Death + Taxes Here's Advice to Help Understand One of Them

by Lauretta Murphy, attorney, Miller Johnson


Benjamin Franklin famously said: "In this world nothing can be said to be certain, except death and taxes." Two types of taxes may apply to your property after you die—state inheritance taxes and federal estate taxes, both of which are commonly referred to as death taxes. Michigan does not impose a state inheritance tax, but many states do.

The federal estate tax applies to assets you own or control at your death. Assets potentially subject to estate tax at your death are called your “gross estate.” Your gross estate includes business interests, retirement assets, personal property, investments, real estate, annuities and any other valuable assets. Life insurance proceeds are not subject to income tax, but may be subject to estate tax if you have any “incidents of ownership,” which include the right to change beneficiaries and the right to access cash value.

Most people don’t have to worry about the estate tax. For married couples, there is an unlimited marital deduction for all property passing to a U.S. citizen spouse. There is also an unlimited charitable deduction for gifts to qualified charities. In addition, each taxpayer has a $5,490,000 exemption, which can be applied to lifetime transfers or transfers at death, or any combination of lifetime and estate gifts. If a husband or wife doesn’t use up their whole exemption, the surviving spouse can make a “portability election” and save the deceased spouse’s unused exemption for gift during the surviving spouse’s life or at the death of the surviving spouse. If a couple maximizes their use of their exemptions, they could transition up to $10,980,000 to their loved ones with no federal estate tax.

For people whose hard work and careful stewardship have resulted in an estate that can’t be completely sheltered from tax, sophisticated planning techniques can be used to leverage the exemptions and protect family wealth from death taxes. President Trump has promised to “repeal the death tax,” but most experts believe that any repeal would be temporary or would replace the estate tax with a capital gains tax at death. Your estate planning advisor may recommend that you update your plan to take full advantage of any changes that may occur.