Below is a summary of the federal estate tax, gift tax, and Minnesota estate tax exemptions amounts for 2021, including a recent update that could affect Minnesota’s estate tax. Please contact FMJ’s Trusts & Estates group if you have any questions regarding the status of the laws.
FEDERAL ESTATE TAX EXEMPTION
As of January 1, 2021, the federal estate tax exemption amount increased to $11.70 million, up from $11.58 million in 2020. Together, a married couple can shelter up to $23.4 million under current law. The top marginal federal estate tax rate remains at 40%.
ANNUAL EXCLUSION FOR GIFT
The annual exclusion amount for gifts in 2021 will remain at $15,000. There has not been a change in the annual exclusion since the amount increased from $14,000 in 2017 to $15,000 in 2018. This means that an individual can gift $15,000 to any person without incurring a gift tax or having to file a gift tax return (IRS Form 709). Any gift in excess of $15,000 will reduce the federal estate tax exemption available at the time of death. For married couples, this means they could give up to $30,000 to each child.
MINNESOTA ESTATE TAX
As of January 1, 2020 (last year), the Minnesota estate tax exemption amount increased from $2.7 million to $3.0 million. Under current law, the Minnesota exemption amount is scheduled to remain at $3.0 million. Minnesota uses a graduated scale to assess an estate’s tax liability and their current estate tax rates range from 13 to 16%.
It is worth noting that Governor Walz just released his proposed 2021 tax plan (“COVID-19 Recovery Budget”), and the proposal includes a reduction of the existing Minnesota exemption amount. Governor Walz recommends reducing the estate tax exemption to $2.7 million. The Governor’s proposal includes a recommendation that this estate tax change would be effective for estates of decedents dying after December 31, 2020, meaning that such a change would be retroactive to the beginning of 2021. While it is difficult to predict the impact of the Governor’s proposal on what occurs in this ongoing legislative session, it is something to keep an eye on.
NEXT STEPS?
Please contact FMJ’s Trusts & Estates attorneys at estateplanning@fmjlaw.com if you have any questions about the 2021 estate tax exemptions or if you have any other estate planning questions that you would like to discuss.
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