Recent Tax Implications on Estate Planning in Michigan

Tax implications can play a significant role in how your estate plan is created — and the strategies that are used. Importantly, the federal and state tax laws are constantly evolving and it’s critical to stay up to date with any changes. Legislative developments in 2025 may require rapid response and plan adjustments. Notably, with the potential sunset of the Tax Cuts and Jobs Act and recent changes in federal and state law, clients should review their estate plans, particularly if their net worth is near or above the anticipated lower exemption. 

Key Financial and Tax Changes at the Federal Level

There are many tax implications that must be considered when creating a comprehensive estate plan. Some of the recent changes to the federal tax laws that may impact estate planning include the following: 

Sunset of the Tax Cuts and Jobs Act (TCJA)

Many individual tax provisions of the TCJA, including those involving the doubled gift and estate tax exemption, are set to expire at the end of 2025 unless Congress takes action. Currently, the federal and estate gift tax exemption is $13.61 million per individual. If Congress does not extend these provisions, the exemption will revert to $7 million (indexed for inflation) on January 1, 2026. High-net-worth individuals should consider using the current high exemption before it potentially drops in 2026 — this is often referred to as the “bonus exclusion” window. 

IRS Funding and Enforcement

The Inflation Reduction Act of 2022 provided $79.6 billion in additional IRS funding with a focus on improving enforcement and modernizing operations. While a substantial portion of enforcement funding has been clawed back by Congress, taxpayers can expect increased IRS scrutiny — especially those with high net-worth and complex estates. However, the scale of the IRS’s enforcement efforts may be less than what was initially anticipated. 

The Corporate Transparency Act (CTA)

The Corporate Transparency Act went into effect on January 1, 2024, requiring businesses to report mandatory beneficial ownership information to FinCEN. Although the Treasury Department has announced it will not be enforcing the Act against U.S. companies and U.S. citizens, it’s vital to keep informed about any developments in this area to ensure compliance if any entities must be factored into your estate plan.   

Retirement Plan Changes (Secure Act 2.0)

With most provisions being phased in between 2023 and 2025, the Secure Act 2.0 introduced significant changes when it comes to the tax implications of retirement planning. All eligible employees must be automatically enrolled in any 401(k) and 403(b) plans that have been established by their employers on or after December 29, 2022 — unless they opt out. Employees will be enrolled at a contribution rate that is between 3% and 10% of their salary.     

Other updates to the Act that should be noted include the following: 

• Increased age for required minimum distributions (RMDs) — The Secure Act 2.0 increased the age required for RMDs to 73 for individuals turning 72 after 2022 and 75 for those turning 73 after 2032.
• Expanded catch-up contributions — The Secure Act allows plans to offer higher catch-up contributions for participants between 60 and 63, up to $11,250 or 150% of the regular catch-up contribution limit.
• New rules for Roth and 529 plan rollovers — The new rule provides for tax-free rollovers up to $35,000 from a 529 account to a Roth IRA for the same named beneficiary. This can help 529 beneficiaries avoid paying taxes and incurring penalties for non-qualified withdrawals. 

This legislation can have a substantial impact on the estate planning strategies you may implement. Beneficiary designations should be carefully reviewed to ensure your retirement assets will be distributed in accordance with your wishes. Using trusts to manage inherited retirement accounts can potentially provide more flexibility regarding distribution and tax planning.   

Financial Changes and Tax Implications at the Michigan State Level

While Michigan does not impose a state-level estate or inheritance tax, estate planning in the state is mostly driven by federal law. However, there are still certain estate tax implications that must be considered at the state level. It’s imperative for individuals to consider the following financial and tax changes: 

New Research and Development (R&D) Tax Credits

Effective 2025, Michigan offers a new R&D credit against the corporate income tax and withholding tax for qualified expenses that are incurred in the state. The credit is 3% of qualifying R&D expenses up to the base amount, with higher percentages for expenses above the base amount — and for collaboration with Michigan research universities. Business owners and family offices should review eligibility for these credits as part of succession and business transition planning. 

Trust Law and Probate Developments

Michigan has updated many provisions in its trust code and probate statutes. Key aspects that should be considered in estate planning include: 

• Statutory wills — This provision outlines the legal requirements and form of a statutory will, permitting individuals to create a will using a fill-in-the-blanks template.
• Pet trusts — The new law removes the 21-year limitation on pet trusts, allowing a trust to be created for the lifetime of the animal.
• Noncharitable purpose trusts — Michigan law now allows for the creation of noncharitable purpose trusts, with a maximum duration of 25 years if no identifiable beneficiary exists.
• Simplified probate proceedings — The new law allows for a simplified probate process for smaller estates that are valued at or below $51,000. 

It’s essential to keep up to date with any changes in the law — and comply with the latest Michigan statutes — to ensure your estate plan is valid and your wishes are met.     

Contact an Experienced Michigan Estate Planning Attorney

The tax implications of estate planning are complex and require strategic planning. It’s crucial to have a knowledgeable estate planning attorney by your side who can structure your estate plan to reduce the estate tax burden for your beneficiaries. To learn more about tax planning strategies, contact us today. Our team of attorneys is committed to guiding individuals and families through the estate planning process and providing the legal assistance they need.