People often assume estate taxes are something everyone has to worry about. The reality in Michigan is a bit more reassuring, at least at the state level. Michigan repealed its state estate tax back in 1993, and there is no state inheritance tax either. Beneficiaries who receive assets from a Michigan estate generally don’t owe the state anything just for inheriting.
That’s good news. But it doesn’t mean estate tax planning is off the table entirely. Federal estate tax rules still apply, and those rules are changing in ways that could affect more Michigan families than you’d expect.
How the Federal Estate Tax Works Right Now
The federal estate tax only kicks in when a taxable estate exceeds a certain threshold. For 2025, the federal exemption sits at $13.99 million per individual, which means married couples can potentially shield close to $28 million from federal estate tax when proper planning is in place.
The IRS provides current federal estate tax thresholds and rate schedules that apply to estates of individuals who pass away in a given tax year. For most Michigan residents, this means federal estate tax isn’t an immediate concern. But that threshold isn’t permanent.
The 2026 Sunset Problem
This is where planning decisions get real. The current high exemption was created by the Tax Cuts and Jobs Act of 2017. Without new legislation, those provisions are scheduled to sunset at the end of 2025. When that happens, the exemption could drop to roughly half its current level, adjusted for inflation.
That means an estate that comfortably sits below the federal threshold today could find itself exposed to federal tax after the sunset. Nobody knows exactly what Congress will do, and that uncertainty is exactly why people shouldn’t wait to start planning. Assets and estate values that might be affected by a lower exemption include:
- Appreciated real estate, including investment and rental properties
- Business interests and ownership stakes in closely held companies
- Large retirement account balances and life insurance proceeds
- Investment portfolios that have grown significantly over time
- Combined assets held by high-net-worth married couples
If any of those categories apply to your situation, it’s worth reviewing your estate plan now rather than assuming the current rules will hold.
What This Means for Your Will and Broader Plan
A will is the foundation of any estate plan, but it doesn’t operate in isolation. The way assets are titled, how beneficiary designations are set up, and whether a trust is part of the picture all affect how much of your estate actually reaches your beneficiaries.
Wills control what passes through probate. But retirement accounts, life insurance, and jointly held property typically transfer outside the will entirely. If those assets push your estate over the federal threshold after a sunset, a will alone won’t address the tax exposure. A Troy will lawyer can help you look at how your assets are structured and whether your current plan accounts for potential changes in the federal exemption.
Planning Tools That Can Help
Depending on the size and structure of your estate, there are several planning strategies worth considering before the potential 2026 threshold reduction:
- Irrevocable trusts that remove assets from your taxable estate
- Annual gifting to reduce estate size while you’re alive
- Charitable giving strategies that benefit both your heirs and organizations you care about
- Spousal portability elections that allow a surviving spouse to use the deceased spouse’s unused exemption
- Family LLCs as a vehicle for transferring business interests with some valuation discounting
None of these strategies is one-size-fits-all. The right approach depends on your assets, family situation, and goals. What’s consistent is that the earlier you plan, the more flexibility you have.
Getting the Right Guidance Before the Rules Change
Michigan’s lack of a state estate tax is genuinely helpful, but it doesn’t eliminate the need for thoughtful planning. Federal exposure is real, the rules are in flux, and the decisions you make now will shape what your family inherits later.
Gudeman & Associates, P.C. works with Michigan residents on estate planning that accounts for both current rules and the ones on the horizon. If you want to review your existing plan or put one in place before the federal landscape shifts, reach out to a Troy will lawyer to talk through your options.
