Public Act is that a conveyance is not subject to uncapping "if the transferee is related to the transferor by blood or affinity to the first degree." Our shorthand description of that exception in the post was "from a parent to a child (or vice versa)." While that is accurate, the exception turns out to be broader than that.
The phrase is not defined in the statute or anywhere else in the Michigan Compiled Laws. There appears to be some uncertainty and lack of agreement about which relatives are regarded as "first degree," so the MTC decided to address this issue.
It should be recalled that the statute uses very stilted language in declaring that certain conveyances are or are not a "transfer of ownership," triggering an uncapping of the property tax under Proposal A. The phrase is intended to have a precise technical meaning. A conveyance of land does indeed transfer ownership of the land, but the statute provides that certain transfers will not be called a "transfer of ownership" for Proposal A purposes.
The Guidelines include a section regarding conveyances to "Children and Other Relatives." The pertinent provisions under are:
MCL 211.27a incorporates the limitations on property taxes adopted with Proposal A, specifying the exceptions to the otherwise-applicable rule that a conveyance of real estate will "uncap" the limits on taxable value.
Our initial posting on this amendment was made just over a year ago. The language used in the Public Act is that a conveyance is not subject to uncapping "if the transferee is related to the transferor by blood or affinity to the first degree." Our shorthand description of that exception in the post was "from a parent to a child (or vice versa)." While that is accurate, the exception turns out to be broader than that.
The phrase is not defined in the statute or anywhere else in the Michigan Compiled Laws. There appears to be some uncertainty and lack of agreement about which relatives are regarded as "first degree," so the MTC decided to address this issue.
It should be recalled that the statute uses very stilted language in declaring that certain conveyances are or are not a "transfer of ownership," triggering an uncapping of the property tax under Proposal A. The phrase is intended to have a precise technical meaning. A conveyance of land does indeed transfer ownership of the land, but the statute provides that certain transfers will not be called a "transfer of ownership" for Proposal A purposes.
The Guidelines include a section regarding conveyances to "Children and Other Relatives." The pertinent provisions under are:
Is a transfer of property from a parent to a child a transfer of ownership?Further, Bulletin 23 was issued on December 16, 2013, and provides:
No, beginning with transfers occurring on and after December 31, 2013. However this is true only for property classified residential real and if the use of the real property does not change following the transfer of ownership.
Does this include adopted children?
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. See MCL 211.27a(7)(s).
Does this include relatives other than those related by blood?
Affinity to the first degree includes the following relationships: 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.
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 this exemption apply to a trust, 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.
Is a change in use limited to a change in property classification?
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.
The Commission’s position is that it was legislative intent that the phrase “related to the transferor by blood or affinity to the first degree” intended to apply the first degree test to both affinity and to blood relationships. Therefore, the Commission is including the following definition:We have found the Genetics Home Reference, published by the U.S. National Library of Medicine, which provides two accepted definitions and which may be the source of the definition adopted by the MTC:
A first degree blood relative is a person who shares approximately 50% of their genes with another member of the family. These relatives include parents, children or siblings.
Simply put, a transfer of residential real property is not a transfer of ownership if the transferee has one of the following relationships to the transferor and the use of the property does not change:
1. Spouse
2. Father or Mother
3. Father or Mother of the Spouse
4. Son or daughter
5. Adopted son or daughter
6. Son or daughter of the spouse
7. Siblings
Any relative who is one meiosis away from a particular individual in a family (i.e., parent, sibling, offspring)Note that the MTC Transfer of Ownership Guidelines do not have the force of law. They are of persuasive value and are commonly followed by assessors and equalization departments in implementing the provisions of the property tax laws.
Definition from: GeneReviews - from the University of Washington and the National Center for Biotechnology Information
A first degree relative is a family member who shares about 50 percent of their genes with a particular individual in a family. First degree relatives include parents, offspring, and siblings.
Definition from: Talking Glossary of Genetic Terms - from the National Human Genome Research Institute
Thursday, January 2, 2014
Lion Cub deeds - myth vs. reality
The Lion Cub deed is an elusive creature. It is fleetingly mentioned on the web sites of some Michigan estate planning and real estate attorneys, but there is very little detail provided at any of them.
The idea, it appears, is to structure real estate ownership so that one party (the "lion," typically the parent who originally owns the land) owns a high majority share of real estate, 90% to even 99%, while the small conveyed percentage passes to the other (the "cub," typically the child or children of the original owner). This conveyance is an event that would generate a divestment penalty if done within the 60-month lookback period that applies for Medicaid coverage for nursing home expenses, but the fact that only a small fraction of ownership is divested means that the disqualification period would be quite short. If the land in question is worth $400,000, for example, conveying a 1% interest would result in a divestment penalty of $4,000, well under the cost of one month of nursing home care.
