Published: February 18, 2010 12:50 am      FROM RECORD EAGLE  

Appeals court: No tax bump

Ruling says families can transfer home to next generation without tax hike

BY BRIAN McGILLIVARY
bmcgillivary@record-eagle.com

TRAVERSE CITY -- A local woman's victory in a state appeals court will allow families to transfer a home from one generation to the next without an accompanying hike in property taxes.

The appellate court ruled in a unanimous opinion released Wednesday that Traverse City improperly lifted the taxable assessed value on Terrie Taylor's bayfront home on Peninsula Drive.

"It's huge," said Robert Parker, Taylor's attorney. "This is going to change a lot of things about estate planning, if it stands."

City Attorney Karrie Zeits called the court's ruling "overly broad ... and potentially disastrous." She expects the city will appeal.

An almost identical case decided in December, Klooster vs. Charlevoix, dictated its decision in Taylor, the court said.

Taylor's father listed her as a joint tenant on the property deed about a month before his death in 2005. The following year the city boosted the assessment and increased Taylor's taxes by about $4,000 annually.

The court ruled ownership did not change hands because of the joint tenancy, and the taxable value should have remained capped.

State law limits increases in a property's taxable value to the rate of inflation. When the property is sold or transferred, even in family trusts popular among estate planners, it becomes uncapped. The usually higher assessed value then becomes the taxable value used for tax bills.

Taylor's taxable value jumped almost $100,000 when the city assessor uncapped it. Under the court ruling the 2009 taxable value will drop from $293,579 to about $191,000 and the city will owe her more than $16,000 in back taxes, interest and attorney fees.

Charlevoix also appealed in the Klooster case, and Parker said if the ruling holds, he expects joint estate planners to move homes out of trusts and into joint tenancy to avoid taxes.

Zeits said the court created a new rule that goes beyond family transactions. "Anyone could structure a transaction to fall within the court's new parameters, and potentially we could never have a property that becomes uncapped," Zeits said.

Taken to its limits, joint tenancy literally could last one minute among buyer and seller, Zeits said.

Parker said it's possible the ruling could be used to disguise property sales, but said those weren't the facts in the Klooster and Taylor cases.

"I'm not sure that would really work," he said.

City assessor Debra Chavez said the decision will have a negative financial impact on city, county, and school tax revenues, but the situation would be considerably worse under Zeits' theory.

"I believe it would pretty much bring government to its knees. There would be no way local governments could survive," Chavez said. "The legislature knew government can't live on the rate of inflation alone, and that's why they put uncapping in there."