The Omnibus Tax Bill signed by Governor Dayton on March 21st is expected to reduce the biennial tax burden on Minnesota families and business by an estimated $444 million. Included in the bill are the following changes to Minnesota’s gift and estate tax laws:
The Minnesota gift tax enacted last year is repealed, with the repeal being retroactive to the date of its enactment. Minnesota residents who made reportable gifts in 2013 (or non-residents who transferred Minnesota property) are therefore no longer required to file a Minnesota gift tax return.
The Minnesota estate tax exemption is raised from $1 million to $1.2 million effective for deaths occurring in 2014. The exemption is scheduled to continue increasing each year by $200,000 until 2018, when it caps out at $2 million.
The Minnesota estate tax deduction for qualifying small business and farms interests is reduced accordingly each year so that the maximum combined exemption and deduction remains at $5 million.
Minnesota’s estate tax rates have been revised to eliminate the 41% marginal estate tax rate bubble that previously applied to the first $94,000 of an estate’s taxable value over the $1 million threshold. The new estate tax rates range from 9% (applicable to amounts just over the $1.2 million exemption) to 16% for estates valued in excess of $10.1 million.
A Minnesota QTIP (Qualified Terminable Interest Property) election has been codified, recognizing an estate tax marital deduction for bequests to certain marital trusts even if a federal estate tax return is not required to be filed. Although the Department of Revenue has been informally recognizing these arrangements for years, codifying the deduction provides a level of certainty that didn’t previously exist.
We note that while the gift tax has been eliminated, the three year look-back on lifetime transfers that was added with last year’s tax bill has been retained. The three year look-back treats gifts made by a decedent within three years of death as part of the decedent’s Minnesota estate for estate tax purposes. The rule was intended to partially eliminate the estate tax benefit of making “death-bed” gifts, which many considered to be a loophole in Minnesota’s estate tax law.
The estate and gift tax changes made by the Omnibus Tax Bill are mostly taxpayer friendly, and should simplify the planning process for many Minnesota families. The repealed gift tax in particular creates new opportunities for lifetime transfers, especially for those individuals who may have postponed planned gifting programs after the implementation of the new gift tax last year.
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