Probate & Trust Law Section Conference Manual ... - Minnesota CLE

I. MINNESOTA ESTATE TAX – LIFETIME GIFTS (etc.).
A. Federal Law. Federal tax law defines a “taxable gift” as any gift that exceeds the
annual exclusion amount of $14,000 per calendar year, per person (the prior limits
were: $13,000 per year during 2012 - 2009, $12,000 during 2008 - 2006, $11,000 during
2005 – 2002, $10,000 during 2001 - 1981 and $3,000 during 1981 - 1977) or other gifts
that don’t qualify for the current interest exclusion (i.e., gifts of a remainder interest when
a life estate is created). Federal law gives a unified credit that can be used to shelter the
first $5,250,000 of taxable gifts and/or assets in a decedent’s estate.
B. Minnesota Law. Current Minnesota law does not impose a tax on gifts. But, taxable
gifts can affect a Minnesota estate tax return (Form M706). Minnesota imposes an estate
tax (the law is primarily contained in Minn. Stat. Chapters 291 & 289A) if the estate is
required to file a Minnesota estate tax return, AND if persons other than a surviving
spouse receive more than $1,000,000 of assets that are either post-death transfers or
lifetime taxable gifts (i.e., gifts which must be reported on Form 709).
NOTE: At the time this outline was being drafted, the Minnesota legislature was
considering adopting a new gift tax law. The planning techniques discussed below
may not be effective after the effective date of any new gift tax law.
C. M706 Filing Requirement. An estate must file a Minnesota estate tax return if:
1. For Minnesota residents, the gross estate exceeds $1,000,000 or a federal
estate tax return is required to be filed. The federal gross estate includes ALL
assets owned by the decedent including assets that pass to the surviving spouse
but does not include completed lifetime gifts.
2. For nonresidents of Minnesota, if “Minnesota sitused property” (generally,
Minnesota real estate or tangible personal property located in Minnesota) is
included in the federal gross and the federal gross estate exceeds $1,000,000 or a
federal estate tax return is required to be filed.
D. M706 Tax Calculation. If a decedent’s estate is required to file a Minnesota estate tax
return, taxable gifts must be added to the gross federal gross estate for the Table A
calculation--one of the two required tax calculations. The Minnesota estate tax which
must be paid is the lower of the tax calculated by the two separate formulas. See
Appendix pages 1 – 6.
Table A Calculation (lines 1 - 18 of Worksheet to Determine Line 1 of M706):
706 line #
gross estate part 2, line 1 (all assets owned by decedent)
minus deductions part 2, line 2 (marital, debts, charity, admin expense, etc.)
plus taxable gifts part 2, line 4 (lifetime gifts exceeding annual exclusion amount)
minus M706Q (MN’s small business/farm deduction-after 6-30-11)
MN adjusted taxable estate (for Table A)
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