The day after someone dies, the property they own or have a beneficial right to and the monies they owe become a part of their estate. The media often hypes a death tax and what it can cost a family. The reality is, less than 1% of Americans have an estate large enough to require paying estate taxes.
Let’s address some of the most frequently asked questions.
In 2022, a federal estate tax return must be filed when the gross value of property in someone’s estate exceeds $12.06 million, adjusted annually for inflation. This amount is referred to as the federal estate tax exemption.
The requirement to file an estate tax return is based on the gross value of the estate, while the tax is based upon the net value of the estate.
Assets in an estate can include the decedent’s home, the value of the assets in their home, their retirement account, or a life insurance policy. The property can also include ownership in a family cabin, a partner in a partnership, or a shareholder in a closely held corporation. The property does not need to be owned solely by the deceased, nor do all properties have the same outcome. Joint assets can be owned as joint tenants or tenants in common, with the key difference being who owns the property at death.
Portability is a way for spouses to combine their exemption. More specifically, it’s a process where a surviving spouse can pick up and use the unused estate tax exemption of a deceased spouse.
The surviving spouse has both their own exemption from estate and gift tax but also, the unused exemption of the deceased spouse.
In Minnesota, the estate exemption is $3 million, so estates in excess of $3 million must file a Minnesota estate tax return. (A little more than $9 million less than the federal amount.) For estates greater than $3 million and less than $12.06 million there are planning opportunities for couples to minimize the Minnesota estate tax.
Unlike the federal filing requirement, portability does not apply for Minnesota estate tax purposes. If the Minnesota exclusion amount is not utilized on the first death of a couple, it is lost.
Boulay’s Estate and Trust team is well-versed in the complex rules related to estate tax returns and can help navigate the ever-changing landscape. Contact us today to learn more.