Five Stories That Matter in Michigan This Week – January 5, 2024

  1. Reminder: Michigan LLCs Must File Annual Report by February 15

With the new year upon us, we want to remind you that limited liability companies formed with the Michigan Department of Licensing and Regulatory Affairs must file their annual report (called an Annual Statement) by February 15.

Why it Matters: LLCs that fail to file are subject to fines. More importantly, failure to file an annual report after two consecutive years results in an LLC falling out of good standing with the state of Michigan, which may lead to the dissolution of the entity. Contact a Fraser Trebilcock lawyer if you require help with corporate filing and reporting requirements.

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  1. Michigan Minimum Wage Increased After New Year

Now that we’re into calendar year 2024, Michigan’s minimum wage has increased per the Improved Workforce Opportunity Wage Act of 2018 which establishes the annual schedule of increases. The minimum hourly wage increased to $10.33 per hour; the 85% rate for minors aged 16 and 17 increased to $8.78 per hour; the tipped employee rate of hourly pay increased to $3.93 per hour; and the training wage of $4.25 per hour for newly hired employees ages 16 to 19 for their first 90 days of employment remains unchanged.

Why it Matters: It’s important to be aware of new laws, and changes to existing laws, that have taken effect as of January 1, 2024. Contact us with any questions.

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  1. Fraser Trebilcock Announces Department Chairs for 2024

Fraser Trebilcock announces new Department Chairs for 2024: Sean P. GallagherAdministrative LawRobert D. Burgee and Paul V. McCordBusiness & TaxRobert D. BurgeeEmployee Benefits: Welfare/HealthDavid J. HoustonLabor, Employment, and Civil RightsMichael P. DonnellyLitigationJared A. RobertsReal Estate; and Marlaine C. Teahan and Mark E. KelloggTrusts and Estates.

Why it Matters: A new year brings a renewed commitment to leadership within our firm. When it matters in Michigan, we are the trusted advisor for businesses and individuals requiring planning and consulting services, or facing legal and regulatory challenges, and our capabilities extend to wherever clients require counsel. Read more.

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  1. Reminder: Prevailing Wage Act Being Reinstated in Michigan in 2024

It’s important for businesses to be aware of laws that will take effect in 2024. One is the reinstatement of Michigan’s Prevailing Wage Act (the “Act”), which will require contractors and subcontractors in Michigan to pay the prevailing wage and benefit rates to employees working on most state funded construction projects.

Why it Matters: A prevailing wage law was in effect in Michigan from 1965 until 2018 when the law was repealed. On March 24, 2023, Governor Whitmer signed the Act into law. It will take effect in March of 2024.

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  1. How do you Defend an Amazon Neutral Patent Evaluation?

Amazon’s Neutral Patent Infringement Program (NPE) is Amazon’s version of a quasi-judicial court to resolve patent infringement disputes between sellers. It is akin to an arbitration or mediation overseen by an experienced and vetted patent practitioner. NPE is not a court of law, so any of the rulings are not prejudicial on any platform or marketplace other than Amazon.com. However, it aims to provide a more cost-effective method to resolve patent disputes between sellers.

Why it Matters: The program is initiated once a patent holder submits a complaint to Amazon through Amazon’s seller portal. The accused product is immediately removed from its Amazon listing and the accused infringer is notified. The accused infringer then may negotiate a settlement directly with the rights holder or agree to participate in the NPE program. Learn more from your Fraser Trebilcock attorney.

Related Practice Groups and Professionals 

Business & Tax | Robert Burgee
Labor, Employment & Civil Rights | David Houston
Intellectual Property | Andrew Martin

Five Stories that Matter in Michigan This Week – October 7, 2022

  1. Michigan Legislature Allocates $846 Million for Economic Development Projects

Michigan legislators recently approved $846.1 million to support economic developments projects in the state. The funding will be administered through the state’s Strategic Outreach and Attraction Reserve (SOAR) fund.

