What You Need to Know About 2013 Minnesota Estate and Gift Tax Changes

Much has been made of the 2013 Minnesota Legislature’s Omnibus Tax Bill and its increased income taxes for higher income taxpayers as well as an expanded sales tax for some business to business services.   Lost in the shadow of these headline grabbing tax hikes has been the fact that effective as of July 1, 2013, Minnesota will become only the second state in the United States to impose a state-level gift tax.

Under the Minnesota gift tax, gifts made effective July 1, 2013 and afterwards will be subject to a flat ten percent (10%) gift tax.  A lifetime gift tax credit of $100,000 is afforded to all taxpayers which, at the 10% rate effectively shields $1,000,000 of lifetime gifts from the tax. 

Along with the imposition of a state level gift tax, the new tax laws also affect aspects of Minnesota’s estate tax.  In light of the gift tax and the lifetime credit, gifts made within three years of a person’s death will be included in the person’s estate for purposes of determining their Minnesota estate tax. 

Additionally, non-residents owning Minnesota real property and/or tangible personal property within a pass-through entity such as an S corporation, partnership or limited liability company will now pay Minnesota estate tax on such assets (previously non-residents only paid Minnesota estate tax on real property and/or tangible personal property held in their own name). 

What do these tax law changes mean?  Like most such changes, they will prompt more visits to your tax and estate planning attorneys so as to structure asset ownerships and gifting schedules designed to avoid the incursion of Minnesota estate – and now gift – taxes.