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On March 21, 2014, the Minnesota legislature passed and Governor Dayton signed into law a tax bill making significant changes to the estate and gift tax laws in Minnesota. 

First, the bill retroactively eliminates the Minnesota gift tax, which was established in 2013.  State gift tax returns are not required for gifts made in 2013.  Of course, a federal gift tax return is still required if necessary under the federal rules.

Additionally, Minnesota increased the estate tax exemption for those dying in 2014 from $1,000,000 to $1,200,000.  The tax rate ranges between 9% and 16%.  The rate will increase by $200,000 in each of the next four years.  By 2018, the estate tax exemption rate will be $2.0 million and the estate tax rate will be between 10% and 16%.

Minnesota will include in a decedent’s estate gifts made within three years of death if such gifts are over the annual exclusion amount (currently $14,000 per person per year)/

Minnesota has not adopted the federal concept of portability.  Therefore, married couples in Minnesota may want to consider a QTIP trust.  A QTIP trust creates two trusts, a “Family Trust” to hold the estate tax exemption amount (currently $1,200,000), and a “Marital Trust” to hold the remaining for the benefit of the surviving spouse.  No tax is due on the death of the first spouse, because the decedent first receives the estate tax exemption and the remainder is not taxed because it is a transfer for the benefit of the spouse.  On the surviving spouse’s death, the assets in the Marital Trust are included in the surviving spouse’s estate, but the Family Trust assets are not.  This shields the Family Trust from being included in both spouse’s estates.

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