Why it Matters: As the economy slows, these funds will inject a needed boost for business and entrepreneurship in Michigan. In 2021, $1 billion in SOAR funds were distributed to aid corporations planning major projects.

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  1. Lawsuit Emerges as City of Detroit’s Adult-Use Marijuana Ordinance is Challenged Again

A new lawsuit challenging the City of Detroit’s adult-use marijuana ordinance was filed recently in the U.S. District Court for the Eastern District of Michigan alleging that the revised ordinance the Detroit City Council passed still has the same issues as the original ordinance that led to multiple lawsuits.

Why it Matters: In August, a judge threw out two lawsuits that claimed the revised ordinance gave an unfair advantage to certain residents and that the new law would signal the end for existing medical marijuana facilities already in the area. Fraser Trebilcock cannabis attorneys will continue to monitor the situation for updates.

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  1. New Legislation Will Allow Preprocessing of Absentee Ballots

A package of bills recently passed by the Michigan legislature with bipartisan support would allow local clerks two days to preprocess absentee ballots prior to election day. Additionally, enhanced security measures will go into effect, such as routinely removing deceased voters from the Qualified Voter File, and requiring a chain of custody logs for ballots placed in drop boxes. The recent changes are effective now, leading up to the November election.

Why it Matters: The legislation before us would remove the sunset to allow clerks to again use this tool to efficiently and securely process absentee ballots,” said Senate Elections Chair Committee Chair Ruth Johnson.

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  1. New Scholarship Program Aimed at Helping Michigan’s Middle Class

The new Michigan Achievement Scholarship program will help Michigan families reduce the costs of attending various post-high school education programs. Public university students who are selected will receive up to $5,500 a year for five years, independent university students will be able to get up to $4,000 a year for five years, private trade school students $2,000 a year for two years and community college students $2,750 a year for up to three years.

Why it Matters: The Michigan Achievement Scholarship program is projected to double the number of the recipients who receive financial aid through the state’s various programs. And the new program seeks to reduce or eliminate the need for student loans for families across the state.

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  1. Importance of Signing an Operating Agreement for Your LLC

It happens more often than individuals think and something small businesses should heed is the need to adopt an operating agreement at the start of your LLC. It may seem like an unnecessary step when you are starting out but waiting until the time is right or until you get big enough can often lead to forgetting about it completely.

Why it Matters: Failure to sign an operating agreement for your LLC may lead to issues for your small business that would otherwise be avoided. Learn more from a Fraser Trebilcock attorney on this topic.

Related Practice Groups and Professionals

Business & Tax | Klint Kesto
Cannabis Law | Sean Gallagher
Election Law | Garett Koger

Five Stories that Matter in Michigan This Week – September 23, 2022

  1. CRA’s Fines Eight Cannabis Businesses Over Late Financial Reports

The Cannabis Regulatory Agency recently published their monthly disciplinary reports and eight cannabis businesses across the state have been fined for failing to submit annual financial reports by the required deadline.

Why it Matters: What comes with the territory of operating a business in a highly regulated arena, business owners both medical and recreational will need to be aware of deadlines for required financial reporting of their cannabis business operations.

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  1. Majority of Legislators Could Run Again If Prop 1 Passes

A new analysis from the Citizens Research Council says that a majority of legislators, 89% of the 737 Michigan legislators, could run again for a seat if the Prop 1 (term limits and financial disclosures) ballot proposal passes.

Why it Matters: If this ballot proposal passes, the majority of past legislators have the option of running again for a legislative seat. Fraser Trebilcock election law attorneys will continue to follow and update news surrounding this ballot proposal.

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  1. Importance of Signing an Operating Agreement for Your LLC

It happens more often than individuals think and something small businesses should heed is the need to adopt an operating agreement at the start of your LLC. It may seem like an unnecessary step when you’re starting out but waiting until the time is right or until you get big enough, can often lead to forgetting about it completely.

