Only two things in life are certain – death and taxes. In Minnesota, depending on the size of your estate, it is possible that upon your death, your estate may be taxed again before it is passed to your beneficiaries. Although many other states have already gotten rid of estate taxes, Minnesota has opted instead to keep the estate tax. This year the Minnesota legislature made additional changes to the estate tax structure.
Prior to the passage of the 2017 tax bill in Minnesota, the law provided that if your estate was worth less than $1.8 million dollars, your estate was exempt from having to pay an estate tax. After the law was signed, the exemption was raised to an estate worth of $2.1 million dollars. The exemption will increase every year until 2020, when the exemption will reach $3 million dollars. The exemption is also retroactive under the new law, which means that it applies to any death from January 1, 2017 forward. What this means is that if an estate is worth less than $2.1 million dollars, then the estate will be exempt from having to pay any estate taxes.
It is also important to understand what is actually included in the computation of whether your estate is subject to an estate tax. The assets included in the estate for probate purposes are not the same as the assets considered when computing an estate tax. Most notable is that life insurance is included when deciding whether an estate is subject to an estate tax. This can come as a big shock to people with otherwise modest or average assets. A large life insurance policy can often push a person’s estate over the boundary such that the estate will be subject to the estate tax. This is also the case for federal estate taxes, although the exemption for the federal estate tax is much higher.
In order to insulate their estates as much as possible from these taxes, it is important that people have careful estate planning. For example, people with large estates may want to look into other ways to transfer assets, such as lifetime gifts, which are not taxed as long as the grantor makes this gift at least three years before his or her death.
Call us today at (320) 299-4249 and let us talk with you about your estate and how to protect your assets. We can create strategies tailor-made to your case.