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2013 Minnesota Estate and Gift Tax Changes

Govenor Dayton signed bill MN HF0677.4 (click the higligted link to view the bill itself) into law May 23rd, 2013.

There are numerous tax changes to state treatment of property tax, income tax and estate and gift Taxation. My  notes and highlights are below:

State Income Tax Update

1) Changes- the bill increase the income tax rate from 7.85% to 9.85% on the portion of taxable income in excess of $250,000 for married joint filters, $200,000 for heads of households, and $150,000 for single filers. Effective date income earned after Dec. 31st 2012. The new MN income tax rates look like this:

mn income tax

State Estate & Gift Tax Update

1) New- creation of the MN Gift Tax( Minnesota joins Connecticut as the only states in the nation to have a state gift tax) – for amounts over $1,000,000 exemption gifted during lifetime. The tax is a flat tax of 10%. Gifts of assets held outside the state of MN are not counted for MN gift tax purposes. The tax is separate from (not unified with the MN Estate tax). Effective June 30th, 2013.

2) New– For residents of MN- 3 year look back for Federally taxable Gifts transferred within 3 years of death to include real, intangible or tangible. They will be included in taxable estate even if not currently in MN. There will be a nonresident decedent tax credit for state estate tax paid in other states. Effective date is decedents dying after Dec. 31st, 2012 although only for gifts after June 30th, 2013.

3) New– non residents with tangible or real assets in pass through entities will now be subject to Minnesota estate taxation as the state now disregards  or “looks through” any pass-through entities. Note: this will effect residents of the state who may have changed domicile in order, or in part, to avoid or reduce state estate taxation.

4) Changes- A slew of changes related to the exclusion of passive investment activity related to the qualified business and farm exclusion amount of $4,000,000. I will update the changes to the attached piece I created last year summarizing this increased exemption for qualifying businesses and farm land.

5) Changes- Estate tax returns are now required if the sum of the federal gross estate including federal adjusted taxable gifts within 3 years of death exceed $1,000,000. Effective for estates after Dec. 31,2012. There will be a credit for gift tax paid.

Note that it is helpful to clients to make any gifts before June 30th that might be federally taxable gifts to avoid the use of MN lifetime exemption. Once the $1,000,000 MN gift exemption is used up by a client all future gifts are immediately gift taxable at a rate of 10%.

Lastly, any gifts made before June 30th 2013 but after Dec 31st 2012 are includable in the clients estate, should the client die, for the next 3 years as the effective date of the 3 year look back is for gifts after Dec. 31st, 2012.

Hope this is helpful.

Jeremy P. Green CFP, CTFA, CLU, CEBS, MSFS, AEP, EA 
Wealth Strategist & Expert Witness Consultant
Wealth Strategist Designs
Cell: 612-405-0799

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