Why it Matters: Failure to sign an operating agreement for your LLC may lead to issues for your small business that would otherwise be avoided. Learn more from a Fraser Trebilcock attorney on this topic.

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  1. Whitmer Names New Head of Cannabis Regulatory Agency

Brian Hanna, formerly an analyst in the Lansing Computer Crimes unit at the Michigan State Police, and deputy for the Kalamazoo County Sheriff’s Office, was tapped by Governor Whitmer to lead Michigan’s Cannabis Regulatory Agency (“CRA”). Immediately prior to his interim appointment, which took effect September 19, Hanna was the CRA’s manager of field operations, inspections and investigations.

Why it Matters:  Hanna replaces former CRA executive director Andrew Brisbo, who will now lead the state’s Bureau of Construction Codes. In a statement, Hanna said “I look forward to reconnecting with stakeholders to ensure we have a clear and concise regulatory framework for oversight of this industry to promote continued growth in Michigan.”

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  1. Will Electric Vehicle Incentives Under Inflation Reduction Act Actually Hurt Sales?

The Inflation Reduction Act includes billions in incentives for electric vehicle adoption, including $7,500 tax credits for EV purchases. However, many automotive manufacturers are not happy with the rules the bill imposes for vehicles to qualify for the credits.

Why it Matters: The opposition argue that the manufacturing, sourcing, and pricing rules, which require significant domestic sourcing of raw materials and manufacturing, are too aggressive and could result in most EV’s not qualifying for the federal incentives – therefore stifling sales for many manufacturers.


Related Practice Groups and Professionals

Energy, Utilities & Telecommunication | Michael Ashton

Business & TaxRobert Burgee

Cannabis Law | Sean Gallagher

Election LawGarett Koger

Importance of Signing an Operating Agreement for Your LLC

So, you and your little sister, Rachel, finally started that mitten-shaped decorative soap business you’ve always talked about – Nice! And your friend’s brother’s buddy helped you file for an LLC through the State of Michigan’s website and sent you the link to obtain an EIN from the IRS because the banks said you needed it to open a checking account. That’s it then, you’re all set and ready for the farmer’s market next weekend, right? Nope. You forgot to agree on the rules for running your business, the rules for how you and your sister will make the “big” decisions for your new company. We call these Operating Agreements and they are an important part of any small business – even if it’s just one person. There is nothing worse than having to stop the fun to argue about the rules in the middle of the game because no one can agree – no Rachel, landing on free parking does NOT mean you get all the money paid for the properties.

Let’s look at a few scenarios of how the life of your business can go awry without a one.

Scenario 1: You and Rachel start the business together and agree to split the business 80/20 since you put in all of the startup funding, make all of the soaps, and spend every weekend selling them at farmers markets from Port Huron to Petoskey, and all she did was set up the website – seems like a fair split. After a few months, things are going well and you decide to hire Rachel’s boyfriend, Ray, to expand your sales capacity and sell the soaps at more shows. Unfortunately, you quickly realize that Ray isn’t up to the task and he’s losing more soap than he’s selling – no biggy, you can just fire Ray (even though Rachel says Ray isn’t going anywhere); after all you own 80% of the business. Not so fast; because you and Rachel never signed an operating agreement that says that decisions would be made on the basis of ownership shares, you have to make decisions according to the Michigan Limited Liability Company Act (the Act) which says that each owner (the Act calls them Members) of the company gets one vote. So what now…the status quo wins and Ray stays.

