Back in 2017, Governor Mark Dayton signed a Minnesota tax bill into law that, among other items, specifies the Minnesota estate tax rate and estate tax exemption amounts. Minnesota residents with significant assets should be aware of these exemption amounts and why so-called “Credit Shelter Trust” planning (also known as A/B Planning or “Credit Shelter Trust planning”) continues to be important.
Current Law:
For 2020, and all subsequent years, the exemption amounts and marginal tax rates are as follows:
| Year of Death | Estate Tax Exemption | Marginal Estate Tax Rates |
| 2020 | $3.0 million | 13% to 16% |
| 2021 | $3.0 million | 13% to 16% |
| 2022 | $3.0 million | 13% to 16% |
| All subsequent years | $3.0 million | 13% to 16% |
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.
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 $3.0 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 $3.0 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.