As you look to the future when considering your estate planning, one element to keep in mind is the administration process left to your loved ones in Michigan. Part of that may be the potential for estate taxes.
The thought that after working throughout your life to accrue assets for the benefit of your potential heirs only to lose a good portion of it to taxes may be extremely disheartening. Fortunately, with the right plan in place, those you leave behind may be able to mitigate your estate’s tax liability (or potentially avoid it altogether).
The federal estate tax exemption
First off, you should know that Michigan does not impose either an estate or an inheritance tax on its residents. This means that the only potential tax liability your estate may face comes from the federal level. The federal government offers an estate tax exemption, with the exemption threshold amount reset annually. According to the Internal Revenue Service, the threshold amount for 2021 is $11.7 million.
You may structure a plan that could potentially double that amount. Estate tax portability allows you to share your exemption amount with your spouse.
Estate tax portability
Here is how: the unlimited marital deduction allows you to transfer an unlimited amount to your spouse free from taxes. Thus, should you leave your entire estate to your spouse, that amount will not be subject to tax. This preserves your entire estate tax exemption.
Your spouse can then claim that exemption amount (and combine it with their own) by filing an estate tax return within nine months of your death. That allows you to jointly protect as much as $ 23.4 million from taxes for your beneficiaries.
