[Michigan_LT] life estate question

Tue Jan 23 06:44:27 PST 2007

I just checked with our local assessor about when the property taxes are uncapped.   If someone retains a life estate on a property the property taxes are not uncapped until that person dies, or the life estate is extinguished.   Now, how the assessor would treat a situation where the landowner places a conservation easement on the property during the term of life estate is a question to be answered.   I am guessing there is a lot of questions to be answered about the new law!

MaryKay

FYI - This assessor, who is very knowledgeable, was unaware of the passage of Senate Bill 1004.   Just thought I'd let you'll know we should probably be sending out informational packets to our local assessors.

  ----- Original Message ----- 
  From: Jean Brokish 
  To: michigan_list at lists.ltanet.org 
  Sent: Monday, January 22, 2007 3:28 PM
  Subject: RE: [Michigan_LT] life estate question

  Hello MaryKay, April and others,

  In my original email introducing Mr. Smith and the Jones Family I neglected to divulge one piece of information.  The Jones family is not taking a tax deduction for the easement donation.   So this reduces some of the tax related concerns, but doesn't explain their rush.  I believe that their attorney wants to "clean up his books."   And all parties do recognize that Mr. Smith could outlive us all!

  I'd like to summarize the things I've learned (because it is so fun to learn from each other!)

  When doing an easement with a reserved life estate there are two options: 

  1. Have both the title owner and the resident landowner sign the easement document, effectively binding both to the terms of the easement upon its signature and recording.  This creates a "live" easement that now requires monitoring and defense.

  2. Have only the title owner sign the easement - essentially they are conveying a future interest - creating an easement in waiting.   Mr. Smith is ahead of the Jones Family and the land trust in the title chain, and therefore he is not bound by the easement (unless he signs it).   The easement does not become effective and the land trust has no monitoring obligations or rights to defend the conservation values until the life estate ends.  There is also no violation or need for a discretionary approval at this time (of course once the life estate terminates and the Jones Family takes full ownership, there is an immediate violation that needs to be resolved).  

  There are pros and cons of both plans, and we've spent hours discussing both options.  It is essentially a task of comparing the different risks.  For those that really want to know (and it may stimulate some more spirited discussion) we are moving ahead with option 2.   Even though there will be no discretionary approval, there will be plenty of documentation in the file explaining the situation.  We are completing the baseline now as well, and plan to update it as soon as full title is held by the Jones Family and they get the cows out of the stream. 

  Isn't this work so fascinating.

  Thanks to all for their input!

