Michigan does not have a state estate tax

Michigan abolished its estate tax in 2008, and the state has not reinstated it since. This means that when someone dies in Michigan, their heirs do not owe Michigan state taxes on the inheritance itself. The federal government still collects an estate tax on very large estates, but Michigan residents do not pay an additional state-level tax on top of that.

This is different from an inheritance tax, which some states charge to the people who receive money or property. Michigan has neither an estate tax nor an inheritance tax. If you live in Michigan and are inheriting property or money, you will not owe Michigan taxes on that inheritance.

Key Takeaways

  • Michigan eliminated its state estate tax in 2008 and has not brought it back.
  • The federal estate tax still applies to very large estates, regardless of where the person lived, but most Michigan residents will not owe it.
  • Michigan also does not have an inheritance tax, so heirs pay no state tax on what they receive.
  • If you own property in another state, that state's estate or inheritance tax may still explore to that property.

How the federal estate tax works for Michigan residents

Even though Michigan has no state estate tax, the federal government does tax large estates. For 2024, the federal estate tax applies only to estates worth more than $13.61 million. This threshold is high enough that most Michigan families will not owe federal estate tax at all.

The federal tax rate on estates above that threshold is 40 percent. However, this rate applies only to the amount over the threshold, not the entire estate. A married couple can combine their thresholds, which means a joint estate can be worth up to $27.22 million before federal tax kicks in.

These federal thresholds change every year based on inflation. They are also set to drop significantly in 2026 unless Congress extends the current law. If you have a large estate, it is worth checking the current federal threshold and discussing your situation with an accountant or attorney.

What happens if you own property in another state

If you own real estate or other property in a state that has an estate tax or inheritance tax, that state may tax the property even if you live in Michigan. States like New York, Massachusetts, and Illinois have their own estate taxes. If you own a vacation home, rental property, or business assets in one of these states, those assets may be subject to that state's tax when you die.

The amount owed depends on the state's tax rate and threshold. Some states have thresholds as low as $1 million, which is much lower than the federal threshold. If you own property in multiple states, you should review the tax laws in each state where you hold assets.

Income tax on inherited money and property

Inheriting money or property does not create income tax in Michigan or at the federal level. When you receive an inheritance, you do not report it as income on your tax return. This applies whether you inherit cash, real estate, stocks, or other assets.

However, income that the inherited assets generate after you receive them is taxable. If you inherit a house and rent it out, the rental income is taxable. If you inherit stocks and receive dividends, those dividends are taxable. If you inherit a bank account and earn interest, that interest is taxable. The inheritance itself is not taxed, but the earnings from it are.

Estate planning considerations for Michigan residents

Because Michigan has no state estate tax, your main concern is the federal estate tax if your estate is very large. However, there are other reasons to plan your estate beyond taxes. A will or trust ensures your property goes to the people you choose and can reduce the time and cost of probate.

You can also use trusts, gifts, and other strategies to reduce the size of your taxable estate if you expect to owe federal tax. For example, you can give away up to $18,000 per person per year without using any of your federal estate tax threshold. If you are married, you and your spouse can each give away $18,000 to the same person in the same year.

These strategies are most important if your estate is close to the federal threshold. If your estate is well below $13.61 million, federal estate tax is unlikely to be a concern, but other estate planning goals may still matter to you.

How probate works in Michigan without an estate tax

Even without an estate tax, Michigan requires most estates to go through probate unless the estate is very small or held in a trust. Probate is the court process that validates a will, pays debts, and distributes property to heirs. It takes time and costs money in court fees and attorney fees, but it is not a tax.

The cost of probate depends on the size of the estate and how complicated it is. An estate worth $50,000 might cost $1,000 to $3,000 in probate fees. A larger or more complicated estate could cost significantly more. These costs come out of the estate before heirs receive their inheritance.

You can avoid probate by putting property in a living trust, naming beneficiaries on bank accounts and retirement accounts, or holding property jointly with someone else. These strategies do not save you from estate tax (since Michigan has none), but they can save your heirs time and money after you die.

Frequently Asked Questions

Does Michigan tax inheritances at all?

No. Michigan has no state estate tax and no inheritance tax. You will not owe Michigan state tax on money or property you inherit. The only estate tax that might explore is the federal estate tax, which only affects estates worth more than $13.61 million in 2024.

If I die with a $10 million estate, do I owe Michigan taxes?

No Michigan taxes. You would not owe federal estate tax either, because your estate is below the $13.61 million federal threshold for 2024. Your heirs would receive the full $10 million without owing estate tax to Michigan or the federal government.

What if I own a house in New York and live in Michigan?

New York has its own estate tax. If you own real estate in New York, that property may be subject to New York's estate tax when you die, even though you live in Michigan. You should review New York's current estate tax threshold and speak with an accountant about your situation.

Do I have to pay income tax on an inheritance?

No. Receiving an inheritance is not taxable income in Michigan or at the federal level. However, income that the inherited assets earn after you receive them is taxable. For example, rental income from inherited property or interest from an inherited bank account must be reported as income.

Can I reduce my federal estate tax if I live in Michigan?

Yes. If your estate is close to the federal threshold, you can use strategies like annual gifts, trusts, and charitable donations to reduce your taxable estate. An attorney or accountant who specializes in estate planning can help you understand which strategies make sense for your situation.