Most parents are eager to leave assets, including the family home and money, to children when they pass. However, if any form of an inheritance is given without forethought and proper planning, those well-meaning Michigan parents may also be leaving their children with a substantial and unwanted tax bill. It is important to consider the tax implications of an inheritance and any assets given to children before simply signing over property or leaving sums of money in a will.
One area of concern that must be handled correctly is the family home. Parents may want to give their children the deed when they are alive in order to keep the home from being tied up in probate. However, this can create a gift tax obligation. One solution that may work best for some families is to have a revocable trust for the home as this can eliminate the tax burden if the home is sold.
Eliminating a tax burden goes beyond the gifting, willing or selling of the home. Gifts of up to $14,000 can be given without having to deal with a gift tax return. Charitable gifts can also be given without worry of taxation. Parents can also pay tuition and medical expenses of an adult child without tax burdens that would be applicable if the parent simply gave or left the funds to the beneficiary.
The process of creating and dispensing an inheritance in Michigan can be complex depending on the size and wishes for the estate in question. As to the best way to go about maximizing an inheritance while reducing the tax burden, each party should discuss his or her options with an experienced estate planning attorney and decide the best course of action for his or her unique situation. Also, once an estate plan has been established and tax implications considered, those plans may need to be modified as life changes warrant.
Source: fox61.com, "Tips to avoid an income tax and estate planning time bomb", Jan. 5, 2016