Michigan Estate Tax Basics

Michigan estate tax

The Michigan Estate Tax

There is only one thing you need to know about the Michigan estate tax. As of December 31, 2004, there is no death or estate tax for decedents (people who died), their heirs or their estates. Zero. Nothing. There are no Estate Tax Forms to be filed with the Michigan Department of Treasury.

If the decedent passed away prior to 2005, the estate tax is equal to the federal death tax credit. In 2004 for example, the federal estate value had to exceed $1,500,000. If the estate was greater than that amount, then anything over that credit would be taxed at 40%. But this was ten years ago and, while some probate estates are opened in Michigan years after a person passes away, it is the exception. For most people, there is no concern about Michigan estate or death taxes.

The Federal Death Tax

After much uncertainty, Congress stabilized the Federal Estate Tax, also known as the death tax. In 2013, the first $5,250,000 of the gross value of the estate is tax free. Anything over that amount is taxed at 40%. The exemption is adjusted annually. In 2014, it is $5,340,000.

Married people get to double the exemption and, if one spouse dies and doesn’t use all of his or her available exemption, the surviving spouse can claim the deceased spouse’s unused portion plus their full exemption. This is known as tax portability. There are still forms to file with the IRS and you should contact an experienced CPA or lawyer to help.

I hope you have so much money that this is a concern otherwise, don’t spend a lot of time worrying about paying estate taxes. For the vast majority of clients for whom I draft estate plans or for the estates I probate in Michigan, death taxes are not an issue.

Ready to talk? Give us a call at 313-291-0240.

Chris McAvoy is a  Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City,  Canton and the Downriver, Michigan area.

The Michigan Lady Bird Deed and Avoiding Probate

Ever hear of a Lady Bird Deed? It’s an odd name so chances are if you have, you remember it even if you aren’t exactly sure what it is or what it does. They are becoming a more popular estate planning technique in Michigan useful for transferring property to your heirs. When drafted properly, they simplify transfer of your real estate to your heirs upon death. While you can’t name a beneficiary to your house, this is as close as you can get.

How a Lady Bird Deed Works

A Lady Bird Deed, also known as an enhanced life estate deed, works like this. You transfer, by deed, a life estate in your house to yourself and identify benficiaries (legally known in real esate law as “remaindermen”) who will take the house upon your death. However, you are not locked in as you reserve the right to sell, lease, mortgage or change your mind.

Benefits of a Lady Bird Deed in Michigan

  • Lady Bird Deeds avoid probate. While probate isn’t as scary as most people think it is, probate will be avoided as the house will be automatically transferred to the named beneficiaries in the deed.
  • The property obtains the step-up in basis. Basically, the beneficiaries can sell the house on the death of the grantor and not pay taxes on the proceeds.
  • Not a transfer for gift taxes. Because the transfer is not complete until the death of the grantor, it is not a lifetime gift and not subject to gift taxes.
  • Not a Medicaid divestment. The Lady Bird Deed lets you keep your house as an exempt asset when you apply for medicaid assistance.
  • Does not uncap property taxes. Your property taxes will not be reassessed with this transfer. In fact, it isn’t even a reportable transfer to the city assessor.
  • Avoids Michigan Estate Recovery. Because this is a transfer outside of probate, a claim cannot be filed against the house for medicaid repayment.

Ready to talk? Contact us and set up an appointment. Give us a call at 313-291-0240.

Chris McAvoy is a  Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City,  Canton and the Downriver, Michigan area.