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Estates in Minnesota
Estate taxes affect very few estates. Minnesota allows an exemption of $1,600,000 before an estate tax is charged. The federal government allows over $5,400,000 to pass at death without payment of an estate tax. Minnesota has a three year look back regarding the estate tax. Any transfers within 3 years of death are added back to the estate, to the extent that the gifts exceeded $14,000 per person per year.
According to Kipplinger, 46 other states are friendlier than Minnesota for the estate tax.
What can a person do to avoid estate taxes?
1. The simplest solution is to make gifts, as much as $14,000 per person per year, can be given without gift or estate tax consequence.
2. A couple can create disclaimer trusts in their Will or Trust. Then, the survivor can disclaim some inheritance to the trust, which operates as a reserve fund, but it is not taxed at the second death.
3. Life insurance can be given away, or transferred to a life insurance trust.
4. Interests in some property can be reduced if the property is owned with others in well prepared partnership arrangements.
5. Moving to a tax friendlier state. Wisconsin works!
Be aware, however, that simply moving to another state will not necessarily avoid all Minnesota estate taxes. If a full time resident of another state continues to own Minnesota real estate, Minnesota will claim an estate tax. First, a tax is computed as if all property was located in Minnesota, then that tax is reduced by multiplying by this fraction: the value of the Minnesota real estate divided by the total value of all property in the estate.