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

Bloomberg’s 2017 Tax Projections

The day that we look forward to all year has finally arrived.  No, it isn’t Christmas morning.  Today Bloomberg announced projections for important numbers for the 2017 tax year.  Some notable figures include:

  • Basic Federal Lifetime Exclusion Amount – $5,490,000.00
  • Annual Gift Tax Exclusion – $14,000.00
  • Gifts to a Non-Citizen Spouse – $149,000.00
  • Maximum Tax Bracket for Trust and Estate Income – 39% Beginning at $12,500 of Income.

Although inflation has been low, I was a little surprised to see the Annual Gift Tax Exclusion projected to remain the same for another year.  Also, if these numbers hold, we will see another small increase in the Basic Federal Lifetime Exclusion Amount.

As always, the income tax brackets for trusts and estates are compressed and call for careful planning.  When other circumstances allow, distributions from estates and irrevocable trusts will often be more beneficial tax efficient than accumulating the income inside the trust.

If you would like to see the 2017 Projections in their entirety, you can follow this link: bloomberg-2017-projections.

Prince’s Sad and Incredibly Expensive Mistake! (Are You Making It, Too?)

The news of the unexpected death of music legend Prince, age 57, shocked the world and touched off stirring tributes from the likes of Bruce Springsteen, Elton John, the Harlem Gospel Choir and the cast of Saturday Night Live. Prince left a profound, indelible mark as an artist – when asked what it was like to be the greatest guitar player alive, for instance, Eric Clapton famously responded: “I don’t know. Ask Prince.” Tragically, though, for all his talent, Prince made a simple error that is creating huge complications for his family.

According to paperwork filed with the Carver County, Minnesota courts by Prince’s sister, Tyka Nelson, Prince died intestate. That means he left no will or other document to guide the disposition of his estate. In April 2016, the court assigned a special administrator to manage his estate’s assets until a probate hearing can be held to appoint a personal representative.
Per Minnesota law, his estimated $300 million in assets – which include a large home and a music catalog rumored to contain valuable unreleased songs – must be distributed between his siblings. That may sound like a simple, mundane task, but it’s anything but. And the drama has already started. Reuters recently reported that several relatives have emerged from the woodwork to stake a claim to this fortune, including Carlin Q. Williams, who “asserts he was sired by Prince during a tryst his mother had with the singer in a Kansas City hotel room in 1976.”

What Happens If, Like Prince, You Die Without a Will?

When a person dies intestate, state law determines how the estate is handled. Unsurprisingly, these rules can lead to outcomes that deviate dramatically from the person’s wishes.
For instance, in Minnesota – the location of Prince’s Paisley Park estate, where he passed away on April 21, 2016 – half-siblings and full siblings are treated the same when it comes to inheritance. Tyka Nelson is Prince’s only full sibling; the singer also has five half-siblings.
Would Prince have wanted all six people to receive an equal share of his estate? Would he have left anything to Carlin Q. Williams? Would he have chosen to leave his estate to another person altogether… or to a meaningful charity? Did he just not care what happened to his legacy?
Unfortunately, since he died intestate, we will never get answers to these questions.

A Simple, Inexpensive Solution Was Available All Along

Prince famously toiled over every aspect of his musical art and developed a keen eye and ear for detail. Ironically, he could have prevented his estate’s issues without anything near the amount of effort he put into producing soaring songs like Purple Rain.

Working with an attorney to create an effective will or trust is not complicated. With just a few documents – including, for instance, a trust, healthcare proxy forms, power of attorney designations, and HIPAA release forms – you can eliminate uncertainty and provide for the next generation and your favorite causes.

The costs of probating even a relatively small intestate estate can reach into the five figures, provoke infighting among the people you love dearly, and extend the legal process for months or even years.

If you haven’t established a will or a trust, and you’ve been kicking yourself to get started because of cautionary stories like Prince’s, we can help. Call our offices today to learn, step by step, exactly what you need to do to ensure your legacy.

