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Funding: The Principal Residence Exemption and Limited Partnerships

Post Series: Funding
  • 1.Funding: The Principal Residence Exemption and Limited Partnerships

Funding your trust or estate plan can easily be forgotten. In fact, it often is, but what about when the funding causes other problems? Funding is the process where you implement your estate. You transfer assets into a trust or business entity. Or it could be the updating of beneficiary designations. It usually involves the filing of a deed for your home. The Michigan Court of Appeals has recently held that a property transferred into a family limited partnership is NOT eligible for the homestead exemption. Estate plan funding is an important part of your estate and necessary if it is to work properly. This case illustrates what can go wrong when funding your estate plan.

The Michigan Homestead Principal Residence Exemption (PRE) is available to Michigan residents that occupy the property they own and exempts them from 18 mills levied by the local school district.

funding

The case (Alli v Dep’t of Treasury, unpublished per curium of the Court of Appeals, issued October 10, 2017 (Docket No. 333915)  holds that property transferred into a limited partnership is not eligible for the Principal Residence Exemption. This means that the individuals will be required to pay the additional 18 mills on their taxes. If the owners of the limited partnership live in the house, this is a costly mistake. However, the case specifically addresses property transferred into trusts. Property transferred into trusts DOES qualify for the PRE. (SEE MCL 211.7dd(a)(vi))

The case does not discuss why the individuals transferred the property into a limited partnership. It was either for liability purposes or for estate planning purposes. The basis for making the decision may have been made in light of the knowledge that the PRE may not apply. Furthermore, the reason for making the transfer may be more important than paying the additional taxes, we simply do not know. The important take away is that there are multiple factors to be considered when funding your estate plan or considering liability issues. An attorney who deals with these issues can be very helpful. Dafoe Law can help with your estate and trust funding issues, give us a call to review the present state of your trust’s funding and look at your estate plan.

Dafoe Law, PLLC is a Life Care Planning law firm serving the Estate Planning, long-term care, probate, and trust administration, and trust funding needs of clients in Saginaw, Bay, Genesee, Huron and Tuscola Counties. Dafoe Law serves Frankenmuth, Bridgeport, Birch Run, Reese, Millington, Clio, Vassar, Saginaw, Saginaw Township, Freeland, Thomas Township, Spaulding Township, Burt, Bay City, Essexville, Munger, Kochville Township, Caro, Cass City, Sebewaing, Unionville, Pigeon, Bad Axe. Travis I. Dafoe is a member of the National Academy of Elder Law Attorney and WealthCounsel. Dafoe Law, PLLC is also a member of the Life Care Planning Law Firm Association. Start estate plan

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Travis Dafoe Elder Law Attorney