2024 Legislative updates

Michigan Estate Law October 2024 Legislative Update

As of October 2024, several developments in Michigan's estate law landscape require attention from both estate planners and individuals managing estates. Here's a concise update on the key issues impacting Michigan:

Michigan Estate Tax

Michigan repealed its estate tax in 2016, meaning there is currently no state-level estate or inheritance tax. However, estates exceeding the federal exemption may still be subject to federal estate tax, which is $13.9 million for individuals in 2024 (up from $12.92 million in 2023). This increase provides more flexibility for estate planning, but the exemption will revert to approximately $5 million after 2025 unless Congress acts.

Changes to Federal Estate Tax

Federal estate tax exemption remains elevated in 2024, but estate planners should prepare for possible reductions after 2025. Michigan residents with estates approaching the federal exemption limit may consider lifetime gifting strategies to minimize future estate tax liability before the exemption drops.

Medicaid and Estate Recovery

Michigan has a Medicaid Estate Recovery program that seeks to recover costs from a decedent's estate for Medicaid benefits received during their lifetime, particularly for long-term care. Individuals planning for potential long-term care should consider strategies like irrevocable trusts or annuities to protect assets from estate recovery while still qualifying for Medicaid.

Digital Assets in Estate Planning

Michigan has adopted the Uniform Fiduciary Access to Digital Assets Act (UFADAA), making it easier for executors or fiduciaries to access digital assets (like online accounts and cryptocurrencies). Estate planners should ensure that digital assets are addressed in wills or trusts to avoid complications after death.

Trust Administration and Fiduciary Duties

Michigan continues to strengthen its trust administration laws, emphasizing the duties of trustees and fiduciaries. Trustees are required to provide annual accountings to beneficiaries, and failure to do so could result in personal liability. Recent court rulings have also highlighted the importance of adhering to fiduciary duties and avoiding conflicts of interest.

Charitable Giving

While Michigan doesn't offer a state-specific estate tax deduction for charitable gifts, charitable contributions made through trusts or estate plans can still provide federal estate tax benefits. For high-net-worth individuals, charitable strategies such as donor-advised funds (DAFs) or charitable remainder trusts (CRTs) remain valuable tools for reducing estate tax liability.

Proposed Changes to Inherited Property Taxation

There have been discussions at the federal level about curbing the "stepped-up basis" rule, which allows heirs to inherit property at its current market value, reducing capital gains taxes when the property is sold. This potential change may impact Michigan residents with significant real estate holdings. Estate planners should stay updated on this proposal and consider its implications for inheritance planning.

Key Takeaways for Michigan Residents:

Michigan has no state estate tax, but federal estate tax exemption increases to $13.9 million in 2024, with a potential reduction after 2025.
Medicaid estate recovery continues to impact long-term care planning; asset protection strategies may be necessary.
Ensure proper planning for digital assets using Michigan's adoption of the UFADAA.
Charitable giving remains a strong strategy for tax savings at the federal level.