Minnesota Estate Tax Legislative Update – 2017

Minnesota Estate Tax

The Minnesota Legislature has passed a bill which will increase the Minnesota estate tax exemption from its current level of $1.8 million, to $2.1 million for individuals dying in 2017. The legislation also adjusts the estate tax exemption in subsequent years; increasing the exemption by $300,000 per year until 2020 at which point the exemption would reach $3 million.


The estate tax provision is part of the 2017 tax bill, and must be signed by Governor Dayton before becoming law. Assuming the Governor signs the bill, the new estate tax exemption would go into effect immediately, and will be retroactive to January 1, 2017.


What This Means for You

Each Minnesota resident has a lifetime exemption from the Minnesota estate tax. The exemption is the amount of property that can be part of a person’s estate at death without being subject to the estate tax. Currently, the Minnesota exemption is $1.8 million. The bill passed by the legislature would raise the exemption to $3 million by 2020.


The State of Minnesota currently uses a different estate tax exemption than the federal estate tax exemption. The current federal exemption amount is $5.49 million. The difference between the state and federal exemption has caused frustration for clients, who must plan for the Minnesota estate tax despite owning property well below the federal exemption amount.


Estate planning attorneys are able to work with the gap between the two exemption amounts in order to eliminate tax in many situations. However, the gap has caused many clients to have estate tax issues, who would not otherwise need to file a return or pay tax under the federal system. Many of these clients have estates in the range of $2 to $3 million. While the increase in the exemption amount to $3 million over time will reduce the number of Minnesotans who need to plan for the estate tax, it will not solve the estate tax exemption gap for others.


It is important to note that the Minnesota and federal estate taxes both include assets that most people would not consider part of their net worth. Specifically, many clients do not realize that life insurance is included in their gross estate for estate tax purposes. Clients with otherwise modest estates are subject to estate tax because of their life insurance policies. The new legislation will help many of these clients by increasing the exemption.


No Portability

One problem that has not been addressed by the new legislation is commonly referred to as “portability.” Portability is where the unused exemption of a deceased spouse is allowed to pass to a surviving spouse at death. Portability is useful in cases where couples have neglected to plan for estate tax. The failure of the legislature to address the issue of portability underscores the importance of planning for residents of the State of Minnesota.


Big Benefits for Spouses who Plan

Clients who do plan for the Minnesota estate tax can see dramatic benefits. First, by planning ahead married couples can utilize both of their exemption amounts to double the amount of money they can pass at their death. Under current levels, this allows a married couple to pass a combined $3.6 million at death. Under the proposed legislation, they could pass as much as $6 million in 2020 by planning ahead. Second, the State of Minnesota does not tax gift transactions. This provides an opportunity for couples to reduce their total estate during their lifetime by making gifts.


Cameron Kelly is an estate planning and business attorney with the Lommen Abdo Law Firm, practicing in Stillwater, Minneapolis, and Hudson.  He enjoys providing high quality planning for individuals and businesses. His practice includes assisting clients with comprehensive estate planning, including wills, trusts, powers of attorney, health care directives, and living wills. He also has a special interest in the estate, gift, and income taxation of estates and trusts. In addition to estate planning, Cameron works with business owners from formation, to business succession.


If you have questions about your estate plan or tax planning, please contact Cameron Kelly at 651-705-6277 or ckelly@stillwaterestateplanning.com

Estate Planning Process