Scenario 2: Rachel started a new company a few months ago and asks you to join. She did the usual start-up procedures like file the Articles of Organization to start the LLC and opened a checking account, but it was just her, so she didn’t think she needed an operating agreement. You both agree that the business is worth about $20,000 dollars, so you pay her that $10,000 you were saving to buy a new car. A few years go by and you and Rachel are happily employed by the company, pulling great benefits and a decent salary, and because you and Rachel work so well together, you even get a few thousand dollars in distributions every year. Unfortunately, Rachel decides to run off with Raul and sells out to her pal Rusty. After a week or two, Rusty tells you he appreciates you, but your services are no longer needed and terminates your employment. “Wait, what!?! We’re 50/50!” you say. Not quite, sorry. There was no operating agreement, remember? And you bought your share from Rachel. Rusty has talked to a lawyer and figured out that you are merely an assignee of 50% of Rachel’s interest in the company, you were never admitted as a member. So long great benefits and decent salary; oh and by the way, Rusty has no idea what he’s doing so those distributions are gone, too.

These two scenarios illustrate the pitfalls of small businesses failing to adopt an operating agreement for their LLCs. It may seem like an unnecessary step when you’re starting out, but waiting until the time is right or until you get big enough, can often lead to forgetting about it completely. If you are starting a business, or have started a business and you’re unsure about whether it is properly structured, you should make sure that you consult with an attorney who can help you write the rule book for your business and ensure that everyone is playing the same game.

This is a brief summary and does not constitute legal advice. If you have any questions, please contact Robert D. Burgee or your Fraser Trebilcock attorney.


Robert D. Burgee is an attorney at Fraser Trebilcock with over a decade of experience counseling clients with a focus on corporate structures and compliance, licensing, contracts, regulatory compliance, mergers and acquisitions, and a host of other matters related to the operation of small and medium-sized businesses and non-profits. You can reach him at 517.377.0848 or at bburgee@fraserlawfirm.com.

Five Stories that Matter in Michigan This Week – August 5, 2022

  1. August 2 Michigan Primary Election Results

The outcome of the August 2 Republican primary for Governor saw candidate Tudor Dixon prevail. In the November general election, she will face incumbent Governor Gretchen Whitmer who ran unopposed. In the newly drawn 3rd congressional district, Republican John Gibbs defeated incumbent Peter Meijer.

Why it Matters: As November and the general election gets closer, stay tuned for more insights as Fraser Trebilcock’s election law team will be closely monitoring the action.

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  1. MEDC to Make $237 Million Available to Help Michigan Small Businesses

The Michigan Economic Development Corporation announced that Michigan has been approved for up to $237 million in State Small Business Credit Initiative (SSBCI) funding from the U.S. Department of Treasury.

Why it Matters: Small businesses impacted by the COVID-19 pandemic can apply for funds through private lenders and the MEDC would back the loans through the SSBCI program. Learn more on the topic here.

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  1. Ballot Initiative Aims to Increase Minimum Wage Targets 2024 Ballot

The Raise the Wage MI ballot initiative proposal aims to raise Michigan’s hourly minimum wage to $15 over the course of five years. The organizers behind the ballot initiative are reported to have secured more than 610,000 signatures and delivered them to Michigan officials last week.

Why it Matters: The issuance of a stay until February 19, 2023 follows the ruling by the Michigan Court of Claims stating that the state legislature’s adoption and alteration of a 2018 ballot initiative that would have raised minimum wage to $12 by 2022 was unconstitutional. This ruling has been appealed, but even if it gets overturned, Michigan may still see an increase to minimum wage if the Raise the Wage MI initiative is passed.

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  1. New Law Allows Non-Profit Corporation to be a Member of Limited Liability Company

Senate Bill 926 was recently signed into law by Governor Whitmer, which changes the definition of a person in the limited liability company act, allowing nonprofit corporations to be members of limited liability companies (“LLC”).

Why it Matters: Michigan now joins other states that allow nonprofits to create LLCs that do not involve any financial gain or profit to perform certain functions while still maintaining their nonprofit status.

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  1. Michigan Senate Judiciary Committee Approves Texting While Driving Bills

The Michigan Senate Judiciary Committee approved a package of bills expanding the scope of Michigan’s texting while driving laws, which would make requirements more stringent and penalties for violations more costly. The bills explicitly address social media use and live streaming.