Cameron Kelly and Stillwater Estate & Business Planning on Voices in the Valley

Featured Guest on Voices in the Valley, How to Capture your Family Stories and Preserve your Family Legacy, Sharing Experiences Collecting and Writing Family History.  Saturday, May 28, 2016. 


A big thank you to Stephani Atkins, creator and host of Voices in the Valley, a relatively new radio show relating to storytelling, which is already attracting a big following.  She asked me to come on the show this week to share a collection of stories and history from members of my family.


A picture of Cameron and his daughter Linden at the KLBB Studio.


The Voices is inter-generational, but has a strong focus on student contributions to literature.  It airs on KLBB Radio, 1220 AM, Saturday mornings at 10:00.  I listened to the show for the first time a few weeks ago, and was very impressed.  The production and personalities are professional and fun to listen to, and the students are so poised talking about their writing.  The purpose of the show is to support the student efforts and to inspire more.


From Mother’s Day to Father’s Day, Voices is featuring topics relating to family history. This week I got to talk with Stephani about my family, and the ways that we have preserved our family history, including an oral history that my aunt and I took of my Grandma Arlene.  We sat down with her after she was diagnosed with dementia in order to make sure we didn’t lose all of her great memories.


When she passed away, what started as a long, raw, recording with a lot of pauses, page flipping and laughing turned into a family treasure. For her funeral, I put together a collection of pictures, and used them to create a video with music playing in the background.  While it played, Grandma’s voice narrated a number of the pictures.  I feel lucky to still have her voice, but with just a few month’s delay we might never have had it.


In addition to the oral history, I talk with Stephani about my Grandpa Richard’s Memories book, and a collection of his sayings called “Richardisms,” compiled by myself and my cousins as children, which we then illustrated and made into a book for his 70th birthday.



Cameron Kelly Presents Tax and Estate Planning Continuing Education

Cameron Kelly Featured Presenter at National Business Institute, Estate Planning from A to Z, Basic Tax Planning, webinar broadcast on May 24 & May 25, 2016.

A nationally broadcast continuing education course provided to attorneys, financial planners, trust officers, accountants and CPA’s to learn or review the basic concepts relating to the transfer of assets during life, or at death. The course can be accessed for credit on a continuing basis at the National Business Institute Website.  Topics include:

  • The new federal basis reporting requirements;
  • New federal regulations relating to portability elections;
  • Fundamental estate tax topics including determining the gross estate, estate tax reporting, and calculations;
  • Intermediate estate tax topics relating to the marital deduction, and QTIP election;
  • Gift tax fundamental concepts, gift reporting, and calculations;
  • The federal generation skipping transfer tax or GST, including the advantages and disadvantages of different types of generation skips, and election out of automatic allocation of GST exemption;
  • Concepts relating to the final income tax return of a decedent;
  • Fiduciary income tax reporting;
  • Strategies relating to post-mortem income tax planning for estates and trusts, including the use of a  fiscal year and the 645 Election.

Access the tax planning outline here: NBI Basic Tax Planning SE&BP, and the power point slides here: Basic Tax Planning.

What the Recently Released 2016 IRS Inflation Adjustments Mean for You

The Internal Revenue Service has released the official inflation adjustments that will affect 2016 federal reporting for estate taxes, gift taxes, generation-skipping transfer taxes, and estate and trust income taxes. These changes will affect the way your accountant and your attorney help you plan as 2015 comes to an end.


Cameron Kelly certified as a Real Property Specialist

In 2014, Cameron was certified by the Minnesota State Bar Association as a Real Property Specialist. Criteria for certification includes a certification exam, percentage of practice spent on real property issues, references from peers, and ethical standards.

Cameron has worked on real estate issues since he was admitted as an attorney in 2003, and continues to use his real estate knowledge for individuals and business clients

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