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The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

Governor Mark Dayton recently signed a new Minnesota tax bill into law.  I want to make you aware of the new law, two important caveats to the law, and how the law may impact the estate planning of your married, Minnesota resident clients.

The New Law:

Minnesota estate tax exemptions have been increased retroactive to January 1 of this year.  The new exemption amounts and marginal tax rates are as follows:

Year of Death Estate Tax Exemption Marginal Estate Tax Rates
2017 $2.1 million 12-16%
2018 $2.4 million 13-16%
2019 $2.7 million 13-16%
2020 $3.0 million 13-16%

 

The location of one’s financial advisor, attorney or account is no longer a relevant factor in determining one’s residency for tax purposes.  Many advisors know that in order to establish and maintain a residency outside of Minnesota, clients need to not only spend at least 183 days outside of Minnesota, but also meet an unquantified number of “subjective” factors.  By reason of this change, our Minnesota location as advisors is no longer taken into account in determining a client’s residency status.

Two Important Caveats:

First, married Minnesota residents should be advised that, in the absence of “Credit Shelter Trust” planning, only the surviving spouse’s Minnesota estate tax exemption amount can be used to exempt assets from Minnesota estate taxes at the death of the surviving spouse.  Unlike the rules governing federal estate tax exemptions which allow the surviving spouse to “port” the deceased spouse’s exemption to make use of both exemptions at the second death, the Minnesota estate tax exemption is not “portable” in this respect.

Second, soon after Governor Dayton signed the bill into law, the Governor exercised a line-item veto to stop funding of the Legislature.  Governor Dayton has requested that the Legislature negotiate some aspects of the tax bill. In particular, Governor Dayton would like to lower the estate tax exemptions.  The Republican leadership has now brought a lawsuit against the Governor.  If Governor Dayton is successful in negotiating lower estate tax exemptions, we will certainly let you know.

Married Minnesota Clients:

Advisors should review the estate plan of married Minnesota residents in coordination with their current financial situation.  Because of the increases in estate tax exemptions at both the federal and state levels in recent years, there are likely many Minnesota married couples who have total assets of below $2.1 million and who still have a credit shelter trust plan in place.  While there may be other good reasons for the implementation of a trust for a spouse following the first death, the increased state and federal estate tax exemption amounts means that the credit shelter trust strategy may no longer be necessary to minimize taxes.  Alternatively, married Minnesota residents with assets in excess of $2.1 million should establish a Credit Shelter Trust as part of their estate plan if they have not already done so.

Here, as in all estate planning conversations, there should be no mismatch between a client’s financial situation, their planning objectives, and the structure of their estate plan.