Why it Matters: Distracted driving is dangerous. In 2020, according to the National Highway Traffic Safety Association, 3,142 people were killed in motor vehicle crashes involving distracted drivers. Distracted driving is also costly for drivers, as those who violate distracted driving laws tend to see their insurance rates shoot up.


Related Practice Groups and Professionals

Election Law | Garett Koger

Business & Tax | Robert D. Burgee

Business & Tax | Ed Castellani

Insurance Defense | Emily Vanderlaan

Five Stories that Matter in Michigan This Week – July 22, 2022

  1. COVID, Force Majeure, and Frustration of Purpose

Courts have rejected COVID-related force majeure and frustration of purpose arguments on the reasoning that the pandemic and its effects were foreseeable. Now in its third year, disruptions related to the pandemic are no longer unforeseeable and businesses should take note.

Why it Matters: COVID-related frustration of purpose and force majeure are not cure-alls, and courts will not take these arguments at face value. However, with the right facts, frustration of purpose or force majeure arguments can be successful. Businesses should take positive steps to ensure that their interests are protected if/when COVID comes knocking again.

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  1. Proposed Short-Term Rental Legislation Remains Stuck in Michigan House

Local communities will be limited in their ability to regulate short-term housing rentals if a bill passed by the Michigan House of Representatives, House Bill 4722 (“HB 4722”), becomes law. However, the bill remains on hold in the Michigan House, as powerful interest groups—local governments and Michigan realtors, in particular—remain at odds over the bill.

Why it Matters: The bill restricts local communities from adopting or enforcing zoning ordinance provisions that have the effect of prohibiting short-term rentals. On the one hand, local governments argue that the bill would undermine local control over zoning. On the other hand, realtors argue that the bill would dampen the real estate market. A lot is at stake, as Michigan homeownersreportedly made more than $250 million from Airbnb rentals alone in 2021.

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  1. Decreased Costs Trending for Medical Marijuana Licenses

Last month the Cannabis Regulatory Agency (CRA) announced that medical marijuana facilities that need to renew their license or obtain a new license will pay less in fees for the upcoming fiscal year. Fees for each class and type of business have been reduced, a trend that started last year when the CRA reduced fees for this current fiscal year.

Why it Matters: As the number of medical licensees in the state continue to grow, associated costs of getting a new license or renewing are decreasing. If you have any questions or seeking to acquire a medical marijuana license, contact our cannabis attorneys.

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  1. New Law Allows Non-Profit Corporation to be a Member of Limited Liability Company

Senate Bill 926 was recently signed into law by Governor Whitmer, which changes the definition of a person in the limited liability company act, allowing nonprofit corporations to be members of limited liability companies (“LLC”).

Why it Matters:  Michigan now joins other states that allow nonprofits to create LLCs that do not involve any financial gain or profit to perform certain functions while still maintaining their nonprofit status.

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  1. Paid Sick Leave and Minimum Wage Laws Up in Air

Following the ruling by the Michigan Court of Claims recently, the “adopt and amend” strategy taken on by Michigan’s legislature in 2018 to find a compromise for two ballot initiatives which would have increased the minimum wage and enacted a paid sick leave law, was deemed unconstitutional.

Why it Matters: It is anticipated that the Michigan legislature will appeal the decision and request a stay. If the decision is not reversed, then changes will go into effect immediately. The state’s minimum wage will increase to $12 an hour, tipped employees will receive an increase, and nearly every size and type of business will receive 72 hours per year of paid sick time leave.


Related Practice Groups and Professionals

Litigation | Matthew Meyerhuber

Real Estate | Jared Roberts

Cannabis | Klint Kesto

Business & Tax | Ed Castellani

Labor, Employment & Civil Rights | Aaron Davis

The Ins and Outs of Cottage Succession Planning in Michigan (Part Two)

This is part two of a two-part blog post series on cottage succession planning in Michigan.

