Unless the estate is extraordinarily large (the exemption is $11.7 million for 2021), you should receive the inheritance from your loved one (in Michigan) without any probate taxes!

Inheritance taxes are taxes that a person needs to pay on money or property they have inherited after the death of a loved one. The Probate Pro will explain the basics and clarify the difference between inheritance taxes, estate taxes and income taxes.

Ownership Types – Probate

When someone dies their assets get distributed usually by one of four mechanisms.

  1. Survivorship rights through a joint ownership (an example is a house owned by a husband and wife)
  2. Pay on Death Beneficiary (an example is a life insurance policy with a named beneficiary)
  3. Probate process (intestacy – no Will or with a Will)
  4. Trust

Probate Taxes

An inheritance tax is a tax that gets imposed when you receive money or property from a deceased person. Unlike the federal estate tax, the beneficiary of the property is responsible for paying the tax, not the estate.

An estate tax is a tax imposed on the probate or trust estate. Michigan does not have an estate tax. However, federal estate tax laws can apply to Michigan estates.

Inheritances are not considered income for federal tax purposes, whether you inherit cash, investments or property. However, if the assets you receive by inheritance later produce income (for example, in the form of interest or dividends, or rent), that income is probably taxable.

Most of the time, only extraordinarily wealthy estates get hit with taxes — and unless the estate is worth over 11.7 million dollars you won’t have to pay them. The Economic Growth and Tax Relief Reconciliation Act of 2001 (confusingly referred to as “EGTRRA”) increased the unified credit. This is the amount of a decedent’s assets which are exempt from federal estate tax. The federal exclusion amounts are as follows:

Year Exclusion Amount
2021 $11,700,000
2020 $11,580,000
2019 $11,400,000
2018 $11,180,000
2017 $5,490,000
2016 $5,450,000
2015 $5,430,000
2014 $5,340,000
2013 $5,250,000
2012 $5,120,000
2011 $5,000,000
2010 $5,000,000
2009 $3,500,000
2008 $2,000,000
2007 $2,000,000
2006 $2,000,000
2005 $1,500,000
2004 $1,500,000
2003 $1,000,000
2002 $1,000,000
2001 $675,000

Below are some helpful links to two publications from the IRS that are a great resource

  • IRS Publication 559: This publication is designed to help those in charge (personal representatives) of the property (estate) of an individual who has died (decedent). It shows them how to complete and file federal income tax returns and explains their responsibility to pay any taxes due on behalf of the decedent.
  • IRS Publication 525: This publication discusses many kinds of income and explains whether they are taxable or nontaxable.

If you have any probate or Will-related questions, don’t hesitate to give The Probate Pro a call today at (833) PROBATE. We are ready to help you.