The Michigan legislature is currently considering a new bill which may limit the harsh effects of uncapping on cottage owners.  As previously discussed in this blog, when a parent passes a cottage onto a child (or children), the taxable value of the cottage typically increases – sometimes dramatically – because the taxable value may have been "capped" for many years while the parents owned the cottage.

House Bill 4753, passed by the Michigan House of Representatives and currently pending before the Michigan Senate would allow a parent to pass residential real estate directly to a child without an uncapping of the taxable value. The result would be that in those instances, a sudden increase in property taxes may not force a sale of the cottage.

Of note, however, is that as proposed, the bill would not be effective until December 31, 2013.  Perhaps more concerning is what the language of the bill doesn't address: what if property is in a revocable trust and passes to a lifetime trust for a child?  Is it still exempt from uncapping?  In many cases, this lifetime trust planning is used for important reasons unrelated to property taxes. Avoiding the potential uncapping in this manner may also prevent cottage owners from carefully considering proper cottage succession planning.  For example, owners may avoid an uncapping, but without any planning for the future of the cottage, are they setting their children up for a dispute in the future?