The problem is that these conveyances may not be made in a manner which is effective under Michigan law. The strategy does not work if done using joint tenancy as the ownership vehicle. The "lion" and the "cub" must take ownership as tenants in common, not as joint tenants, if they want to create a proportional ownership. Yet we have seen promotional materials in attorneys' offices which say that the deed will be done to convey the land "in joint tenancy" with a 90-10% or 99-1% split. The promise is that the client can get the best of both worlds - probate avoidance and avoidance of Medicaid divestment penalties.
The concept described simply does not exist under Michigan real estate law. There is no such thing as a joint tenancy with an assigned ownership percentage. The interests of each co-owner must be equal under a joint tenancy. Further, although clients may think otherwise, two people who own land in joint tenancy do not each own 50%. Four joint owners do not each own 25%. (The fact that taxing authorities or the agency administering the Medicaid program might treat it that way does not change this rule.) Instead, each owns an equal and undivided interest in the entire parcel of land, with a right of survivorship among all co-owners. As each joint owner dies, his or her interest in the parcel ends. The survivor among all joint owners emerges as the full owner of the entire parcel.
It is hard to understand what benefit a landowner would derive from conveying a tiny percentage of ownership, as a tenant in common, to one or more of the landowner's children. Joint ownership of real estate is a method that is widely used to avoid having the land pass by will or intestacy in probate court - see our earlier posting entitled "Reasons Not to Do It" - but it is entirely inconsistent with the idea of fractional or proportional ownership of real estate. Conveying a parcel of land to a parent and child as tenants in common, with a significantly disproportional ownership balance, may be effective to avoid Medicaid penalties when nursing home care is needed, but it does nothing to avoid probate. The 90% or 99% interest of the parent, owned by him or her as a tenant in common with the child, would still have to be assigned under a will or pass by intestacy, and this would require a filing in probate court. Depending on how many children are involved in the two transactions, the end result could be quite complex.
Each of these approaches may work to achieve a desired result, and each should be explained by counsel. But confusing the two is likely to lead to unexpected and unplanned consequences.
The idea, it appears, is to structure real estate ownership so that one party (the "lion," typically the parent who originally owns the land) owns a high majority share of real estate, 90% to even 99%, while the small conveyed percentage passes to the other (the "cub," typically the child or children of the original owner). This conveyance is an event that would generate a divestment penalty if done within the 60-month lookback period that applies for Medicaid coverage for nursing home expenses, but the fact that only a small fraction of ownership is divested means that the disqualification period would be quite short. If the land in question is worth $400,000, for example, conveying a 1% interest would result in a divestment penalty of $4,000, well under the cost of one month of nursing home care.
The problem is that these conveyances may not be made in a manner which is effective under Michigan law. The strategy does not work if done using joint tenancy as the ownership vehicle. The "lion" and the "cub" must take ownership as tenants in common, not as joint tenants, if they want to create a proportional ownership. Yet we have seen promotional materials in attorneys' offices which say that the deed will be done to convey the land "in joint tenancy" with a 90-10% or 99-1% split. The promise is that the client can get the best of both worlds - probate avoidance and avoidance of Medicaid divestment penalties.
The concept described simply does not exist under Michigan real estate law. There is no such thing as a joint tenancy with an assigned ownership percentage. The interests of each co-owner must be equal under a joint tenancy. Further, although clients may think otherwise, two people who own land in joint tenancy do not each own 50%. Four joint owners do not each own 25%. (The fact that taxing authorities or the agency administering the Medicaid program might treat it that way does not change this rule.) Instead, each owns an equal and undivided interest in the entire parcel of land, with a right of survivorship among all co-owners. As each joint owner dies, his or her interest in the parcel ends. The survivor among all joint owners emerges as the full owner of the entire parcel.
It is hard to understand what benefit a landowner would derive from conveying a tiny percentage of ownership, as a tenant in common, to one or more of the landowner's children. Joint ownership of real estate is a method that is widely used to avoid having the land pass by will or intestacy in probate court - see our earlier posting entitled "Reasons Not to Do It" - but it is entirely inconsistent with the idea of fractional or proportional ownership of real estate. Conveying a parcel of land to a parent and child as tenants in common, with a significantly disproportional ownership balance, may be effective to avoid Medicaid penalties when nursing home care is needed, but it does nothing to avoid probate. The 90% or 99% interest of the parent, owned by him or her as a tenant in common with the child, would still have to be assigned under a will or pass by intestacy, and this would require a filing in probate court. Depending on how many children are involved in the two transactions, the end result could be quite complex.
Each of these approaches may work to achieve a desired result, and each should be explained by counsel. But confusing the two is likely to lead to unexpected and unplanned consequences.
