For Property Tax Uncapping Two Conveyances of Property Create Different Tax Consequences
In Klooster v. City of Charlevoix, Michigan Supreme Court, No. 140423, March 10, 2011, a case involving two particular circumstances in which a conveyance of property may or may not permit a taxing authority to uncap and reassess the value of property for property tax purposes, the Michigan Supreme Court held that a "conveyance" did not require a written instrument.
The court also held that the January 2005 conveyance to the property owner of a fee simple was excluded from the definition of "transfer of ownership." However, the September 2005 conveyance from the property owner to himself and his brother in joint tenancy was not exempted from uncapping and, therefore, the city properly issued a notice of assessment, taxable valuation, and property classification in 2006, indicating that the property's taxable value had been reassessed using the true cash value of the property.
In this case, two persons acquired title to the property in 1959 and held it as tenants by the entirety. On August 11, 2004, one of the property owners quitclaimed her interest in the property to the other, leaving him as the sole owner. On that same day, the sole owner quitclaimed the property to himself and his son as joint tenants with rights of survivorship. On January 11, 2005, the father died, and the son became the sole property owner by operation of law. On September 10, 2005, the son quitclaimed the property to himself and his brother as joint tenants with rights of survivorship. As a result of the city assessor's reassessment in 2006, the taxable value of the property was increased.
The court held that the vesting of the fee simple in the son as a result of the death of his father met the original ownership requirement of the applicable statute because the father was a cotenant and was an original owner of the property before the joint tenancy was initially created. Because the property was held as a joint tenancy at the time of the conveyance, the court applied the continuous tenancy requirement that at least one of the persons be a joint tenant when the joint tenancy was initially created and that person remain a joint tenant from the time that the joint tenancy was initially created. Because the son was a joint tenant when his father originally created the joint tenancy in August 2004 and remained a joint tenant since the joint tenancy was initially created, and until the joint tenancy terminated, the January 2005 conveyance was not a transfer of ownership. Therefore, the January 2005 conveyance did not uncap the property.
When the son conveyed the property to himself and his brother in September 2005, the property went from a state of sole ownership into a new joint tenancy. Because the son who became the sole owner upon the death of his father was not an original owner of the property before he initially created the joint tenancy with his brother, the September 2005 conveyance did not satisfy the joint tenancy exception. Therefore, the September 2005 conveyance was transfer of ownership that uncapped the property.