Minnesota has an estate tax that may tax both residents and non-resident property owners alike. Though the estate tax rate may exceed fifteen percent, an effective plan may reduce or eliminate the tax liability that would be present without such preparation.
The Minnesota estate tax exemption increases to $3.0 million beginning in 2020, where it will remain under current law. This means individuals and couples with a net worth less than the exemption amount will be able to “exempt” their estate tax liability; however, those with a net worth greater than the exemption amount will potentially recognize a liability and would therefore be greatly benefited by an effective estate plan.
The Minnesota tax exemption is not “portable,” meaning that spouses are not able to combine their exemptions to double the exemption threshold. For example, assume a couple has a net worth of $5 million (each spouse has an equal net worth of $2.5 million). Upon the death of the first spouse, his $2.5 million would transfer to the second spouse, at which point she would have a net worth of $5 million. There would be no estate tax at the first death because the net worth of the first spouse is less than Minnesota’s tax exemption value. But, at the death of the second spouse, there will be Minnesota estate tax on $2 million ($5 million net worth less $3 million exemption). That’s a completely avoidable $260,000+ tax!
Therefore, if you are married and have a total estate of $3 million or more, it is important to have an estate plan that utilizes both spouses exclusions against the Minnesota estate tax. At Chandler and Brown, Ltd., our knowledgeable estate planning attorneys would be happy to meet and determine the best plan for your individual situation in order to prepare you and your family for the future.