Opinion
Docket No. 79159.
Decided May 8, 1985.
Frank J. Kelley, Attorney General, Louis J. Caruso, Solicitor General, and Richard R. Roesch and Charles E. Liken, Assistants Attorney General, for the Department of Treasury.
The issue in this case is whether the estate is required to pay inheritance tax on real property owned by the decedent and Marcia A. Bishop, as joint tenants, where the deed creating the joint tenancy reserved to the decedent a life estate.
In May, 1974, the decedent executed a quitclaim deed to a parcel of property located in Pentwater, Michigan, placing title in himself and Marcia A. Bishop, as joint tenants. The deed contained the following clause:
"EXCEPTING AND RESERVING unto Grantor Edward P. Casserie a life estate in and to said premises for and during the remainder of Grantor's lifetime. Grantor covenants and agrees to pay all taxes, insurance and maintenance costs addressed against said premises during Grantor's use of the same."
Decedent resided on the property until his death on February 10, 1983. Appellee did not live on the property prior to or at the time of decedent's death. Decedent's last will devised his entire estate to appellee and appointed her as executrix of the estate.
On July 28, 1983, the Oceana County Probate Court entered an order directing appellee to pay an inheritance tax in the amount of $5,351. The court included the value of the Pentwater property in computing the decedent's gross estate.
Appellee filed a motion to redetermine the inheritance tax, claiming that inclusion of the Pentwater property in decedent's taxable estate was erroneous because he had divested himself of substantial ownership rights in the property prior to his death. On June 8, 1984, the probate court entered an opinion in favor of appellee, holding that the 1974 quitclaim deed had conveyed substantial and immediate ownership rights to appellee. The probate court therefore redetermined the inheritance tax based on the value of the decedent's life estate at the time of his death, according to life expentancy tables. A final order was entered June 25, 1984.
The inheritance tax statute, MCL 205.201; MSA 7.561, provides in part:
"(1) A tax shall be and is hereby imposed upon the transfer of any property, real or personal, of the value of $100.00 or over, or of any interest therein or income therefrom, in trust or otherwise, to persons or corporations, not exempt by law * * * in the following cases:
* * *
"(c) When the transfer is of property made by a resident or by nonresident, when the nonresident's property is within this state, by deed, grant, bargain, sale, or gift made in contemplation of the death of the grantor, vendor, or donor or intended to take effect, in possession or enjoyment at or after such death."
The test to be applied in determing whether the decedent's death is a taxable event under the statute is:
"[W]hether the property comes into possession and enjoyment of the transferee upon the death of the transferor. If the death of the transferor makes no difference in the rights of the parties there is no tax." People, ex rel Attorney General v Welch's Estate, 235 Mich. 555, 566; 209 N.W. 930 (1926), quoting Gleason Otis on Inheritance Taxation (4th ed), p 876.
See, also, In re Chamberlin Estate, 109 Mich. App. 69, 74; 311 N.W.2d 149 (1981); In re Canon Estate, 11 Mich. App. 548, 552; 161 N.W.2d 768 (1968), and In re Estate of LeDuc, 5 Mich. App. 390, 393; 146 N.W.2d 711 (1966).
The taxable nature of a transfer is to be determined by the substance and practical effect of what was done, and not by the technicalities of the conveyance or contract. In re Brackett Estate, 342 Mich. 195, 206; 69 N.W.2d 164 (1955); In re Canon Estate, supra.
In this case it is true that appellee received rights of ownership incident to her interest as joint tenant at the time of the 1974 conveyance; however, decedent reserved a life estate and continued to exclusively possess the property until his death. It is apparent that decedent intended to, and did in fact, continue to exercise complete control over the property during his lifetime. The practical effect of the life estate was to postpone appellee's possession and enjoyment of the property until she became sole owner by virtue of decedent's death. We conclude that appellee came into "possession and enjoyment" of the property only upon the death of the decedent. Accordingly, the probate court erred in failing to include the value of the property in computing the amount of inheritance tax due under the statute.
Reversed and remanded.