Minnesota Estate and Gift Tax Law Changes

June 2013

On May 23, 2013, Governor Dayton signed the Omnibus Tax Bill that includes significant changes to the Minnesota estate and gift tax laws. The following are some key provisions of the law:

1. Imposition of New Gift Tax. Under the new law, which is effective for gifts made on or after July 1, 2013, gifts in excess of a lifetime exemption of $1 million will be subject to a 10% flat rate tax. More specifically, an individual is allowed a lifetime credit of $100,000 against this gift tax, so that the credit will effectively shelter $1 million of lifetime gifts. However, the federal gift tax provisions that exclude certain transfers from being subject to gift tax will apply to Minnesota gifts. Consequently, the Minnesota gift tax will not apply to present interest annual exclusion gifts (currently $14,000 per person per year, indexed for inflation), as well as gifts to a spouse and qualifying charitable organizations. The Minnesota gift tax will also apply to gifts of Minnesota property owned by nonresidents.

2. Changes to Minnesota Estate Tax for Residents. Under the new legislation, Minnesota estate tax will now be computed by including gifts made within three years of death. The legislation effectively gives a taxpayer a $2 million exemption ($1 million of lifetime gifts and another $1 million exemption at death), but the lifetime transfer needs to be at least three years prior to death to avoid the pullback into the estate. The legislation makes this provision retroactive to persons dying after December 31, 2012.

3. Changes to Minnesota Estate Tax for Nonresidents. Residents of other states will now be subject to Minnesota estate tax on the value of real and personal property owned in the state of Minnesota that is held in a passthrough entity (such as a S-corporation, partnership, LLC and some forms of trusts).

If you are thinking about gifting as part of your estate plan, you may want to act before the gift tax legislation goes into effect in July 1, 2013.

Contact David Ness, the head of FMJ’s Trusts & Estates group, at 952.995.9500 or david.ness@fmjlaw.com, if you have questions or require additional information.