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

taxes due of $33,200. But, the standard credit shelter trust formula requires that the trust
increase the marital share to reduce the Minnesota estate tax to zero. Given these facts,
the spouse must be given a larger amount ($461,000) to reduce the Minnesota estate tax
to zero as shown below:
total federal gross estate (calculator line 1): 1,100,000
Marital deduction
taxable gifts 361,000
Minnesota adjusted taxable estate (calculator line 7) 1,000,000
Table A calculation (calculator lines 8 - 16) 345,800
-0-
Table B calculation (calculator line 17) 15,560
Minnesota estate tax due -0-
Appendix – 14.
NOTE: In this scenario, the existence of taxable lifetime gifts (gifts in excess of
the $13,000 annual exclusion amount) reduced the amount that could be allocated
to the credit shelter trust (i.e., the “family share”) by exactly the amount of those
taxable gifts.
E. OTHER ISSUES TO CONSIDER.
1) If retirement accounts or annuities are liquidated as a source of assets to fund
lifetime gifts, then the donor (parent) must pay income taxes on the income
generated from the withdrawal.
• Those income taxes also either reduce the gross estate or are deductible
as a debt on the Form 706. This may help reduce the estate taxes that are
ultimately due.
• It is possible that the donor’s (parent) income tax bracket is lower than
the donee’s (child) income tax bracket.
• If the donees (children) could benefit by deferring recognition of the tax,
then liquidating the account during the parent’s lifetime loses this
opportunity for deferral.
2) If income-earning assets are gifted prior to death, the resulting loss of income
to the donor (parent) may be a financial or emotional concern.
3) Capital assets that are gifted during lifetime do not receive a stepped-up cost
basis at the donor’s death. For highly appreciated capital assets, if/when the
capital asset is sold by the donee (child), the sale will result in a large capital gain
that must be recognized by the donee.
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