“In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin
With this famous line written in 1789, Benjamin Franklin offered a friend some wisdom that has become one of his most-quoted quips. While some taxes are certain, Estate and Inheritance tax laws continue to evolve. An Estate Tax is often called a death tax, because it is a tax that may be levied on the assets of a decedent before inheritance is distributed to beneficiaries. An Inheritance Tax is a tax levied against beneficiaries of an estate, or a tax on the amount of money inherited. Both the Federal Government and the State of Minnesota require that large estates pay Estate Taxes, after certain exemptions are applied. This means that taxpayers who paid taxes on their wealth may pay taxes on those assets again when they die in the form of an estate tax.
In 2017, the Federal Estate and Gift Tax exemption is $5.49 million per individual; This will increase to $5.6 million in 2018. This means that a married couple could claim the exemptions, and leave nearly $11 million dollars to heirs before their estate must pay federal taxes on the balance of assets. This tax is estimated to impact only 1 in 517 estates in the U.S. in 2017. Those in this tax bracket need to do some careful planning because the maximum federal estate tax rate is 40%.
Minnesota is one of only 14 states that imposes a separate estate tax. If you are a resident of Minnesota, or a nonresident of Minnesota with property located in the state, your estate will have a lower estate tax threshold when compared to the federal limit. Taxpayers who pass away with assets below the federal exemption of $5.6 million, but over the Minnesota threshold face estate taxes. This year the Minnesota legislature increased the estate tax exemption to $2.1 million per individual, retroactive to January 1st, 2017. This individual exemption will increase by $300,000 each year to $3 million by the year 2020. This means a married couple will be able to leave a $6 million dollar estate in 2020 and not be subject to Minnesota estate taxes. This is good news for estates that are required to file an Estate Tax Return with Minnesota Revenue because the maximum estate tax rate is 16%.
The Federal estate tax exemption is portable between spouses – meaning if one spouse dies, the surviving spouse will still be able to enjoy the tax exemption amount of both without additional planning. However, portability of estate tax exemptions between married individuals does NOT exist in Minnesota. Because of this, if a couple in MN has a total estate value of $4 million, and one spouse passes away leaving their share to surviving spouse, and surviving spouse dies a month later…that individual is taxed on anything above $2.1 million (per the MN estate tax exemption in 2017). It is important to plan properly in order to fully utilize the full Minnesota estate tax exemption amount between spouses.
Although Ben Franklin advised that death and taxes are a certainty for all of us, careful planning can help you and your loved ones minimize estate taxes. Schromen Law, LLC can help you examine all your options for ensuring more of your hard-earned dollars go to your family, and according to your wishes.
The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Schromen Law, LLC and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.