Learn how to reduce your income and estate tax, fast.
Get our tips on big-picture strategy and actionable tactics for startup equity, small businesses, crypto, real estate, and more.
JOIN 1,000+ FOUNDERS, EMPLOYEES, AND INVESTORS WHO TRUST VALUR
JOIN 1,000+ FOUNDERS, EMPLOYEES, AND INVESTORS WHO TRUST VALUR
The estate tax is a tax imposed when transferring a deceased person’s estate to heirs and affects the estate’s beneficiaries. The tax rate is based on the size of the estate and where the estate is based. So how does the estate tax work in Michigan, and what are its tax rates?
This article will dive into the Michigan estate tax, how it works, and more!
Before diving into the Michigan estate tax and its workings, let’s get into the estate tax basics.
The estate tax is a tax on the transfer of assets between generations, i.e., from parents to their heirs. It is generally imposed on the estate’s total value and any gifts made before the person passes away above a pre-determined exempt amount that varies by state. Starting in 2023, individuals can transfer up to $12.92 million, during life or at death, without triggering the federal estate-tax bill, up from the 2022 exemption amount of $12.06 million.
However, each state has its own state-specific estate tax rules. Some states may not impose an estate tax, while others have a high estate tax rate. Moreover, the tax rate varies depending on the value of the gifted assets; typically, the more assets you pass on, the higher the tax rate you will lose to the estate tax.
These taxes are intended to reduce the wealth concentrated in a single estate by increasing the taxes on inherited wealth. Still, they can be minimized or completely avoided through estate planning.
Currently, the estate tax in Michigan in 2023 is 0%. As a result, when passing assets on, you won’t owe Michigan estate taxes when passing assets on. Zero-estate taxes make Michigan attractive for wealthy individuals and those with large estates, as they can pass on their estates to their heirs without worrying about the government taking a significant portion of their wealth. However, if the estate’s value exceeds the federal tax exemption amount, then the estate is responsible for paying the remaining tax.
You are probably wondering how does the Federal Estate tax work for Michigan?
The Federal Estate Tax is a tax on assets transferred from a person who passed away to their heirs. It is paid by the dead person’s estate and is due nine months after death. Federal estate taxes range from 18% to 40%. This means that if you are giving away $1 million, over and above the federal estate tax exemption, you would owe $400,000 in federal estate taxes and only leave $600,000 behind for your beneficiaries. And that’s even before accounting for any state estate tax liability!
|Taxable Estate Above $12.92 Million||Base Taxes Paid||Marginal Rate|
|$12,920,000 – $12,930,000||$0||18%|
|$12,930,000 – $12,940,000||$1,800||20%|
|$12,940,000 – $12,960,000||$3,800||22%|
|$12,960,000 – $12,980,000||$8,200||24%|
|$12,980,000 – $13,000,000||$13,000||26%|
|$13,000,000 – $13,020,000||$18,200||28%|
|$13,020,000 – $13,070,000||$23,800||30%|
|$13,070,000 – $13,170,000||$38,800||32%|
|$13,170,000 – $13,420,000||$70,800||34%|
|$13,420,000 – $13,670,000||$155,800||37%|
|$13,670,000 – $13,920,000||$248,300||39%|
Each individual has a lifetime estate tax exemption — a gift tax exemption or the basic exclusion amount. This exemption is the value of assets you can give away, throughout your life and after your death, without being subject to the federal estate taxes described previously.
For 2023, this exemption is $12.92 million/per person. Because the exemption is per person, married couples can give away double that amount. In addition, as of 2023, you have an annual gift exclusion which allows you to give up to $17,000 per person/year that doesn’t count towards the gift tax exemption.
However, it’s essential to know the federal estate tax exemption level is scheduled to reduce by about 50% to $6.6 million when the Tax Cuts and Jobs Act sunsets in 2026, which is why it’s essential to get started with estate planning sooner rather than later.
So, how do all of these apply in the state of Michigan?
Let’s say your total taxable estate is $18 million. Critically you won’t owe any estate taxes in Colorado since there aren’t any Michigan estate taxes but you will owe Federal estate taxes as the federal gift exemption is $12.92 million. Just from the Federal estate tax you/your estate would owe ~$2,346,000!
Or in other words, your heirs would get $15,654,000 after the estate tax if you didn’t do any estate planning work. Fortunately, with some estate planning, you could avoid those Federal estate taxes entirely.
Michigan does not have a gift tax exemption limit since there’s no estate tax for this state. To clarify this, estate and gift taxes are usually viewed identically because they are subject to the same rate and share the lifetime exemption amount. However, the one key difference is that the estate tax applies to transfers of the decedent’s property at death, whereas the gift tax applies to transfers made during his or her life. As a result gifts of any size are allowed to be given from one individual to another without any Michigan gift taxes.
While residents won’t face a Michigan estate tax, they may still face the Federal estate tax. Fortunately, there are solutions that can help minimize or altogether avoid the federal estate tax.
The lack of estate tax in Michigan is a positive for those in the state looking to pass on their wealth to their loved ones. Without a state estate tax, only Michigan residents planning to pass on more than $12.92 million over their lives will still need to deal with Federal estate taxes without proper estate planning.
At Valur, we have built a platform to give everyone access to the tax and wealth-building tools of the ultra-rich like Mark Zuckerberg and Phil Knight. We make it simple and seamless for our customers to take advantage of these hard-to-access tax-advantaged structures so you can build your wealth more efficiently at less than half the cost of competitors. From picking the best strategy to taking care of all the setup and ongoing overhead, we make it easy and have helped create more than $500m in wealth for our customers.