Gift and Estate Tax Updates for MN

On the 21st of March, 2014 Governor Dayton signed a bill into law that repealed the gift tax adopted in 2013. The repeal was retroactive, but contains a problem as to certain gifts made in excess of the Federal annual exemption limits (currently $14,000) during the three year period prior to a death. This may be fixed later.

The Minnesota legislature also adopted a phased in increase in the exemption from the estate tax. It goes from $1,200,000 in 2014 to $2,000,000 in 2018. Each year the exemption increases by $200,000. The legislation also corrected a “technical” rate bubble which taxed the first $100,000 of an estate in excess of the exemption at a relatively high rate.

The Minnesota estate tax ranges from 9 to 16 percent in 2014. In subsequent years the tax will go to 10 to 16 percent of the excess over the exemption limit.

The new tax law also provided for a QTIP (qualified terminal interest) election for certain trusts. Federal tax law allows for an unlimited marital estate tax deduction. Essentially assets left for a surviving spouse, no matter how much, qualified for an exemption. The logic was that the tax would be levied upon the death of the surviving spouse [The Bill Gates Exemption]. The estate tax, if any, would be determined and paid upon the death of the surviving spouse.

The prior law in Minnesota required a federal tax return, with the QTIP election on the federal return, to qualify for the Minnesota marital estate tax deduction. Because some estates were subject to the Minnesota estate tax and not the Federal estate tax, there was a real issue for tax professionals. The recently adopted law allows for a QTIP election on the Minnesota return, only for the purpose of the Minnesota estate tax.

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