Notice: Tax law change… to the tax payer’s benefit

Back on March 21, a tax bill was passed changing two significant tax laws that were enforced; a Minnesota Gift tax and Estate tax.  Unlike recent trends of higher Income tax rates and few deductions, these new laws benefit the tax payer.  Before I go in to detail of the changes, let me give a brief background of these tax laws previously.

Minnesota is one of 16 states the currently has an estate tax in place – keep in mind this is above and beyond the Federal Estate tax laws in place.  Prior to 2014, the Minnesota exemption was only $1 million; meaning that if your estate was greater than $1 million upon death you would be exposed to Minnesota estate tax.

When looking at Gift tax laws, Minnesota was one of only 2 that imposes a state gift tax – Connecticut being the other state.  Minnesota passed this bill just last year on May 20, 2013.  At first glance, one may feel that Minnesota has fairly harsh tax laws when looking at these two laws compared to the other states.  Minnesota Legislature and Governor Dayton took a lot of heat with regards to these two laws.

Fast forward to 2014, the Legislature repeals the Gift tax bill retroactively they just voted in favor of the year previous.  This means that no one would have exposure to this tax in 2013 or 2014.  While doing this, they also increased the exemption on Estate tax from $1 million to $2 million.  However, this will be a gradual increase over the next 5 years until 2018.  This new bill will increase the Estate tax exemption by $200,000 each year until it reaches $2 million in 2018.

In conclusion, both of these changes provide a great deal of flexibility for Minnesota residents when doing their estate planning.  As an advisor, we want to make sure clients can minimize their total tax and pass on their hard earned assets to those they desire.  It has been my experience that estate planning is the most overlooked area of financial planning.  Most people end up procrastinating on this because planning for your passing is not desirable to anyone, however, if passing assets on or making the distribution of your estate as simple as possible I highly advise you to take action.

Please reach out if you have any questions.  Hope you found this informative and have a great week,

Matt

Source: Minnesota Department of Revenue