Ann Breakey (“Petitioner”) appealed an order of the Department of Treasury which determined that she was not an “owner” of the property she inhabited for purposes of being granted a Principal Residence Exemption (“PRE”).

PRE exempts an individual’s principal residence from the tax levied by a local school district for operating purposes. A principal residence is the home that an individual (2) owns and (2) occupies as her permanent home. MCL 211.7cc(2).

The question presented to the Michigan Court of Appeals was whether Petitioner was an “owner” of a certain property under MCL 211.7dd(a) (the PRE), held in an irrevocable trust for her benefit after her husband’s death.

The property at issue was a residential property located in Bath, Michigan (“Bath Residence”).  Petitioner and her late husband, William Breakey, originally owned the Bath Residence as joint tenants. In 1994, the Petitioner’s husband created the “William E. Breakey Trust No. 1” (the “Trust”), a revocable trust. The couple then conveyed the Bath Residence by quit claim deed to the Trust. They continued to live in the Bath Residence until Mr. Breakey’s death.

The Trust created a Marital Trust to provide for the Petitioner upon Mr. Breakey’s death. The Marital Trust directs the Trustee of the Trust to permit Petitioner to “use any real estate held in the Marital Trust rent free” during her lifetime. Breakey v Department of Treasury, Docket No 339345, 2018 WL 2746431, *1 (Mich Ct App June 7 2018).

The Court applied the definition of “owner” as adopted in Flowers v Bedford Twp, 304 Mich App 661 (2014). The Court stated that an owner is one who has “the right to possess, control, and enjoy the property during the [petitioner]’s lifetime.” Breakey at *3 quoting Flowers, 304 Mich App at 665.

The Court held that Petitioner was an “owner” of the property because she “resides on the property, makes use of it as she sees fit, and has done so for many years.” Furthermore, the Court stated, “[a]lthough the Trust owns the [Bath Residence], it holds it for petitioner’s benefit.” Breakey at *3. The Department of Treasury’s own guidelines confirms that the Petitioner qualifies as an “owner” for the purposes of the PRE.[1]

Therefore, a beneficiary of a life estate or similar interest in real trust property may claim the PRE under Michigan law if he or she owns and occupies that property as defined above.

[1] Michigan Department of Treasury, Guidelines for the Michigan Principal Residence Exemption Program, P. 9, available at https://www.mighigan.gov/documents/taxes/2856_PRE_guidelines_607370_7.pdf