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.
Does Michigan Have an Estate or Inheritance Tax?
Some states impose what’s known as an estate tax. This is a tax on the estate before it is distributed to beneficiaries. This differs from an inheritance tax, which is a tax on the assets a beneficiary receives from an estate.
Michigan does not impose estate taxes or inheritance taxes. As such, the estate will not be subject to state taxation upon the passing of the owner, nor will your heirs have their inheritance taxed upon transfer from your estate to their ownership.
Despite the fact that Michigan itself does not impose an estate tax, larger estates may still be subject to a federal estate tax.
When Does the Federal Estate Tax Apply to an MI Estate?
The federal government will set what’s known as a federal estate tax exemption. If your estate falls below this amount, your estate will not be subject to the tax. This number will change on an annual basis to adjust for inflation.
As of 2025, the federal estate tax exemption is set at $13.99 million. For married couples, the exemption doubles to $27.98 million. Non-exempt estates are subject to a 40% tax by the federal government.
How Can Michigan Families Reduce or Avoid the Federal Estate Tax
For many families, the estate tax imposed by the federal government can be a source of stress. As such, it’s important to understand that there are ways to reduce or circumvent these taxes.
Utilizing Trust Funds
One of the most beneficial ways in which you can reduce or avoid state taxes is by establishing trust funds. These work by moving assets out of your estate and into the ownership of the trust, subsequently reducing the value of your estate. Though there are many different options that may suit your needs, the most common trust fund options include:
- Irrevocable trusts
- Revocable trusts
- Special Needs trusts
- Testamentary trusts
- Charitable trusts
Marital Deduction
Alternatively, you may opt to 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 that this method doesn’t completely eliminate estate taxes. When your spouse passes, the estate will be taxed. This method only delays taxation.
Lifetime Gifting
Over the course of your lifetime, you may reduce the value of your estate by gifting assets. However, you should note that there is a federal gift tax, which limits the value of assets you can gift. As of 2025, the annual gift tax is set at $19,000. This means you can gift up to this amount each year without penalty. After you exceed the annual limit, you will then contribute to your lifetime gift tax, which is the same amount as the current federal estate tax.
How Estate Planning Benefits Beyond Taxes
For many, estate planning can be an upsetting and difficult matter to think about. However, taking the time to ensure you properly plan your estate can provide peace of mind that your assets and beneficiaries will be cared for after your passing. A good estate plan:
- Appoints decision makers to avoid confusion
- Allows you to provide for your loved ones
- Can help simplify or avoid probate
- Reduces stress and familial conflict after your passing
Contact Our Estate Planning Lawyers Today
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.