As summer winds down, the second-home market continues to heat up in Michigan. One of the issues many second-home owners face is determining the best way to keep a family cottage in the family for generations to come. In this series on cottage planning in Michigan, we are addressing that very issue.

In part one, we discussed the reasons why a cottage owner may want to develop a cottage plan (including Michigan’s complicated real estate tax framework). This article deals with the mechanics of cottage succession planning in Michigan—specifically, utilizing a limited liability company or trust structure to allow a cottage to be used and enjoyed by future generations in an organized way that helps reduce the risk of family disputes, thereby increasing the likelihood that the cottage will be part of the family for years to come.

What is a Cottage Plan?

A cottage plan is an agreement that describes how a cottage will be shared, managed and passed on to future generations of family members. Cottage plans typically cover a range of issues that can impede the succession of a cottage if left unaddressed, including:

  • Who should own the cottage?
  • Who should manage it?
  • Who should pay for it?
  • What if an owner wants/needs out?
  • Who gets to use it?
  • How should use be scheduled?

By working through these issues in a cottage plan, an owner (or “founder” in cottage-planning lingo) can achieve various goals that are commonly shared by those who desire to keep the cottage in the family. Those goals include:

  • Keeping the cottage in the family for future generations so that it can continue to serve as a gathering place for extended family
  • Giving children equal shares of the cottage (while avoiding “trapping” an inheritance in the cottage)
  • Keeping interests in the cottage out of hands of in-laws and creditors
  • Reinforcing family interests versus any one individual’s interests

An effective cottage plan can and should also address the objectives of the family members (or “heirs”) who will enjoy the cottage beyond the owner’s lifetime. Such objectives include:

  • Protecting the cottage from a divorce
  • Developing decision-making structures and control mechanisms
  • Developing consequences for failure to abide by rules—financial and behavioral
  • Developing a fair, flexible scheduling system
  • Provide an exit strategy where desired or necessary by providing the ability to sell interests back to family

Cottage Planning Solutions

Most husbands and wives who own a cottage hold title as joint tenants with rights of survivorship, which means that title to the property automatically passes to the survivor on the death of the first co-owner regardless of any provision in a will or trust. Upon the death of the survivor, and in the absence of a cottage plan, the cottage will pass to heirs as tenants in common.

A tenancy in common can be problematic for a number of reasons, including:

  • Each tenant in common (“TIC”) has a right to partition
  • Each TIC may use the cottage at any time
  • A TIC may transfer his interest to any person at any time – including his/her spouse.
  • A TIC does not owe rent to the other owners for using the cottage.

A better approach, which helps avoid the issues that often arise when heirs are tenants in common, is to have title to the cottage held either by a limited liability company (“LLC”) or a trust. Under an LLC structure, a management committee, which serves a function similar to a board of directors, is formed to manage the cottage’s affairs. With a trust, co-trustees are appointed to make decisions. In either case, if the family and entity is structured by branches, it is advisable to have one representative from each branch of the family involved in decision making.

Through the cottage planning process, the founders decide who may be a “member” (under an LLC) or beneficiary (under a trust). Virtually all cottage plans restrict participation to lineal descendants of founders, which ensures the cottage remains in the family—in other words, preventing in-laws from becoming members or beneficiaries.

One of the primary advantages of having a cottage plan utilizing an LLC or trust structure is that it provides a mechanism for transferring membership or beneficial ownership interests. Plans typically include a “put option” which requires the LLC or trust to purchase the interests of members or beneficiaries who want to sell their stake, and a “call option” that allows for the forced buy-out of difficult members or beneficiaries. Valuation and payment term guidelines for purchases are defined in the plan. This provides a predetermined exist strategy for those who do not wish to participate in the cottage or those who do not or are unable to contribute their fair share to cottage costs and expenses. The predetermined terms established for the buy-out provisions offer the opportunity for a graceful exit.

