Michigan Estate Tax Considerations: What to Know
Estate taxes are a crucial consideration for individuals engaged in comprehensive estate planning. Some states and the federal government impose estate taxes, which can have a significant impact on the transfer of wealth to your heirs. In this article, the estate planning lawyers of Thompson Legal explore Michigan estate taxes, federal estate taxes, and the anticipated changes in 2026 due to sunset of the Tax Cuts and Jobs Act (TCJA).
Note that this post on estate taxes is not exhaustive, and every situation is unique. It is always advisable to speak with an attorney or tax professional before executing your estate planning documents. Contact Thompson Legal to schedule a discovery call with an estate planning attorney.
Michigan Estate Taxes
Michigan is one of the states that at one point had an estate tax, but has since phased it out. The Inheritance Tax is still in effect, but only for those individuals who inherited from a person who died on or before September 30, 1993. This repeal was a significant relief for many Michigan residents, as it simplified estate planning and eliminated potential tax liabilities for heirs.
Federal Estate Tax
The federal estate tax, on the other hand, is a tax imposed by the federal government on the transfer of an individual's estate upon their death. This tax applies to estates with a total taxable value exceeding the federal estate tax exemption threshold. Historically, the federal estate tax exemption has been subject to changes and adjustments. As of 2023, the exemption was set at $12.92 million per individual ($25.84 million for married couples).
Gift Taxes
The State of Michigan does not have a separate gift tax. There is a federal gift tax applicable, however, to all donative transfers. Individuals are able to gift up to $17,000.00 per person as of 2023 without incurring gift tax. Individuals also have a basic exclusion amount of lifetime gift tax exemption in 2023 of $12.92 million. According to the IRS, the BAE is set to sunset to $5million plus inflation.
The Tax Cuts and Jobs Act of 2017 and Anticipated Changes in 2026
The Tax Cuts and Jobs Act (TCJA), passed in 2017, significantly altered the estate tax landscape. It significantly increased the federal estate tax exemptions; However, these changes were temporary and set to expire in 2026. Starting in 2026, unless new legislation is enacted, the federal estate tax exemption is scheduled to revert to its pre-TCJA levels, adjusted for inflation.
This means that the exemption will decrease significantly, potentially impacting more estates. Parties should therefore consider proactive estate planning methods to protect wealth after the sunset. Estate planning strategies may include:
Gifting: Taking advantage of the increased exemption by making gifts during your lifetime can reduce the overall value of your taxable estate.
Trusts: Establishing trusts, such as bypass trusts or grantor retained annuity trusts (GRATs), can be effective tools to minimize estate tax exposure.
Life Insurance: Properly structured life insurance policies can provide liquidity to cover estate tax liabilities.
State Considerations: While Michigan no longer has an estate tax, other states may still impose their own estate taxes, so it's important to be aware of potential liabilities if you own property or assets in other states.
Conclusion
Estate taxes, both at the state and federal levels, can significantly impact your estate planning strategy. While Michigan residents no longer have to contend with a state estate tax, federal estate tax implications are subject to change in 2026. To effectively plan for your estate's future, consult with an experienced estate planning attorney who can help you navigate the complexities of taxation and implement strategies to protect your assets and provide for your heirs. Contact Thompson Legal to speak with a Michigan estate planning attorney to ensure your goals are met.
This blog is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with an estate planning attorney about your case Contact Us at (734) 743-1646 to schedule a consultation.
