On May 23, 2013, Governor Dayton signed the omnibus tax bill into law, making two significant changes to Minnesota's gift and estate tax laws. The new laws affect Minnesota residents as well as many non-residents. First, Minnesota enacted a gift tax that will apply to gifts made after June 30 this year. Second, the Minnesota Department of Revenue will now "look through" certain entities to tax property located in Minnesota for estate tax purposes, even for non-residents.
New Gift Tax
Gifts made after June 30, 2013, will be subject to a ten percent (10%) Minnesota gift tax. Each individual has a lifetime "credit" of $100,000 against the gift tax (meaning that you can make lifetime taxable gifts of up to $1,000,000 without owing any gift tax). Gifts made within three years of death will also be included in the Minnesota gross estate of a decedent.
The new gift tax applies to gifts that are subject to federal gift tax. This means many useful planning opportunities that are common at the federal level are also available at the Minnesota level, including: annual exclusion from gift tax ($14,000 per recipient in 2013); marital deduction and charitable deduction; and gift splitting by spouses.
A Minnesota gift tax return will be due by April 15 of the year following the gift, in addition to the federal gift tax return.
: The new tax applies to gifts made after June 30, 2013. If you are considering making a significant gift as part of your estate planning, now may be the time to act before the new tax kicks in.
Non-Residents Subject to Estate Tax
With respect to non-residents, the Minnesota Department of Revenue now "looks through" certain companies and trusts, and applies Minnesota estate tax based on real property and tangible personal property located in Minnesota. The Minnesota taxable estate will include such property owned by "pass-through" entities when such "pass-through" entity interests are gifted within three years of death, using the same analysis.
Limited liability companies, S-corporations, and trusts that are treated as "pass-through" entities for income tax purposes are covered by this rule. The donor's or decedent's ownership share of the entity will determine the portion of the real property or tangible personal property located in Minnesota that will be subject to estate tax. This provision applies retroactively to individuals who died after December 31, 2012, and gifts occurring after June 30, 2013, within three years of death.
: Many former Minnesota residents use limited liability companies or similar arrangements to own a Minnesota home or cabin after relocating to another state. Previously, this allowed the former owner to continue to use and control the property while avoiding Minnesota estate tax. These entities may now be attractive assets to gift, especially for gifting non-controlling interests that are valued at less than the $14,000 annual exclusion amount.
We can help.
Please contact Maslon's Estate Planning Group
if you have questions or would like more information about how the Minnesota gift tax and estate tax may impact you or your family.