The Family Cottage Can Keep Its 1990s Tax Bill Forever. One Well-Meaning LLC Cancels the Deal.
Right now, this week, half the cottages in Northern Michigan are full. Grandkids on the dock, too many coolers, somebody’s brother-in-law monopolizing the pontoon.
Here’s the question nobody asks between dinner and the bonfire: whose name is actually on the deed — and what happens to the tax bill when it changes?
Because in Michigan, that answer can be the difference between the next generation paying the same property taxes Grandma pays, or paying triple. And the difference often comes down to a single piece of paper filed at the county building.
Why Grandma Pays 1990s Taxes on a 2026 Lakefront
Quick refresher. Since Proposal A passed in 1994, your taxable value can only climb by the rate of inflation or 5% a year, whichever is less — no matter what the market does.
So a cottage the family bought decades ago is often taxed on a small fraction of what it would sell for today. The market value ran up the hill; the taxable value took the scenic route.
When the property transfers, the cap pops off and the taxable value resets to half of current market value. We wrote about what that does to a buyer’s bill in our uncap rule breakdown — short version, the number on the listing is not the number you’ll pay.
For a family cottage on the water, uncapping isn’t a rounding error. It’s the single biggest carrying cost change the property will ever see, and it can quietly decide whether the kids keep the place or sell it.
The List of Relatives Michigan Actually Approves Of
Here’s the part that surprises people: Michigan built an exit ramp. Transfer residential property to a close enough relative, keep using it as a cottage, and the taxable value doesn’t uncap at all.
The state’s list is specific. Your spouse, your mother or father, your brother or sister, your son or daughter (adopted kids included), your grandson or granddaughter — and the same relatives on your spouse’s side.
Notice who’s missing. Nieces and nephews aren’t on the list. Cousins aren’t on the list. The family friend who’s been coming up every July since 1998 is definitely not on the list.
Hand the cottage to your daughter and the cap survives. Hand it to your nephew and the township resets the taxable value like the place just sold to a stranger. Same family reunion, wildly different tax outcome.
The other requirement: the use can’t change. It has to stay residential — keep it a cottage, not a business.
The LLC Trap: Uncapping the Cottage While Trying to Save It
This is the one that stings, because it usually happens to families doing responsible planning.
Somebody reads an article about cottage succession, and the advice is to put the place in an LLC so the siblings can share it cleanly. Operating agreement, scheduled weeks, a plan for who pays the roof. All good ideas.
But that relative exemption applies to people, not companies. Deeding the cottage into an LLC is itself a transfer of ownership — and an LLC is nobody’s brother. Michigan courts have upheld uncapping on entity transfers even when the same family members are behind them.
We see versions of this every year in our market: a family engineers a beautiful governance structure for the cottage and accidentally triples the tax bill on the way in. The LLC solved the who-gets-August problem and created a five-figure February problem.
That doesn’t mean an LLC is always wrong — for some families the liability and management benefits are worth it. It means the tax cap is part of the math, and somebody should run that math before the deed gets signed, not after.
The Ladybird Deed Nobody Puts on a Refrigerator Magnet
There’s a quieter tool Michigan families use: the ladybird deed, officially an enhanced life estate deed.
You keep full control of the cottage for life — you can sell it, mortgage it, change your mind entirely. At death, it passes automatically to whoever you named, no probate involved.
And since 2014, Michigan law extends the no-uncapping treatment to transfers at death through wills and qualifying trusts, as long as the people receiving it are on that relative list and the use stays residential. Done right, the cottage passes to the kids with the tax cap intact and without a probate judge ever hearing about it.
This is where we tell you plainly: we’re realtors, not attorneys. An estate planning attorney who works in cottage country will earn their fee many times over here. Our job is telling you what the place is worth and what the tax math looks like — and pointing you to the people who draft the deeds.
The Airbnb Asterisk
One more wrinkle, because this is 2026 and every lakefront cottage has been eyeballed as a rental at least once.
The exemption requires that the property not be used for any commercial purpose after the transfer. “Commercial purpose” is exactly the phrase an assessor reaches for when a cottage is booked solid on Airbnb all summer.
If the family plan involves renting the place to cover the roof and the taxes, get professional advice on how that interacts with the exemption before you count on the cap. And if short-term rental income is part of your cottage math generally, our 2026 Northern Michigan STR guide covers the regulatory side by town.
What Doesn’t Carry Over (Even When You Do Everything Right)
Two fine-print items families miss.
First, the principal residence exemption doesn’t ride along. If Mom lived at the cottage full-time and the kids inherit it as a second home, roughly 18 extra mills of school operating tax apply — cap or no cap. The taxable value can stay low while the millage rate still jumps.
Second, every transfer needs a Property Transfer Affidavit filed with the local assessor within 45 days, and it’s that form where you claim the relative exemption. Skip it and you’re looking at daily penalties and an assessor who found out about the transfer on their own terms instead of yours.
The Deed-Check Dinner: Three Questions to Ask Before Labor Day
Boomers own roughly a third of the homes in America, and an enormous share of the cottages from Lake Leelanau to Elk Rapids are sitting exactly where this article is pointed. The largest transfer of property wealth in history is happening whether each family plans for it or not.
So while everybody’s up at the cottage this summer, ask three questions. One: whose name is on the deed today — a person, a trust, or an entity? Two: who is it supposed to go to, and are they actually on Michigan’s relative list? Three: has anyone run the tax number for the day it transfers?
Thirty minutes on those three questions, while everyone’s in the same room and in a good mood, beats a panicked phone call from the title company later. Working in this area for as long as Janel has, you learn the cottages that stay in families are almost never the most valuable ones — they’re the ones where somebody planned.
If you want to know what your family’s place is actually worth before that conversation — or you’ve decided the next chapter is selling it well — we’d love to help.
Taylor Brown, Realtor
Taylor@taylorbrownrealtor.com
