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

C. Gift Tax
1. EGTRRA partially severed the uniform gift and estate tax system that was enacted under the
Tax Reform Act of 1976. As of 2004, the gift tax applicable exclusion amount did not match
the estate tax applicable exclusion amount, although the maximum gift and estate tax rates
were still the same. Specifically, while the federal estate tax exclusion increased to
$1,500,000 in 2004, the maximum gift tax exclusion remained at $1,000,000. The concept of
a unified credit did not exist in those years, and clients who used their full gift tax applicable
exclusion amount during their lifetimes may still have part of their estate tax applicable
exclusion amount remaining upon their deaths. Note that ATRA reunified these exemptions
for tax years 2013 and forward.
D. Minnesota Estate Tax
1. Since 2001, Minnesota’s estate tax laws have not been unified with the federal estate tax laws.
Minnesota’s laws have remained with the pre-EGTRRA estate tax exclusion amounts. MINN.
STAT. § 291.005, subd. 1, Part (8) (“‘Internal Revenue Code’ means the United States Internal
Revenue Code of 1986, as amended through December 31, 2002.”).
2. The fact that Minnesota is no longer a pick-up state for estate tax purposes significantly
impacts existing marital deduction estate plans. Many marital estate plans drafted before
EGTRRA funded the credit shelter amount using the maximum assets that could pass free of
federal estate tax. This type of plan could now result in Minnesota estate tax upon the death of
the first spouse. With increasing federal applicable exclusion amounts and Minnesota
exemption fixed at $1,000,000, pre-EGTRRA estate plans may end up paying estate taxes that
could be deferred and avoided completely.
3. This does not mean that clients should automatically limit these plans to avoid paying any
estate tax on the death of the first spouse. In some cases, it may make sense to pay some
Minnesota estate tax on the death of the first spouse in order to shelter a greater amount from
federal estate taxes on the second death. The maximum Minnesota estate tax rate is 16%,
while the maximum federal estate tax rate is currently 48%. With the uncertainty in the tax
rates, applicable exclusion amounts, and the dates of each spouse’s death, it is important to
build flexibility into estate plans and opportunities for post-mortem estate planning.
4. As of this writing, the Minnesota legislature was working on the passage of a state gift tax for
lifetime gifts in excess of $1,000,000. The details of implementation are not fully known, but
presuming it is enacted this will be a further decoupling aspect of Minnesota law compared to
the federal laws. Advisors will have to be very careful not to recommend gifting that will
result in state gift tax without fully discussing it with the clients.
5. This decoupling of the federal and Minnesota estate tax systems means that an estate may be
required to file a Minnesota estate tax return even though the estate is not required to file a
federal estate tax return. Minnesota Statutes section 289A.10, subd. 1 sets forth the
requirements for filing a Minnesota estate tax return, providing that a personal representative
must file a Minnesota estate tax return for a decedent who has an interest in property with a
situs in Minnesota, if either of the following is true:
a. a federal estate tax return is required to be filed; or
b. the federal gross estate exceeds . . . $1,000,000 for estates of decedents dying after
December 31, 2005.
15