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Deduction on Michigan Inventory Fee Phased Out

On December 31st, 2017, the deduction allowed for liens on real estate when calculating the inventory fee in decedent estate proceedings had expired.

An inventory fee is the amount charged and collected by Michigan probate courts as an expense of administration on the value of the estate assets. MCL 600.871(1) provides a formula for how large this fee will be depending on the value of its assets (for convenience, most Michigan probate court websites provide a free calculator that will determine the inventory fee simply by keying in the total dollar value). The inventory fee is not waivable and must be paid if the estate has sufficient funds, even if there are currently no liquid cash assets (e.g. in Estate of DeCoste, __ Mich App __;__NW2d__ (2016), the only asset in the estate was a home worth $56,200.00, but the Michigan Court of Appeals ruled that personal representative must pay the inventory fee whether it is by out-of-pocket amounts to be reimbursed by heirs later or by selling the house to liquidate the asset).

MCL 600.871(2) allowed that, "[u]ntil December 31, 2017, in calculating a fee under subsection (1), if real property that is included in the estate is encumbered by or used as security for an indebtedness, the amount of the indebtedness shall be deducted from the value of the real property." For example, if the estate owns a home appraising for $100,000.00 but was shackled by a mortgage with a balance of $80,000.00, then the value of the home for the purposes of calculating the inventory fee is only $20,000.00. A lower assessed value for assets almost always results in a lower inventory fee to be paid. But now, in 2018, personal representatives must calculate the inventory fee using the full value of the real estate no matter what mortgages or liens exist against the property.

This deduction lapsed before the Michigan Legislature could act to eliminate this sunset provision. On November 27th, 2017, the Judiciary Committee of the Michigan House of Representatives passed House Bill 4752 which provides, in part, for the elimination of the December 31st, 2017 expiration date and permit the deduction of real estate liens permanently for the purposes of inventory fees. This bill, however, has yet to be passed by the entire legislature or even come across the governor's desk.

If House Bill 4752 becomes law, the lien deduction will be permitted once again for estates where the deceased passed away on or after the legislation's effective date.

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