One of the most common questions in estate planning consultations is some version of: "How much will the state take when I die?" For Michigan residents, the answer is refreshingly simple—Michigan has no estate tax and no inheritance tax. But that's not the end of the tax conversation, and planning as if taxes don't matter can still cost your heirs real money.
Michigan's Answer: No Death Taxes
An estate tax is paid by the estate before assets are distributed; an inheritance tax is paid by the people who inherit. Michigan imposes neither. Michigan's old estate tax was tied to a federal credit that Congress phased out two decades ago, and the state never replaced it. Unless you inherit from someone who lived in one of the handful of states that still tax inheritances, no state death tax applies.
The Federal Estate Tax: A High Bar
The federal estate and gift tax does exist—but it only reaches estates above the lifetime exemption. Beginning in 2026, that exemption is $15 million per person (indexed for inflation going forward), and a married couple can shelter twice that with proper planning. The vast majority of Michigan families fall well below the threshold. For estates that may cross it—often when a family business or significant real estate is involved—advanced planning well before death makes a substantial difference.
The Taxes That Actually Hit Michigan Heirs
For most families, the meaningful taxes aren't death taxes at all:
- Income tax on inherited retirement accounts. A traditional IRA or 401(k) carries a built-in income tax bill. Most non-spouse beneficiaries must withdraw the entire account within ten years, paying income tax at their own rates—potentially during their peak earning years.
- Capital gains—and the step-up in basis. Assets you own at death generally receive a stepped-up basis: your heirs' cost basis resets to date-of-death value, erasing lifetime appreciation for capital gains purposes. Assets you give away during life keep your original basis. This single rule changes the math on many "should I just give it to the kids now?" decisions.
- Michigan property tax uncapping. Transferring Michigan real estate can uncap its taxable value, raising property taxes sharply for whoever receives it. Certain transfers to close family members can preserve the cap—but only if structured correctly.
What This Means for Your Plan
Tax-smart estate planning in Michigan is mostly about which assets go to whom, and how: routing retirement accounts thoughtfully (a charity pays no income tax on an IRA; your children do), holding appreciated assets for the step-up rather than gifting them, and structuring real estate transfers to protect the property tax cap. None of it requires a taxable estate—just a plan that was designed with the rules in mind.