Plans also address issues related to expenses, such as taxes and maintenance, for the cottage. Expenses are typically allocated according to a predetermined sharing ratio among the members and beneficiaries. Often, an annual budget is prepared and an annual assessment is determined at the beginning of each year or season. Failure to pay expenses can be dealt with through an escalating series of sanctions, from the imposition of late fees and interest all the way to the forced buy-out of the delinquent member or beneficiary.

In many instances, founders choose to offset the ongoing expenses of a cottage by establishing an endowment, which is a dedicated sum of money for a specific use. For example, a $500,000 endowment invested at a five percent rate of return will create a pre-tax return of $25,000 per year, which is a sum sufficient to operate many cottages. The endowment may be held and managed by a bank trustee or by the LLC. If a cottage is sold, the endowment distributes to the founder’s descendants. One way to fund the endowment is to purchase a “second-to-die” life insurance policy.

Finally, a cottage plan typically addresses issues related to the use of the cottage—that is, who can use the cottage at any given time. Two common approaches include a “rooming house” structure in which any member or beneficiary can use it any time, and a “time share” structure in which members and beneficiaries are allocated specific time slots for use.

Take Action to Create a Cottage Plan

There are significant advantages to having a cottage plan that utilizes an LLC or trust structure. There is no single option that is best for all families, so it’s important to consult with an experienced cottage law attorney to determine what option is right for you. With a bit of planning, you can help ensure that your cottage will be a source of enjoyment for your family for generations to come.

If you have any questions about planning issues for your cottage in Michigan, please contact Fraser Trebilcock shareholder Mark Kellogg.


We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.


Fraser Trebilcock attorney Mark E. Kellogg is a certified public accountant, and has devoted over 30 years of practice to the needs of family and closely-held businesses and enterprises, business succession, commercial lending, and estate planning. You can reach him at 517.377.0890 or mkellogg@fraserlawfirm.com.

The Ins and Outs of Cottage Succession Planning in Michigan (Part One)

This is part one of a two-part blog post series on cottage succession planning in Michigan. You can view part two here.

The family cottage is a place for fun and relaxation in Michigan. It’s where different generations gather and form lifelong memories. When purchasing a cottage, it’s often the intent of the owner to pass the cottage on to future generations to enjoy. Unfortunately, that vision may not become a reality due to challenges such as high property taxes, differing objectives among heirs and resulting family disputes that result in the cottage being sold upon the owner’s death. Common issues that prevent the passing of a cottage to future generations in Michigan can be addressed through careful cottage succession planning.

Michigan is a Market for Second Homes

When the COVID-19 crisis hit, many predicted calamitous economic consequences. With record-high unemployment and a plunge in gross domestic product, there has been a severe plunge in economic activity across the United States. However, few anticipated that a mere four months after the pandemic took hold in Michigan and across the country, we would see record home sales driven by low mortgage rates and flight from dense urban areas.

In 2020, the Wall Street Journal reported that in New York City the luxury real-estate market has been delivered a “stunning gut-punch” due to the COVID-19 crisis. Meanwhile, the Detroit Free Press reported that Michigan’s “Up North” cottage market has “become a red-hot market this summer, and not just despite COVID-19, but perhaps because of it,” with sale prices up as much as 10% from a year ago in some areas.

With plentiful access to fresh water and beautiful natural landscapes, Michigan has always been a desirable place to own a cottage. In fact, the National Association of Home Builders estimates that 50 percent of second homes in the United States are located in eight states, with Michigan being one of them.

With so many second homes in Michigan, it’s natural that there is a great deal of interest among homeowners in succession planning issues that allow second-home cottages to remain within their families for generations to come. The goal of cottage succession planning is to set up legal ground rules that provide the best chance to keep a cottage in the family and prevent intra-family squabbles that may arise in the absence of a plan.

