Under current law, the manner of calculating a Minnesota estate tax liability sometimes yields surprising results. If a non-resident of Minnesota dies with real property or business assets in Minnesota, and if this “non-resident” owned assets total assets in excess of the Minnesota estate tax exemption, then some Minnesota estate taxes are due. Note that tax will be due even if the total value of the real property or business assets in Minnesota is below the Minnesota estate tax threshold!
The method for calculating the estate tax for a non-resident is as follows:
1. Calculate the total estate tax, using the Minnesota estate tax calculators, assuming that the resident was, in fact, a Minnesota resident.
2. Calculate a fraction, the numerator of which is the total value of real property or business assets located in Minnesota, and the denominator of which is the decedent’s federal (total) taxable estate.
3. Multiply the first tax amount by the fraction in step 2 to yield the total tax due.
As an example, consider the case of Arnold Brainerd. While Mr. Brainerd became a Florida resident many years ago, he still owned a cabin property in northern Minnesota at the time of his death. When he died in 2017, Arnold owned total assets of $5.0 million. His total assets included a $1.0 million Florida residence, $3.5 million in liquid assets, and the northern Minnesota property worth $500,000. The value of the property located in Minnesota would only include the $500,000 northern Minnesota property. Arnold’s estate would calculate a Minnesota estate tax liability as follows:
1. Total Minnesota estate tax on a $5.0M estate in 2017 is $348,000.
2. The percentage of Arnold’s total estate located in Minnesota is 10% ($500,000 cabin divided by $5.0 million total assets).
3. The resulting Minnesota estate tax is $34,800 (10% times $348,000).
Note that even though Mr. Brainerd died with Minnesota assets of less than the Minnesota exemption amount, an estate tax is still owed.
Please contact me with questions, or to obtain our assistance in calculating projected Minnesota estate tax liabilities under various scenarios.