Most people who think about their legacy want to leave as much as possible for loved ones or charitable causes that are important to them. Estate planning can be as much about maximizing how much someone leaves behind as it is about selecting the right beneficiaries.
Personal debts and taxes can quickly diminish how much of someone’s property will pass to their family members when they die. There are several kinds of taxes that may come into play during estate administration in Michigan and that might affect how much people inherit from the estate.
What kind of taxes do testators typically need to plan for and do the representatives of estates need to address during estate administration?
Estate taxes
Michigan does not levy an estate tax, but the federal government will expect tax payments from estates that are worth more than $12,920,000. Those who own numerous pieces of real estate or a business are among those that may need to plan for estate taxes, as they can consume as much as 40% of someone’s total estate value.
Income taxes
The personal representative of an estate is often the one responsible for filing an individual’s last tax return after they die. Frequently, they may also have to arrange for the sale or liquidation of estate assets. Provided that there are more than $600 in estate sale proceeds, the representative of the estate will likely need to file an income tax return on behalf of the estate and may need to reserve assets to cover those obligations.
Capital gains taxes
Sometimes, the sale of assets held by an estate or trust may trigger capital gains taxes. Testators could help protect their beneficiaries from expensive tax obligations by determining their intentions for those assets and adjusting the estate plan accordingly. The best way to transfer certain property may differ in cases where people hope to sell or retain certain property.
When testators carefully address the possible tax obligations of their estates, they will be in a better position to maximize what they can pass to the next generation. Seeking legal guidance and reviewing possible tax liabilities may be necessary when trying to maximize what others will inherit during the estate planning process.