Reasons to Develop a Cottage Succession Plan

There are a number of reasons why a cottage owner may want to develop a cottage plan, which usually addresses concerns about successorship through the creative use of a limited liability company (LLC) or a trust tailored specifically for ownership of the cottage property. Here are ten common reasons why a cottage plan may be advisable.

  1. Prevent a joint owner from forcing the sale of the cottage through an action for partition
  2. An alternative to allowing common law rules to dictate how the cottage operates
  3. Prevent transfer of an interest in the cottage outside the family
  4. Protect owners from creditor claims
  5. Establish a framework for making decisions affecting the cottage
  6. Provide sanctions for nonpayment of cottage expenses
  7. A vehicle for an “endowment” (money set aside to fund cottage expenses)
  8. To require mediation or arbitration of family disputes
  9. Allocate control of the cottage between or among generations of owners
  10. May help delay (or avoid) the uncapping of Michigan property taxes

Michigan Real Estate Taxes

Cottage succession planning in Michigan has unique aspects due to its complicated real estate tax framework. Pursuant to Proposal A, a 1994 amendment to the Michigan Constitution, a property’s annual assessment increase is “capped” and cannot exceed the lesser of five percent or the rate of inflation during the preceding year. However, when ownership of property is “transferred” to a new owner, the property value is “uncapped” for purposes of calculating property taxes, and the value is adjusted to the current fair market value.

Prior to Proposal A, it was common for cottage planning to involve the use of a limited liability company (“LLC”) to enable successive generations to use and manage a family cottage. But the Michigan legislature, in revising real property tax laws to address Proposal A, did not include LLCs as a means of “transfer” that would prevent the uncapping of property taxes.

Pursuant to Michigan Compiled Laws, Section 211.27(a), transfers of ownership do not include (and therefore do not give rise to uncapping) the following:

  • Transfers to a spouse or jointly with a spouse
  • Transfers to a “qualified family member”
  • Transfers subject to a life lease retained by grantor.
  • Transfers to a trust if the settlor, settlor’s spouse or a “qualified family member” is the present beneficiary of the trust
  • Transfers from a trust, including a beneficial interest in a trust, to a “qualified family member”
  • Transfers from an estate to a “qualified family member”

A “qualified family member” includes:

  • Transferor
  • Spouse of the transferor
  • Transferor’s or transferor’s spouse’s:
    • Mother or father
    • Brother or sister
    • Son or daughter, including adopted children
    • Grandson or granddaughter

The Trust Approach to Cottage Succession Planning

Although the manager and member structure and the limited liability protection afforded LLCs make them the ideal entity to be used for cottage succession planning, in Michigan, the favorable treatment associated with trusts as a means to prevent the uncapping of real estate taxes upon transfer of a cottage to the next generation, have resulted in trusts being the entity of choice in Michigan. Part two of this series will discuss in further detail the aspects of using a trust in cottage succession planning in Michigan allowing the cottage to be used and enjoyed by future generations in an organized way that helps reduce the risk of family disputes and accordingly increases the likelihood that the cottage will be part of the family for generations to come.

Stay tuned for part two in this series in cottage succession planning. In the interim, if you have any questions about planning issues for your cottage in Michigan, please contact Fraser Trebilcock shareholder Mark Kellogg.


We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.


Fraser Trebilcock attorney Mark E. Kellogg is a certified public accountant, and has devoted over 30 years of practice to the needs of family and closely-held businesses and enterprises, business succession, commercial lending, and estate planning. You can reach him at 517.377.0890 or mkellogg@fraserlawfirm.com.

Type of Business Entity: Corporation versus LLC

As a business and tax attorney I am frequently asked by clients whether a corporation or an LLC is a better entity for their new business. My response is that each entity has certain advantages and a review of the intended use for the new business and the goals of the owners/investors must be made before that question can be definitively answered.

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