Trusts, Gifts & Estates – 2025 and Beyond - Federal Tax and Other Important Michigan Law Changes

Federal Tax Updates

Recent federal tax law changes have made “permanent” the favorable provisions around step-up in basis, higher estate, gift, and generation-skipping transfer (GST) tax exemptions. The exemption is scheduled to be $15 million per person in 2026 (indexed for inflation), and the top estate and gift tax rate remains 40%.

Certain income tax laws for trusts and estates were also made “permanent”. Trusts and estates are still not able to deduct in most cases investment advisory fees. And, the maximum trust and estate income tax rate is still capped at 37%, with the maximum capital gains rates at 20%. The tax brackets are very compressed for an estate or nongrantor trust, making the tax impact more onerous when compared with an individual.

No tax policy sunsets are on the horizon—for now. While future legislation could still alter the landscape, these updates provide a welcome sense of stability for wealth transfer and estate planning. Some may feel relief that their prior planning aligns well with current law, while others may wish they had waited for greater certainty before taking major steps. Either way, now is the time to review your plan and adjust course for the future.

Recent Michigan Law Updates (2024-2025)

Pet Trusts can now last for the life of a pet (versus a term of years).

Silent Trusts

Non-disclosure period: The trustee can withhold information about a trust’s existence from a beneficiary for a period not exceeding 25 years.
Withheld information: The trust instrument specifies what information, such as the trust’s existence or property value, is not to be disclosed.
“Protection powerholder”: The trust can appoint a separate individual to receive information and direct the trustee on behalf of the beneficiary. This person has a fiduciary duty to the beneficiaries.

Simplified Probate procedures were enacted for Estates Under $50,000 (as indexed)

Powers of Attorney (POA)

Uniform Power of Attorney Act (UPOAA): Effective July 1, 2024, Michigan adopted the UPOAA, standardizing the creation and use of POAs and ensuring they are more readily accepted by financial institutions across states.
Automatic Durability: POAs executed after July 1, 2024, are automatically considered “durable” (meaning they remain valid if the principal becomes incapacitated) unless the document expressly states otherwise.
POA must be Notarized in order to gain maximum protection under the new law. If only two witnesses, and no notary, the POA is effective but is not deemed to be authentic.
Agent Authority: Agents cannot make gifts, change beneficiaries, or modify trusts unless the document grants that authority.

Estate and Trust Planning Ideas for 2025–2026

With changes in state law, and increased exemptions and favorable tax rates now in place, this is an excellent time to coordinate with your advisory team and ensure your estate plan remains efficient, intentional, and up to date.

Here are practical steps and ideas to consider:

Review Your Trust Tax Returns with Your Estate Planning Attorney
Ensure that income is being properly reported and distributed. For instance, a non-grantor trust paying capital gains to beneficiaries may face higher overall tax costs than if the trust retained those gains.
Share Estate Planning Documents with Your Tax Preparer
Coordinate your estate planning documents and tax filings to ensure consistent treatment and capture all available deductions and elections.
Evaluate Trusts Created in Recent Years
If you created trusts when exemption amounts were uncertain, revisit their structure. Consider using the increased exemption for additional gifts or explore decanting or amending older trusts for more flexibility.
Meet with Your Advisory Team
Coordinate with your attorney, CPA, and financial advisor to model your current estate and income tax exposure under the new law.
Understand How Your Trusts Work
Summarize or flowchart each trust to visualize fiduciary roles, beneficiaries, and how assets and income flow. This helps identify planning opportunities and prevents administrative errors.
Update Your Estate Planning Records
Keep copies of all estate planning documents and prepare an updated balance sheet listing each asset, ownership title, and approximate value.
Review Fiduciary Lineups
Confirm that trustees, executors, and agents remain appropriate choices given their age, health, and relationship to the beneficiaries.
Consider Beneficiaries’ Individual Tax and Nontax Situations
Review how financial needs and the income tax law changes impact each beneficiary. You may want to direct certain assets (e.g., Roth IRAs or highly appreciated stock) to specific individuals based on their tax brackets and financial needs.
Maximize Lifetime Gifting
Use the annual exclusion ($19,000 per recipient in 2025) and consider larger gifts under the $15 million lifetime exemption (2026, as indexed) to transfer appreciating assets out of your taxable estate.
Leverage the GST Exemption
Use your GST exemption to fund long-term trusts that can benefit multiple generations free of estate and GST tax. Confirm that older trusts are properly exempt and consider allocating unused GST exemption strategically.
Revisit Charitable Planning
Explore charitable remainder trusts (CRTs), donor-advised funds (DAFs), or foundations to balance family giving and philanthropy while managing income taxes.
Consider Amendments or Decanting
If a trust no longer fits your family’s needs or current tax law, explore updating or decanting it for greater flexibility and efficiency.
Review Tax Apportionment Clauses
Check how estate taxes are allocated among beneficiaries. Strategic revisions can help minimize tax burdens and better leverage exemptions.
Project the Tax and Fnancial Impact on Each Beneficiary
Model how your assets will be taxed upon transfer to identify whether income should be retained in trusts or distributed.
Review Your Balance Sheet for Probate Exposure
Review Trust Provisions for Special Needs Beneficiaries to avoid losing government benefits
Review Life Insurance Ownership to avoid unnecessary estate tax exposure
Review Your Powers of Attorney to see if they are notarized and give enumerated powers required under the new Michigan law, if applicable.
Exercise Trust Powers of Appointment Wisely
If you have the authority to redirect assets held in trust, consider exercising those powers to rebalance distributions or improve tax results under current law.

2025–2026 Estate and Gift Tax Rules at a Glance

Provision	2025 Amount	2026 and Beyond	Planning Notes
Estate & Gift Tax Exemption	$13.99 million per person ($27.98 million per couple)	$15 million per person ($30 million per couple), indexed for inflation	Top rate remains 40%; portability of spouse’s unused exemption retained
GST Tax Exemption	$13.99 million	$15 million	Indexed for inflation starting 2027
Annual Gift Tax Exclusion	$19,000 per person ($38,000 per couple)	Expected to rise to $20,000 per person ($40,000 per couple)	Gifts below this limit may require no gift tax return
Step-Up in Basis	Continues	Continues	Heirs receive fair market value basis at death on most assets inherited (exceptions include retirement and deferred compensation)
Trust & Estate Income & Estate Tax Rates	Max income tax bracket 37% Estate & gift tax rate is 40%	Permanently retained	37% income tax bracket reached at roughly $15,000 of taxable income 40% is a flat rate