Michigan Inheritance Tax
Estate Planning is the process in which a person plans for the transfer of their money and property after their death in the most efficient way possible. As a result, many people who are in the process of Estate Planning have questions about the Michigan Inheritance Tax. The Michigan Inheritance Tax is a tax on the right to receive property.
People who have had a loved one recently pass away are also curious about the Michigan Inheritance Tax because they are sometimes unsure whether or not they will have to pay taxes on their inheritance. This article will address frequently asked questions about taxes that may occur after a death in the State of Michigan.
Is There A Michigan Inheritance Tax?
The Michigan Inheritance Tax is still in effect even though the tax was eliminated in 1993. As a result, the Michigan Inheritance Tax is only applicable to people who inherited from a person who died on or before September 30, 1993. There are also certain situations with respect to “After Discovered Assets” where the Michigan Inheritance Tax may still be a problem.
What Does The Michigan Inheritance Tax Consider As An “After Discovered Asset”?
The Michigan Inheritance Tax considers something as an “After Discovered Asset” when an estate has been closed, but a new asset has been found that was not included in the original estate. If this situation applies to you, the Michigan Department of Treasury has instructions on what you should do in this situation.
When Does The Michigan Inheritance Tax Not Apply?
If you are the heir of an individual who died after September 30, 1993, and the estate only had property that was located in Michigan, you will not be subject to the Michigan Inheritance Tax. However, if the estate has property located in another state that has an inheritance tax, the heir may be subject to that state’s inheritance tax.
What States Still Have An Inheritance Tax?
Although there is no longer a Michigan Inheritance Tax, as of 2021 six states still have one: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If you are the heir of a loved one who is a Michigan resident that passed away while owning property in one of these 6 states, you might still have to pay an inheritance tax on that property based on the state’s laws.
What Is The Difference Between The Michigan Inheritance Tax And The Estate Tax?
The major difference between the Michigan Inheritance Tax and the Estate Tax is that the Estate Tax is a tax imposed on the estate itself, whereas the Inheritance Tax is a tax on the actual heir of the property.
Does Michigan Have An Estate Tax?
There is no longer a Michigan Inheritance Tax. Additionally, the State of Michigan does not have an Estate Tax either. However, there is a Federal Estate Tax that your estate may be subject to.
What Is The Federal Estate Tax?
The Estate Tax, commonly referred to as the “Death Tax”, is a tax on your right to transfer property at your death. Proper Estate Planning done prior to death can help you reduce both Estate Taxes and Inheritance Taxes if you own property in a state that still has Inheritance Tax.
What Is The Federal Estate Tax Rate?
Prior to 2018, the Federal Estate Tax Exemption was $5.49 million for individuals and $10.98 million for married couples. This means that any portion of an estate that was over the exemption rate was taxed at 40%.
In 2018, the Federal Estate Tax Exemption was increased under the Tax Cut and Jobs Act. The exemption rate almost doubled to $11.7 million for individuals and $23.4 million for married couples. The increased exemption is only in effect until January 1, 2026, unless Congress passes a new law.
The Federal Estate Tax changes rather frequently. In fact, the Biden Administration has proposed a rollback to 2009 amounts which would mean increased taxes.
What Happens If I Die Without A Will?
If you die without a Will in Michigan, your estate is considered intestate. This means that the Probate Court will decide who receives your money and property in accordance with the state’s intestacy laws.
Does A Last Will And Testament Avoid Probate Court?
No. In Michigan, a Will is a ticket to going through the Michigan Probate process. A Will is basically a letter to the Probate Court outlining who should receive your money and your property after you die and who should be responsible for distributing your money and property to your heirs. Probate has a number of drawbacks. First, it takes a long time. The process takes a minimum of 5 months, but it usually takes 9 months to a year for simple cases. Second, Probate is public. This means that everyone can see the value of your estate and who is entitled to what. This allows disgruntled family members and creditors to contest your Will. A contested Will makes the Probate process much longer and more expensive.
Can I Avoid Probate Court?
Yes. Probate is avoidable and Inheritance and Estate Taxes can be minimized with a proper Estate Plan. At Rochester Law Center, our experienced Estate Planning Attorneys can help you develop a custom Estate Plan tailored to your family’s unique needs. We can help you create a plan to pass your legacy to your family in the most efficient way possible while reducing taxes and avoiding Probate. Call us today at (248) 613-0007 to schedule a free initial consultation.
Summary of Michigan Inheritance Tax
While the Michigan Inheritance Tax no longer exists, you may be subject to the Michigan Inheritance Tax if you inherited an asset from an estate prior to 1993. Michigan does not have its own Estate Tax, however, your estate may be subject to Federal Estate Taxes depending on its size. The Federal Estate Tax changes frequently, so doing proper Estate Planning ahead of time can help you reduce your potential taxes in the future.
In addition to the Michigan Inheritance Tax and Federal Estate Tax, you should consider Probate avoidance when completing your Estate Plan. An experienced Estate Planning and Probate Lawyer can help you achieve your goals and create a comprehensive Estate Plan that will transfer your assets efficiently while reducing your exposure to potential taxes.
Michigan Inheritance Tax FAQs
Does Michigan have inheritance tax?
Yes — but only under very limited circumstances. The Michigan inheritance tax still applies only if the decedent died on or before September 30, 1993. For estates of persons who died after that date, Michigan does not impose an inheritance tax.
How much is inheritance tax in Michigan?
Because the Michigan inheritance tax is largely obsolete, there is normally no amount to pay for most heirs. It only applies to inheritances from persons who died on or before September 30, 1993. For heirs of later deaths, the tax does not apply.
What is the inheritance tax rate in Michigan?
For the small number of estates subject to it (deceased on or before September 30, 1993), the specific rate would depend on the class of heir and size of inheritance. However, since no new inheritances after that date are taxed under Michigan’s law, the rate is irrelevant for most current inheritances in Michigan.
Is there an inheritance tax in Michigan?
Generally no — if the person died after September 30, 1993 there is no Michigan inheritance tax. But yes — there is a Michigan inheritance tax only in the narrow case of someone who died on or before September 30, 1993, or when “after‑discovered assets” are involved from those older estates.
Will I need to pay Michigan inheritance tax if I inherit property located out of state?
If you inherit from someone who died after September 30, 1993 and the property is in Michigan, you are safe from Michigan inheritance tax. However, if the property is located in a state that does have an inheritance tax (for example Pennsylvania, Maryland, Nebraska, New Jersey, Kentucky or Iowa), you might owe tax under that state’s law.
What counts as an “after‑discovered asset” under Michigan’s inheritance tax?
An “after‑discovered asset” is one that was not included in the original estate under probate but is found later. If the decedent died on or before September 30, 1993 and an asset surfaces later, the Michigan Department of Treasury provides instructions for how the inheritance tax may apply.
Does Michigan have an estate tax instead of an inheritance tax?
No. Michigan does not currently have an estate tax either. That means for most Michigan estates (after September 30, 1993), neither an inheritance tax nor a state estate tax applies — though the federal estate tax might if the estate is large enough.
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