JOINT TENANTS WIN THE DAY

Klooster Case. You may recall that our January, 2010 newsletter reported on the decision in the Klooster case favorable to taxpayers. You may recall that the Michigan Court of Appeals ruled in Klooster that property passing at the death of an original joint tenant did not get “uncapped” at death.

Without getting into the technicalities of the decision of the Michigan Supreme Court in Klooster, a quick review of the facts is in order.

1. August, 2004: James and Donna Klooster owned property as tenants by the entireties. Donna quit claimed her interest to James. On the same day, James quit claimed the property to himself and their son, Nathan Klooster, as joint tenants with rights of survivorship.

2. James died in January, 2005, leaving Nathan Klooster as owner.

3. In September, 2005, Nathan executed a quit claim deed creating a joint tenancy with rights of survivorship with his brother, Charles Klooster.

4. The City of Charlevoix asserted in 2006 that the property had become uncapped at the death of James in January, 2005.

Important Decision. Weaving its way carefully through the statute and the fact situation in Klooster, the Michigan Supreme Court determined that the transfer of property on the death of a joint tenant could be a “conveyance” for purposes of the property tax statute, defining “transfer of ownership”.

However, analyzing the exceptions, the Michigan Supreme Court decided that as long as James was an original owner of the property, the taxable value did not get uncapped in January, 2005 when James died. However, the Court also decided that the taxable value did get uncapped by the September, 2005 deed from Nathan to himself and his brother, Charles Klooster, as joint tenants. In other words, the Court decided that the City of Charlevoix was right for the wrong reason and that the taxable value was uncapped in 2006.

Taylor Case. The decision of the Michigan Supreme Court was a victory for taxpayers in a somewhat similar case in Traverse City, Michigan. In that case, Dr. Kenneth Taylor, a few weeks prior to his death, deeded his residence to himself and his daughter, as joint tenants with rights of survivorship. The City of Traverse City had asserted that the property was uncapped at Dr. Taylor’s death.

Dr. Taylor was an “original owner”, as defined by the Michigan Supreme Court. Therefore, his daughter did not have the property uncapped at her father’s death.

In sum, the Court Decision in Klooster was a victory for some taxpayers, including the Taylors, but not the Kloosters.

Nathan Klooster would have been fine, with no uncapping in 2005, if he had not deeded the property to himself and his brother, Charles, in September, 2005.

Key Importance of Klooster. The Klooster decision is a victory for taxpayers who want to hold on to the family cottage or residence without an uncapping. So long as an original owner is a joint tenant, the taxable value does not get uncapped at the original owner’s death. Generally, the joint tenancy is established between parents and children, so at least the children (or child) can inherit property without an uncapping at the parent’s death. If parents choose to skip a generation, passing the property to grandchildren, that would also permit a transfer of ownership without uncapping at the death of the original owner.

Estate Planning Clarification. The importance of the Klooster Decision is that all Michigan property owners with a residence or cottage that they want to keep in the family now have to re-examine their estate plans. If owners want to keep property in the family without uncapping, they should examine the Klooster alternative to see if it fits their circumstances and objectives.

Many clients have put their residence or cottage property in trust. Those provisions should now be re-examined by all property owners in light of Klooster.

Conclusion. The Klooster case is important for estate planning purposes and especially for cottages and residences. (The Decision may be of less importance for farms because agricultural property typically does not get uncapped so long as Ag usage continues.)

If you are concerned about uncapping of your property at death, we strongly urge that you contact Jim Modrall or Priscilla Hirt, at (231) 941-9660, or any of the other attorneys listed below, for a review of your estate plan in light of the Klooster decision.


Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. GraF at (231) 941-9660