Friday, June 14, 2013
Decided case: Johnson v Johnson
Lillian R. Johnson, an elderly widow, sued her son, Randy L. Johnson, arising from a deed that was prepared in 2005.
Lillian owned a 100-acre family farm in Delta County, Michigan. In April 2004, she secured a mortgage on five acres of the parcel as collateral for a loan to provide funds for Randy to construct a barn. Because that improvement increased the value of her farm, resulting in higher property taxes, Lillian wished to take steps to remedy the situation.
She and her son traveled to a lawyer’s office (without an appointment) to speak with an attorney. Lillian testified:
The opinion relates that the deed remained in Lillian’s safe for some period of time. She asserted that Randy thereafter removed the deed from her safe without her permission. It was recorded in March 2006. Lillian learned in 2009 that she no longer held the fee interest in the farm, but rather held only a life estate.
She filed a quiet title action in the circuit court. The claims raised included fraud, unconscionability, and lack of delivery of the deed. Under Michigan law, a deed must be “delivered” to the grantee in order to become effective.
The Court of Appeals agreed with the trial court that delivery requires more than having the deed in the grantee’s hands. It cited a number of earlier Michigan cases that establish that the purpose of the requirement of delivery is to demonstrate an intent by the grantor to convey the property, to “perfect the transaction.” The Court noted that the fact that Lillian continued to manage the property and continued to pay all of the expenses, as well as the fact that she had included it in her will, were evidence of a lack of intent to make a present conveyance of the remainder interest at the time that the deed was signed or thereafter.
The Court of Appeals held that the trial court had failed to consider the recognized principle that recording a deed gives rise to a presumption of delivery. With such a presumption, Lillian would have the burden of proving that there was no intent of delivery. The Court of Appeals remanded the case to the trial court for a further hearing on that issue.
Lessons to be learned from this case include:
Johnson v Johnson, unreported decision
Michigan Court of Appeals, May 28, 2013
Lillian owned a 100-acre family farm in Delta County, Michigan. In April 2004, she secured a mortgage on five acres of the parcel as collateral for a loan to provide funds for Randy to construct a barn. Because that improvement increased the value of her farm, resulting in higher property taxes, Lillian wished to take steps to remedy the situation.
She and her son traveled to a lawyer’s office (without an appointment) to speak with an attorney. Lillian testified:
- The purpose of the consultation was to prepare a deed conveying the five acres to Randy
- She did not go in to see the lawyer, but waited in the car while Randy spoke to the lawyer.
- The lawyer prepared a deed.
- A legal secretary came out to the car to obtain her signature and to notarize it.
The opinion relates that the deed remained in Lillian’s safe for some period of time. She asserted that Randy thereafter removed the deed from her safe without her permission. It was recorded in March 2006. Lillian learned in 2009 that she no longer held the fee interest in the farm, but rather held only a life estate.
She filed a quiet title action in the circuit court. The claims raised included fraud, unconscionability, and lack of delivery of the deed. Under Michigan law, a deed must be “delivered” to the grantee in order to become effective.
The Court of Appeals agreed with the trial court that delivery requires more than having the deed in the grantee’s hands. It cited a number of earlier Michigan cases that establish that the purpose of the requirement of delivery is to demonstrate an intent by the grantor to convey the property, to “perfect the transaction.” The Court noted that the fact that Lillian continued to manage the property and continued to pay all of the expenses, as well as the fact that she had included it in her will, were evidence of a lack of intent to make a present conveyance of the remainder interest at the time that the deed was signed or thereafter.
The Court of Appeals held that the trial court had failed to consider the recognized principle that recording a deed gives rise to a presumption of delivery. With such a presumption, Lillian would have the burden of proving that there was no intent of delivery. The Court of Appeals remanded the case to the trial court for a further hearing on that issue.
Lessons to be learned from this case include:
- Preparing a deed but instructing the client not to record it is a strategy that is fraught with peril.
- Even if it could be shown that the son's later steps to obtain the deed and to record it were done without the permission of the mother, the presumption in favor of delivery still applied and made it more difficult to enforce the transaction as intended.
- Whether or not he is regarded as representing the grantor, a lawyer who is requested to prepare a deed to convey land from a grantor to a grantee should at the very least speak with the grantor to ensure that the deed as written accomplishes the result that she wants to achieve.
Johnson v Johnson, unreported decision
Michigan Court of Appeals, May 28, 2013
Sunday, January 20, 2013
Property tax limit expanded
One of the several new statutes passed in December and signed by the Governor:
Public Act 497 (2012) modifies the statute which implements Proposal A, placing limits ("caps") on increases to the real estate property tax. That statute specifies what constitutes a "transfer of ownership," a conveyance or transfer which removes the cap and allows the taxable value to increase, and then lists a series of events or conveyances which are not considered a "transfer of ownership" for Proposal A purposes. An example of the latter includes a conveyance of real estate from the owner to a trust whose sole present beneficiary is the same owner - the familiar revocable living trust.
