Minnesota Estate and Gift Tax Law Changes

July 19, 2013 by Pete Finch
Copeland Buhl

Minnesota Governor Mark Dayton signed an Omnibus Tax Bill (HF 677) into law on May 23, 2013 that creates a new Minnesota Gift Tax and makes major changes to the Minnesota Estate Tax. As of 2012, Minnesota was one of only 16 states and the District of Columbia to impose an estate tax, two of which expire during 2013 (Ohio for deaths after 12/31/12 and Delaware for deaths after 6/30/2013). Minnesota is now only the second state, along with Connecticut, to impose a gift tax. These changes, along with the increased Minnesota individual income tax rates, may cause some higher net worth taxpayers to reconsider their Minnesota residency as part of their estate plan.

MINNESOTA GIFT TAX (effective for gifts after 6/30/2013):

Minnesota follows the federal definition of a taxable gift, therefore, certain gifts are not subject to the Minnesota Gift Tax including:

  1. Annual Exclusion Gifts ($14,000 for 2013)
  2. Gifts to Spouses
  3. Charitable Gifts
  4. Qualified transfers including amounts paid on behalf of an individual as tuition to an educational organization or for medical purposes

The gift tax is imposed on gifts made by any individual Minnesota resident or nonresident owning property located in Minnesota (both real and tangible personal property) at the rate of 10% of the taxable gift. Taxable gifts exclude the following transfers:

  1. Real Property located outside of Minnesota
  2. Tangible Personal Property that is normally kept outside of Minnesota
  3. Intangible Personal Property by a Minnesota nonresident

Minnesota allows for a Lifetime Credit equal to $100,000 against the Minnesota Gift Tax, which equates to a lifetime exemption of $1,000,000 against it (not scheduled to adjust for inflation).

MINNESOTA ESTATE TAX (effective for estates of decedents dying after 12/31/2012):

Estate Tax Return Filing Requirements:

Prior law required the filing of a Minnesota Estate Tax Return if a Federal Estate Return was required or if the federal gross estate exceeded $1,000,000.  Minnesota has amended the filing requirements to include federal adjusted taxable gifts made within three years of the date of the decedent’s death when determining if the estate exceeds $1,000,000.

Pass-Through Entities owning Real or Tangible Personal Property located in Minnesota:

Under the new Minnesota law, the owner of an interest in a pass-through entity with assets that include real or tangible personal property will be considered the owner of the property as if the pass-through entity did not exist. The ownership of the property is attributed to the decedent in proportion to the decedent’s capital ownership of the pass-through entity. Pass-through entities include S Corporations, entities taxed as Partnerships, Single Member LLCs and Trusts includable in a decedent’s federal gross estate (Revocable Trusts).

If you have any questions regarding the recent changes to the Minnesota Estate and Gift Tax laws or would like to discuss how these or other changes may affect your current personal estate tax plan, please contact our office.