PRACTICE POINTERS ON PROPOSAL A

By: Donna B. Stokes & Sharon R. Brinks

One unintended consequence of Proposal A has been overlooked by many probate and real estate attorneys: Property assessors cannot read their minds.

The purpose of this article is to provide practical advice which may avoid serious problems when a property transfer is made for various reasons which might make it a non-transfer for purposes of Proposal A analysis, such as for estate planning purposes.

Under MCL 211.27a(3): "Upon a transfer of ownership after 1994, the property's taxable value for the calendar year following the year of the transfer is the property's state equalized valuation for the calendar year following the transfer."

Thus an assessor's office must review all deeds to decide whether there has been transfer of ownership under Proposal A.

If there has been a nonexempt transfer of ownership, a property transfer affidavit must be filed with the assessor's office. It would be extremely helpful to very busy people if the property transfer affidavit is filed with the deed and stapled to it. It is common for a busy assessor's office to receive thousands of transfers a year.

What happens if a deed arrives without a property transfer affidavit? The person charged with reviewing the deed searches for the affidavit. If they do not find it, they cannot assume it is because the transfer is exempt under Proposal A. Perhaps the person filing the deed simply forgot the transfer affidavit, or it was separated somehow along the way to the reviewing assessor's desk.

So even if the transfer does not constitute a transfer under Proposal A, the filing of a property transfer affidavit with the deed which explains why this is not a transfer under Proposal A would save everyone from potential confusion and delays. This is the simplest way to help the assessor.

There is an alternative being used by some attorneys which also will work. An assessor's office needs information. That information can be put on the face of the deed. For example, to determine whether a transfer to a trust is a transfer under Proposal A, a simple way to provide the information is to include the following language on the face of the deed. if the transfer is to a trust with the grantor or his/her spouse as the sole present beneficiary:

"This transaction is not a transfer under Section 17 of Act 415 of the Public Acts of 1994 (commonly known as Proposal A) because it constitutes a conveyance to a Trust and the present beneficiary is the Grantor or the Grantor's spouse. See section 27(a)(7)(f)."

This same approach could be used for trust distributions and in the case of transfers between commonly controlled entities, see Section 27(a)(7)(j), thereby avoiding an unnecessary call from the assessor's office or an unintended consequence of explaining to a client why an "uncapping" valuation which moves the taxable value up to full market value arrived in their mail.

Proposal A has triggered another unintended consequence, which also needs to be addressed: Multiple owners. Some assessor's offices do not have the means to determine how property is owned, whether jointly or as tenants in common. Under MCL 211.27a(7)(h) a transfer which expands, shrinks or terminates a joint tenancy is not a transfer of ownership if at least one (1) of the persons was an original owner and became a joint tenant when the joint tenancy was originally created and that person has remained a joint tenant since the joint tenancy was originally created.

The same approach can be used: Make it clear by using an affidavit stapled to the deed or in language on the face of the deed that the transfer fits within the exception.

Finally, from a practical point of view, if the face of the deed also gives the assessor's office precise information on whom to speak to and what file the deed relates to at a law firm, it will save a great deal of time should someone need to call to follow up on the issues raised by Proposal A or any other deed related problems.

Property assessors cannot read minds. Simply providing the information mentioned in this article will keep the system working smoothly for everyone involved.

Copyright 1997

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