They say that a picture is worth a thousand words. In this month’s update, I share two pictures to illustrate two important Minnesota estate tax planning strategies. In general, I try to limit the length of my monthly advisory updates to 500 words. For purposes of this month’s advisory update, I hope that each of these two pictures are worth at least 250 words.
Family Trust Planning
Married Minnesota residents who desire to transfer more than $3.0 million to family must use a family trust structure. Following the first death, assets of up to $3.0 million are used to fund a Family Trust, and the surviving spouse owns all remaining assets. 1 At the second death, the surviving spouse’s remaining exemption can be used to shelter an additional $3.0 million. In total, the plan would allow for the transfer of $6.0 million free of Minnesota estate taxes.
Gift Planning
Minnesota residents can minimize or avoid estate taxes through lifetime gifts. Consider the hypothetical scenario of Mary making annual gifts to her only son, Michael, for the five years beginning in 2025 through her death in 2029. The gifts shown in red below will be subject to Minnesota estate taxes, while the gifts shown in green below will not be subject to Minnesota estate taxes.
If Mary made gifts of cash of $19,000 in each of these five years, and $500,000 in stock in each of the five years, the estate tax rules are as follows:
- The cash gifts of $19,000 in all five years will pass free of estate taxes. 2
- The gifts of stock in each of 2025 and 2026 will pass free of Minnesota estate taxes because these gifts were made at least three years before Mary’s death. 3
- The gifts of stock in each of 2027, 2028, and 2029 will be subject to Minnesota estate taxes because these gifts were made within three years of Mary’s death.
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