Does Michigan Have an Inheritance Tax? What Michigan Families Actually Owe
One of the most common questions Michigan estate planning clients ask is: “Will my children have to pay inheritance tax when I die?” The answer depends on which tax you mean — and the confusion between inheritance tax, estate tax, and the federal estate tax costs Michigan families real money in unnecessary anxiety and sometimes in avoidable tax liability.
Castle Wealth Group Legal helps Michigan families understand exactly which taxes apply to their estates and how to plan strategically to minimize the burden on their heirs.
Michigan Inheritance Tax: The Short Answer
Michigan does not have a state inheritance tax. Michigan repealed its inheritance tax decades ago, and as of 2025, there is no state-level tax imposed on Michigan residents who receive an inheritance from a Michigan decedent.
However, this does not mean Michigan heirs owe nothing. The picture becomes more complicated when you consider the federal estate tax, Michigan’s former estate tax, and out-of-state property.
Michigan Estate Tax: Also Eliminated
There is no state estate tax in Michigan. The state’s former estate tax was tied to the federal state death tax credit, which was phased out under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Once that credit was eliminated, the estate tax effectively disappeared—and no standalone estate tax has been enacted since.
This places Michigan among the majority of U.S. states with no estate or inheritance tax at the state level. As of 2025, only 12 states and the District of Columbia impose a state estate tax, and six states impose an inheritance tax. Michigan is neither.
The Federal Estate Tax: The Tax That Does Apply to Some Michigan Estates
The federal estate tax is the primary tax concern for high-net-worth Michigan families. For 2025, the federal estate tax exemption is $13.99 million per individual ($27.98 million for married couples using portability). Estates below this threshold owe no federal estate tax.
The 2025 Sunset: A Critical Planning Deadline for Michigan Families
The elevated exemption amounts were created by the Tax Cuts and Jobs Act of 2017 (TCJA) and are scheduled to sunset on December 31, 2025, unless Congress acts. If no legislation is passed, the exemption will revert to approximately $7 million per individual (adjusted for inflation) in 2026.
For Michigan families with estates between $7 million and $14 million, this sunset represents a potentially significant tax exposure. A married couple with a $20 million estate could face no federal estate tax under current law but owe several million dollars under post-sunset rules — a difference that proactive gifting and trust strategies can address now.
Strategies Michigan Families Can Use Before the Sunset
- Accelerated gifting using the annual gift tax exclusion ($18,000 per recipient in 2025)
- Spousal Lifetime Access Trusts (SLATs) to remove assets from the taxable estate while retaining indirect access
- Irrevocable Life Insurance Trusts (ILITs) to pay estate taxes with estate-tax-free death benefits
- Grantor Retained Annuity Trusts (GRATs) to transfer appreciation out of the estate at low tax cost
Out-of-State Property and Inheritance Taxes: When Michigan Residents Owe Other States
Michigan residents who own real property in another state may owe that state’s estate or inheritance tax — even if they live in Michigan. For example:
- A Michigan resident who owns a vacation home in Iowa (which has an inheritance tax) may have Iowa inheritance tax obligations
- A Michigan resident with investment property in Oregon (which has a state estate tax with a $1 million exemption) may owe Oregon estate tax
- A Michigan resident who inherits from a Pennsylvania decedent may owe Pennsylvania’s inheritance tax on assets received
Multi-state property ownership requires coordinated estate planning that accounts for each state’s rules.
Michigan Retirement Accounts and Income Tax After Death
While Michigan does not impose inheritance or estate tax, heirs who inherit traditional IRAs, 401(k)s, and other pre-tax retirement accounts do owe income tax on distributions. Under the SECURE Act 2.0 rules, most non-spouse beneficiaries must deplete inherited retirement accounts within 10 years.
State income tax in Michigan—currently 4.25% under MCL 206.51—applies to retirement account distributions received by residents. Properly timing and structuring withdrawals from inherited retirement accounts is an important part of effective estate planning in the state.
How Castle Wealth Group Legal Can Help
Understanding what taxes your estate actually faces — and which are myths — is the foundation of smart Michigan estate planning. Our attorneys analyze your specific situation and design strategies to minimize real tax exposure for your heirs.
Related Resources