Twin Cities Residents to See Changes in Minnesota Estate Tax

Published On: 23rd April 2014

From the internet

Residents throughout Minneapolis and St. Paul have had a lot of hard feelings regarding the state’s estate tax. It mostly has to do with the fact that the amount has remained the same, includes everything from money and possessions to retirement accounts and insurance, and has not accounted for the fact the dollar does not buy as much as it used to.

But now the voices of opponents of the estate tax have been heard. On March 21, Governor Dayton signed an Omnibus Tax Bill into law that alters the estate and gift tax in Minnesota. There are a number of key provisions that include the following:

  • Gift tax is repealed – The repeal is retroactive, so it goes back to June 30, 2013 as if it didn’t happen with the exception that the three year look back period will still be in place. Those that were originally going to have to file a gift tax return because of gifts that were given in the last half of 2013 will not have to now. Before the gift tax was enacted, a person could make a lifetime gift right before death in order to reduce their estate and avoid as much in estate taxes as possible. With the three year look back period still in place, gifts made within three years of death can still be taxed.
  • The Minnesota estate tax exemption will increase – It has initially increased from $1 million to $1.2 million and will continue to increase at $200,000 each year until the exemption amount reaches $2 million in 2018. For decedents who pass away in 2018 and later, the Minnesota estate tax exemption will stay at $2 million.
  • Estate tax rates change – There has been a “bubble tax” present and this “bubble tax” has been a marginal rate of 41 percent on the first $100,000 of an estate that is worth more than $1 million. This rate is now 9 percent on estates that exceed ½ million and the rate will gradually increase to 16 percent.
  • State QTIP Election – The personal representatives of Minnesota estates are able to now make both state QTIP elections and federal QTIP elections over assets that pass to certain trusts that are designed to benefit the surviving spouse. This will allow the assets to qualify as a marital deduction. Minnesota previously only allowed these elections if the taxpayer had to file a federal estate tax return.
  • Reduction of the burden on non-resident estates – Minnesota will now offer a credit for estate taxes that are paid to another state with respect to the property when certain conditions are present. However, most of the non-resident taxpayers will not see an impact from these changes and the taxation of pass-through entities that own Minnesota property will still be an issue for a lot of them.
  • Minnesota Income tax changes – The new law provides taxpayers with a number of credits and deductions. However, the high net worth individuals will not see much of a benefit from these credits and deductions.