  - Jean

  ~~~~~~~~~~~~~~~~~~

  Jean Brokish

  Chikaming Open Lands

  PO Box 291 / 14913 Lakeside Rd

  Lakeside, MI  49116

  p: 269-469-2330  f: 269-469-2471

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  From: michigan_list-bounces at lists.ltanet.org [mailto:michigan_list-bounces at lists.ltanet.org] On Behalf Of MaryKay O'Donnell
  Sent: Monday, January 22, 2007 1:09 PM
  To: April Scholtz; michigan_list at lists.ltanet.org
  Subject: Re: [Michigan_LT] life estate question

  Hey everyone!

  April is right . . . I do love a spirited discussion!   April brings up many excellent points - including the fact that you don't really know how long this violation will go on for (does anyone remember the story about the oldest woman in the world who lived in France where is was common for people to buy an apartment from an elderly person and let that person have a life estate to the apartment?   She lived to be 120-something.   Can you imagine being the person waiting for the apartment?  . . . but I digress . . .)

  For my 2 cents worth, I change my position and agree with April!  If this can at all be avoided it should be.   

  I presume the landowners' attorney is pushing so that they get the increased federal income tax benefit by donating in 2007.  Therefore, I am guessing if the Conservancy took the stance that it cannot accept the easement with the current use being able to be continued, the landowners may be highly motivated to ask the life lease holder to stop letting his cows drink from the stream. 

  The other thing to keep in mind is that if there is a significant financial benefit for the landowners here - would they be willing to pay for the improvements for Mr. Jones so the cows have access to water elsewhere?

  April, thanks for weighing in!   Where is everyone else????   

  MaryKay

    ----- Original Message ----- 

    From: April Scholtz 

    To: michigan_list at lists.ltanet.org 

    Sent: Friday, January 12, 2007 5:21 PM

    Subject: RE: [Michigan_LT] life estate question

    Hello to all:  

    Regarding the easement on property with a life estate:  LCWM hopes to be completing an easement soon for a property in which an organization has what is essentially a "life estate" and a municipality has the remainder interest.  The City attorney agreed with us that both parties need to sign, since both have a legal interest in the land.  Whether or not it's legally required, we want both parties to sign the easement to reduce the likelihood of violations or amendment requests.  

    Mary Kay knows I like a spirited discussion and so I'm putting forward the opposing advice:  I would not recommend a discretionary approval unless there is some incredibly important reason to complete the easement, now.  

    I, too, was at Karen Marchetti's seminar that included her discussion of discretionary approvals and I came away with a different view of them - as a relatively untested legal tool to be used only as a method to avoid potentially harmful litigation on an (unexpected) violation.  

    I wonder if it would be possible for an easement to be created that would take effect only when the Jones' have full ownership of the property?  Given our organization's recent experience with an easement violation (didn't go to court, but has taken up a lot of staff time), I would hate to hold an easement on a property controlled by a party that doesn't agree with the provisions, right from the beginning.  I also wonder how the IRS would view the conservancy taking on an easement for which they will not defend the identified conservation values for (possibly) many years.

    I'm surprised that the Jones' can tell Mr. Smith what to do with his cows.  The life estates I've dealt with usually allow the holder to continue to use and manage the property pretty much as if they were still the sole legal interest.  I'd recommend getting a copy of their life estate/tenancy agreement to learn more about the life tenant's management/use rights.  Or are the Jones' really just leasing the property to Mr. Smith, in which case I would be concerned about the Jones' strength of commitment to protect the conservation values of the easement.

    Since the conservancy would be making it possible for the Jones' to seek a significant tax benefit, I think that it's not too much to ask that the conservancy agrees with the easement's provisions and that it believes the easement protects natural values important to the public, worth defending at any point in time.  

    Just my 2 cents.  --April

    April Scholtz, Land Protection Director

    Land Conservancy of West Michigan

    1345 Monroe NW, Suite 324

    Grand Rapids, MI  49505

    616-451-9476

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    From: michigan_list-bounces at lists.ltanet.org [mailto:michigan_list-bounces at lists.ltanet.org] On Behalf Of MaryKay O'Donnell
    Sent: Monday, January 08, 2007 10:31 AM
    To: Jean Brokish; michigan_list at lists.ltanet.org
    Subject: Re: [Michigan_LT] life estate question

    Hi Jean - 

    I am going to leave the question of signing and how to do that to the attorneys - I assume that the life estate holder would have to sign off on the easement in some capacity or subordination.   I hope the answers will be posted to the list serve as I am sure there is a lot of interest in this question.

    As for the violation:   I wonder if you should consider a "Discretionary Approval."   You could allow the violation to continue until such time as the life estate holder passes away.   That way you don't have to worry about this becoming a permanent thing.  Write in the Discretionary Approval that within such-and-such a time after the gentleman passes away the property will be brought into compliance.

    The letter would state that the Conservancy grants discretionary approval of the action, state why this is reasonable, the time line, and details of the violation and the provisions of the easement.   Then you would want to have the legal language stating that all other provisions of the easement are in full force and effect and that this discretionary approval does not constitute a waiver of any rights to enforce the other terms of the easement or any future violations of the easement.

    Just an idea!

    MaryKay O'Donnell

    Little Traverse Conservancy

      ----- Original Message ----- 

      From: Jean Brokish 

      To: michigan_list at lists.ltanet.org 

      Sent: Friday, January 05, 2007 4:55 PM

      Subject: [Michigan_LT] life estate question

      Hello,

      I am working with a property that includes a reserved life estate for an elderly man (Mr. Smith).  The owners of the deed (the Jones Family) are working with me to donate a conservation easement on the property.  

      I have a straightforward question:  Does Mr. Smith need to sign the conservation easement if we finalize the easement before his death?

      And I have a sticky situation:  the property as it is managed now (by Mr. Smith) includes a violation of the CE terms.  Namely, his cows have free access to the stream and it is creating erosion and all the other expected problems.  The Jones Family agrees that this is not ideal and plans to fix it, but they don't want to impose this change onto Mr. Smith.   I have explained to them our need to enforce the terms of the easement and that they would be in violation.  We have discussed waiting until Mr. Smith passes before signing, but the Jones attorney is urging them to move ahead.  

      One other piece of info: Mr. Smith was on his death-bed one year ago, but has made a remarkable recovery and was last seen driving his tractor.  On my most recent visit to the property, he joined me for a 2+ mile walk.  No telling how many other lives he has.

      Should Chikaming Open Lands move ahead and sign the easement?  Should we hold the Jones Family to fixing the problem?  Is there a feasible solution that would make everyone happy?  

      Any advice would be so much appreciated!  

      - Jean

      ~~~~~~~~~~~~~~~~~~

      Jean Brokish

      Chikaming Open Lands

      PO Box 291 / 14913 Lakeside Rd

      Lakeside, MI  49116

      p: 269-469-2330  f: 269-469-2471

       jbrokish at chikamingopenlands.org 

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