Estate Taxation
Under the tax law enacted in 2001, whatever you own is subject to the federal estate tax upon your death, until 2010. For the year 2010, estates will be entirely free from federal taxation. However, the law that includes this provision expires at the end of 2010. Thus, unless Congress acts in the interim, the estate tax rules will then revert to those prevailing in 2002.
For 2009, the tax rate on estates is 45 percent (see the table below).
That said, not all estates will be taxed while the estate tax is in effect. First, spouses can leave any amount of property to their spouses, if the spouses are U.S. citizens, free of federal estate tax. However, the assets left to the spouse may be exposed to estate taxes on their death (see Credit Shelter Trusts under Trusts). Second, the estate tax applies only to estates valued at more than $3.5 million in 2009 (see table below). The federal government allows you this tax credit for gifts made during your life or for your estate upon your death. Third, gifts to charities are not taxed.
Most states also have an estate or inheritance tax, but Michigan does not.
Tax Year Tax Rate Exemption Equivalent |
| Tax Year | Tax Rate | Exemption Equivalent |
| 2001 | 37-55% | $675,000 |
|---|
| 2002 | 41-50% | $1,000,000 |
|---|
| 2003 | 41-49% | $1,000,000 |
|---|
| 2004 | 45-48% | $1,500,000 |
|---|
| 2005 | 45-47% | $1,500,000 |
|---|
| 2006 | 46% | $2,000,000 |
|---|
| 2007 | 45% | $2,000,000 |
|---|
| 2008 | 45% | $2,000,000 |
|---|
| 2009 | 45% | $3,500,000 |
|---|
| 2010 | 0% | None |
|---|
Single individuals can protect up to the exemption equivalent from estate taxes. With credit shelter trust planning, married couples can protect two times the exemption equivalent from estate taxes. If estate taxes are due, the tax is paid from the estate before being distributed to the beneficiaries. Note, there is no inheritance tax in Michigan. This means, if one inherits assets, they do not pay a tax upon the receipt of those assets.