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Estate Planning | Questions about Minnesota’s New Gift Tax?

Minnesota has become one of only two states to impose a tax on gifts.

Effective for gifts after June 30, 2013, Minnesota will apply a 10% gift tax. Individuals will be allowed a lifetime credit of $100,000 against the Minnesota gift tax, meaning the credit shelters $1 million of gifts over an individual’s lifetime. Any applicable gifts made in excess of $1 million over a person’s lifetime will be subject to the 10% tax. The gift tax also applies to residents of other states if they make taxable gifts of Minnesota real estate or tangible personal property located in Minnesota. The annual gift exclusion is still available.

Last-minute gifts made prior to an individual’s death will be included as well. The Minnesota estate tax will now be computed by including any gifts made within three years of death. This provision is retroactive to persons dying after December 31, 2012.

What this new legislation means is that an individual has $2 million of exempt transfers under Minnesota law: $1 million of lifetime gifts, and another $1 million exemption at death. However, the lifetime transfers must be at least three years prior to an individual’s death to avoid having those gifts being pulled back into the estate.

If you are considering making gifts during your lifetime, you should be aware that it is more than just a decision about the timing of when heirs receive the assets. From a tax standpoint, assets transferred by gift maintain the value that they had when you acquired them, so there may be capital gains taxes due when a gifted asset is sold. However, assets passing after death are valued at an amount equal to the fair market value at the date of death.

Learn More

To learn more about the Minnesota gift tax, please call Terry at (952) 953-8824.