When planning for life after your passing, you may want to do everything possible to support and care for your loved ones. However, when estate taxes are imposed on your assets, it can diminish how much your heirs will receive. As such, it’s essential to understand what these taxes are and what you can do to reduce them. If you’re ready to start planning your estate, you’ll want to keep reading to learn how a Washtenaw County estate planning attorney can help you navigate this complex process and reduce the tax penalties on your estate.
What Are Estate Taxes, and Does Michigan Impose Them?
For estates of a certain value, the federal government and some states will impose what’s known as an estate tax, though some refer to it as a death tax. Essentially, this means the transfer of your property upon your death will be taxed if it reaches a certain threshold.
Michigan is a state that does not impose estate taxes. As such, the estate will not be subject to state taxation upon the passing of the owner. Similarly, the state, like many others, does not have an inheritance tax. This means your heirs will not have their inheritance taxed upon transfer from your estate to their ownership.
As such, the only thing those who live in Michigan must worry about is the federal limit. As of 2023, only estates worth $12.92 million will be subject to this tax.
How Can I Reduce These Taxes?
If your estate reaches the federal threshold, there are steps you can take to circumvent the taxes you may encounter on your estate as a means to leave your heirs with the maximum amount of assets.
The first thing you can do is leave your entire estate to your spouse. If you make a marital transfer to your spouse upon your passing, you’ll find that your spouse will receive your estate in full. However, it is necessary to note this method doesn’t completely eliminate estate taxes. When your spouse passes, the estate will be taxed. This method only delays taxation.
Another method you can use to evade estate taxes is to create an irrevocable life insurance trust. This is ideal for estates close to the federal threshold but whose life insurance policy would put them over the limit. However, this can also be used to prevent the funds in the insurance trust from being taxed.
Unfortunately, estate planning can be confusing. As such, it’s in your best interest to enlist the assistance of an experienced law firm to help you navigate the complexities. At Collis, Griffor & Hendra, we are here to help. Our dedicated team will guide you through this process to provide peace of mind that your estate will be distributed according to your wishes. Contact us today to learn how we can assist you.