As a Michigan resident with a thoughtfully constructed estate plan, you've already taken an essential step toward securing your family’s future. However, as tax season approaches, it’s easy to focus solely on W-2s and 1099s and overlook the crucial link between your estate plan and your annual tax filings.
Your estate plan is not a "set it and forget it" document. Life changes, law changes, and even subtle shifts in your financial picture can create ripple effects that influence your tax situation today.
We're not tax preparers, but as dedicated estate planning attorneys, we want to ensure your documents are in harmony with the numbers you are sending to the IRS and the Michigan Department of Treasury. Before you drop your documents off with your CPA, here are three essential points we encourage you to review:
1. Check Your Fiduciary Income Reporting (Trusts & Estates)
If your estate plan includes a Revocable Living Trust—a common and powerful tool in Michigan—you need to confirm how its income is being reported.
Grantor Trusts: While you are alive, most Revocable Living Trusts are "Grantor Trusts," meaning the income and deductions are reported directly on your personal Form 1040, using your Social Security Number. You generally won't need a separate tax return for the trust.
Irrevocable Trusts/Estates: If you have an Irrevocable Trust or are the fiduciary for a recently deceased loved one’s estate, that entity likely requires its own separate tax return (Form 1041, U.S. Income Tax Return for Estates and Trusts). If a new tax ID (EIN) was secured, make sure your tax preparer has it. Failure to correctly report income from these entities can result in unexpected taxes or penalties.
2. Verify Your Asset Titling and Beneficiary Designations
Your estate plan is only as effective as the way your assets are titled. Tax season is the perfect time to cross-check your financial statements:
Trust Funding: Do your bank statements, investment account statements, and property deeds reflect the correct ownership by your Trust? Assets not properly titled in the name of your Trust may be subject to probate—negating one of the primary benefits of your Michigan estate plan.
Retirement Accounts (IRAs/401ks): These accounts pass by beneficiary designation, not by your Will or Trust. Review your most recent statements to ensure the named beneficiaries are current and align with your overall plan. A discrepancy here could have significant—and unnecessary—income tax consequences for your heirs.
3. Review for Recent Law Changes
We know that tax laws—both federal and state—are in constant motion. Michigan, in particular, has seen several changes in recent years, including adjustments to the taxability of retirement and pension benefits.
Though Michigan does not impose a state estate or inheritance tax, federal rules on gift and estate taxes are always something we monitor. If you’ve made any significant gifts during the year, or if your net worth has changed substantially, a quick review is prudent to ensure you are maximizing tax-saving opportunities and remaining compliant with annual gift exclusions.
Talk to a Grand Rapids Estate Planning Attorney Now
Your estate plan is your legacy. By taking a proactive approach and reviewing these three key areas before your tax returns are filed, you ensure your legal and financial foundations are perfectly aligned.
Don't leave the integrity of your hard-earned plan to chance. Inhulsen Law is here to answer any questions you have about how your estate plan interacts with your current financial records or a loved one’s final tax filing. We are here to help you secure peace of mind this tax season and beyond.
Give our office a call at (616) 345-2810 to schedule a confidential review.