Recent Legislative Changes Affecting Minnesota Estate Planning

Recent Law Changes
The Minnesota legislature recently made some very positive changes that relate to estate planning. The changes simplify and even reduce taxation for MN residents dying on or after January 1, 2014.

Gift Tax
The Minnesota Gift Tax has been retroactively repealed. This is wonderful news, since Minnesota had been one of only 2 states to have a state gift tax. The tax complicated planning for residents, and subjected them to a 10% tax on any assets transferred in excess of $1 million (with the exception of annual exclusion gifts). The gift tax limited the effectiveness of estate planning via large lifetime gifts and/or funding of Irrevocable Trusts. The change makes it easier to fund those gifts and trusts, in many cases without needing to use more complicated funding strategies.

Increased Minnesota Estate Tax Exemption amount
Another positive change for Minnesota taxpayers occurred this year. The Minnesota estate tax exemption amount has been increased from $1 million per person, to $1.2 million per person in 2014. This means each individual may pass up to $1.2 million to his or her heirs, free of MN estate tax. Any amount over that is taxed at a rate of 9-16%.* The exemption amount will increase by $200,000 each year until 2018, when the exemption amount will reach $2 million per individual.

Three Year Transfer Rule
One change, not so favorable to taxpayers, is the enactment of a three year transfer rule. Under this new provision, any gift given within three years of death will be brought back in to the estate of the transferor. This takes away the ability of Minnesotans to make ‘deathbed transfers’ of assets in order to avoid the estate tax. So, Minnesota residents need to use more forethought in planning their estate and gift strategies. The combined gift and estate tax exemption amount for Federal tax is $5.34 million in 2014. So each individual may transfer a combined $5.34 million free of Federal estate tax and gift tax. The Minnesota estate tax exemption amount is $1.2 million for 2014, so the strategy of making lifetime gifts is a good one in order to reduce the MN estate tax. The trick is to plan ahead as much as possible, so chances are good that the transferor will ‘outlive’ any large gifts by at least 3 years.

Changes to Power of Attorney Form
Minnesota recently changed the statutory short form Power of Attorney. Effective January 1, 2014, the new form must be used. The new form contains informational and consent language for the principal (appointing person) and the attorney-in-fact (the appointed agent). The new form also contains revised language regarding gifts to the attorney-in-fact, and a requirement that the attorney-in-fact sign an acknowledgement in order to access damages from financial institutions refusing to honor the form.

Another recent law change relating to powers of attorney became effective August 1, 2013. This change allows an 'interested person' as defined under statute, to petition the court to require an accounting from an attorney-in-fact (appointed agent), and entitles the petitioning party to recover attorney's fees and costs from the attorney-in-fact if the accounting is not properly rendered.

*The MN estate tax rates begin at 9%, and go up gradually to a high rate of 16 %.


If you have any questions regarding the Minnesota Estate Planning changes outlined in this article, or if you'd like to discuss your own Estate Planning needs, please contact Shannon Hooley Enright.  Call 651-439-2878 or send an e-mail.

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