The amendment adds another exception to the second list: a conveyance - or gift under a will or trust - from a parent to a child (or vice versa).
If the property in question is residential real estate, and if the use of the real estate "does not change," the cap on property taxes will continue after such a transfer. This new exception will apply to a conveyance after December 31, 2013.
The Act does not define what constitutes a change of use. One interpretation would be that a child who inherits a home that his parents owned and occupied and thereafter rents it out to a tenant will not be entitled to the continued exemption. But a contrary interpretation would be that any continued use of the land for single-family residential purposes would qualify for the extended cap.
Public Act 497 (2012) modifies the statute which implements Proposal A, placing limits ("caps") on increases to the real estate property tax. That statute specifies what constitutes a "transfer of ownership," a conveyance or transfer which removes the cap and allows the taxable value to increase, and then lists a series of events or conveyances which are not considered a "transfer of ownership" for Proposal A purposes. An example of the latter includes a conveyance of real estate from the owner to a trust whose sole present beneficiary is the same owner - the familiar revocable living trust.
The amendment adds another exception to the second list: a conveyance - or gift under a will or trust - from a parent to a child (or vice versa).
If the property in question is residential real estate, and if the use of the real estate "does not change," the cap on property taxes will continue after such a transfer. This new exception will apply to a conveyance after December 31, 2013.
The Act does not define what constitutes a change of use. One interpretation would be that a child who inherits a home that his parents owned and occupied and thereafter rents it out to a tenant will not be entitled to the continued exemption. But a contrary interpretation would be that any continued use of the land for single-family residential purposes would qualify for the extended cap.
Friday, November 4, 2011
Reasons not to do it
Many people believe that putting the family home or other real estate
in joint tenancy with their children is the best way to provide for
post-death succession, without the need for involvement of the
probate court. There are several complications which suggest the need
to act cautiously.
Under the General Property Tax Act, there is a limit (“cap”) on increases to property tax assessments while the property remains under the same ownership. In most cases, a transfer in ownership removes that limit and allows for “uncapping” the assessment, often leading to a higher property tax liability. The law provides for a number of exceptions.
The March 2011 decision of the Michigan Supreme Court in Klooster v. City of Charlevoix changed the general understanding of how and when the creation, modification, or termination of a joint tenancy will uncap assessed value.
Under the newly clarified rule explained in that case, you will not uncap the taxable value of the property by adding one or more new joint tenants if
Update 1-24-15: John Payne's article The Curious Case of the Persistent Step-Up deconstructs a myth that misleads many lawyers. So long as the property is included in the decedent's estate, the surviving joint will still receive the step-up in basis. Thus capital gains considerations should not affect the decision on whether to use this probate avoidance technique.
- Once a parent puts a child on the title of the home as a joint owner, the child is from that point forward a full joint owner. The parent cannot later decide to sell the house, rent it out, or seek a mortgage or home equity line from a bank or credit union, without the agreement of the child.
- An older parent who is facing the prospect of admission to a nursing home in the next few years will find that the act of adding a child as joint owner of the home will be regarded by the Department of Human Services as a partial divestment of property, and this will result in a period of ineligibility for Medicaid benefits.
- Depending on the circumstances, the creation of a new joint tenancy may result in the inadvertent “uncapping” of the taxable value of the real estate, resulting in higher property taxes.
- If the child who is added as a joint owner later has a judgment entered against him by a court, the judgment will have to be paid if the house is to be sold - even though the parents were the ones who paid for the house.
Under the General Property Tax Act, there is a limit (“cap”) on increases to property tax assessments while the property remains under the same ownership. In most cases, a transfer in ownership removes that limit and allows for “uncapping” the assessment, often leading to a higher property tax liability. The law provides for a number of exceptions.
The March 2011 decision of the Michigan Supreme Court in Klooster v. City of Charlevoix changed the general understanding of how and when the creation, modification, or termination of a joint tenancy will uncap assessed value.
Under the newly clarified rule explained in that case, you will not uncap the taxable value of the property by adding one or more new joint tenants if
- you or your spouse were an owner immediately after the most recent uncapping event and
- you have remained as an owner continuously since then.
Update 1-24-15: John Payne's article The Curious Case of the Persistent Step-Up deconstructs a myth that misleads many lawyers. So long as the property is included in the decedent's estate, the surviving joint will still receive the step-up in basis. Thus capital gains considerations should not affect the decision on whether to use this probate avoidance technique.
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