February 2012
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Co-Editors:
Howard A. Lax, Lipson, Neilson, Cole, Seltzer & Garin, PC
Patricia Paruch, Kemp Klein Law Firm
Redevelopment Loans/Grants Replace Historic Preservation and Brownfield Tax Credits
By Jason C. Long, Steinhardt Pesick & Cohen
With the Corporate Income Tax (CIT) replacing the Michigan Business Tax (MBT) effective January 2012, Michigan is also replacing the brownfield, historic, and MEGA MBT credits previously available for up to 20% of redevelopment costs. The new Community Revitalization Program under the Michigan Strategic Fund replaces the credits with loans and grants.
Redevelopment costs that qualified for MBT credits will generally be eligible for the grants and loans, including demolition, remediation, soft costs, and construction. To approve a grant or loan, the Strategic Fund must consider the project’s need for the incentive, job creation, extent of contamination or re-use of historic structures, the project’s importance to its community, and whether it will spur community revitalization, among other factors.
Funds available for loans and grants are less than they had been for MBT credits. For a given project, the maximum loan is $10 million, the maximum grant is $1 million, and loans and grants combined may not exceed $10 million or 25% of eligible costs. The Strategic Fund may approve only three individual $10 million projects annually. These limits reflect the Fund’s overall budget, which is approximately $50 million, some $100 million less than it was for MBT credits.
For projects that already possess MBT credits, developers may either pay the CIT and obtain a refund for the credits from the State equaling 90¢ per $1 of credit, or pay the MBT using the credits until they are exhausted. Developers that possess brownfield and historic credits may elect which year to file an MBT return and use the credits, allowing them to compare MBT and CIT liability and maximize their tax situation. This contrasts with other MBT credits, which must be used beginning in 2012.
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Please contact co-editors:
Howard Lax at HLax@lipsonneilson.com or Patricia Paruch at Pat.Paruch@kkue.com.
Pros and Cons of Lady Bird Deeds
By Robert C. Anderson, Elder Law Firm of Anderson Associates, P.C.
A "lady bird deed," also known as a "transfer on death (TOD) deed," is a transfer to grantees when the grantor retains an "enhanced life estate," including the power to sell without the consent of the named grantees (or remaindermen). Recognized by Michigan Land Title Standard 9.3, lady bird deeds (so nicknamed after a purported transfer by President Lyndon Johnson to his wife) offer a simple and inexpensive method to avoid probate. The grantor can maintain complete control of the property, and grantees receive a stepped-up tax basis upon the grantor's death.
These deeds have significant disadvantages for some elder clients. A life estate expires upon death of the grantor, which uncaps the taxable assessment. In contrast, the Michigan Supreme Court in Klooster v. City of Charlevoix, 488 Mich 289, 795 NW2d 578 (2011) held that joint survivorship property does not trigger an uncapping event when the original owner dies.
Also, for non-homestead property, the grantor's retained unrestricted control and possession of a life estate results in the land being valued as the grantor’s asset for Medicaid’s asset limitations, and Medicaid's 60-month look-back period never starts running.
Lady bird deeds work well for homestead property under current Medicaid guidelines. A divestment penalty should not be imposed as a result of the grantor's life estate, and Medicaid's homestead exemption will apply. Also, a lady bird deed avoids Michigan's probate-only version of Estate Recovery adopted on July 1, 2011. This will not be the case if Michigan adopts an expanded form of Estate Recovery which attaches to life estates as the Michigan Legislature is considering.
Before deciding on the use of a lady bird deed, clients need to consider its potential property tax and Medicaid qualification consequences.
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