The Wealth & Wisdom Blog

Spring is finally here. The grass is green, the trees are budding, and Mother’s Day is this Sunday. It also means that my portable television can now be transported outside, where I can enjoy streaming baseball games by our backyard firepit. My portable television is more useful to me now, in May, then it was back in January. Similarly, certain tax benefits, such as the Minnesota estate tax exemption, are most beneficial if used at the right time. In this month’s update, I summarize the implications of the lack of portability of the Minnesota estate tax exemption.
An estate tax exemption is the amount that can be distributed to family members free of estate taxes at death. Currently, the federal estate tax exemption is $13.99 million, and the Minnesota estate tax exemption is $3.0 million.1 Assets directed to a surviving spouse, or to a trust for the benefit of a surviving spouse, following the first death between spouses pass free of estate taxes through the “unlimited marital deduction.” Under Minnesota law, however, this transfer merely adds to the assets owned by the surviving spouse without accounting for the deceased spouse’s Minnesota estate tax exemption.

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In the iconic comic strip, Peanuts, Charlie Brown is repeatedly invited by Lucy Van Pelt to kick a football held to the ground by her, ostensibly ready for Charlie’s strong kick.  Each time, the football is withdrawn by Lucy at the last moment, causing Charlie to whiff on his kick, leaving Charlie on the ground, humiliated by Lucy.

Over the past 15 months, our law firm assisted a few of our clients to file Beneficial Ownership Reports with the Treasury Department.  As summarized in a blog post last spring, owners of businesses meeting the definition of a “Registered Company,” were required to report their ownership interests to the Treasury Department in accordance with the Corporate Transparency Act.

Beginning last year, several courts issued injunctions against the enforcement of these registration rules. These injunctions were then lifted, resulting in the Corporate Transparency Act rules being reinstituted.  The matter was brought to a merciful end on March 21^st when the Treasury Department announced that United States citizens are not required to file beneficial ownership reports.  Instead, only certain business entities formed under foreign law will be required to report.¹

I applaud my fellow business owner clients who took the Treasury Department at its word, and dutifully filed the reports.  These business owners might feel like the same level of disgust felt by Charlie Brown with each whiff on the football. While it is natural to feel tricked like Charlie Brown, we cannot take too much time to beat ourselves up.  Since we don’t know the future, we must be willing to make an informed decision based on the available advice and information, and then make changes as necessary.

The Corporate Transparency Act was, at worst, an unnecessary hassle and legal cost to our clients. The future of federal estate and gift tax rules, in contrast, poses a far more onerous uncertainty.

In February, Republican lawmakers in Congress introduced new legislation entitled the “Death Tax Repeal Act.”  If enacted, it would permanently eliminate federal estate taxes and generation-skipping taxes.  Alternatively, if no legislation is passed before December 31^st, the federal estate and gift tax exemption would revert to the rules that existed before the 2017 Tax Cuts and Jobs Act (“TCJA”). If TCJA is allowed to sunset, the federal estate tax exemption would revert to approximately $7.0 million per person on January 1, 2026.

Here lies the current planning conundrum:

• If the Death Tax Repeal Act is enacted, lifetime gifts would not necessarily be a wise tax planning move.  A gift of appreciated assets may result in the loss at death in the step-up in cost basis benefit for appreciated assets to no tax benefit, since there would be no federal estate tax owed.
• If no legislation is enacted, and if TCJA expires, it would be wise for those with assets of more than $7.0 million to “lock” in the current federal gift exemption amount of $13.998 million by making significant gifts before year-end.

Like a whipsawed stock market, or a back-and-forth federal tariff policy, it is yet uncertain what the future will bring when it comes to future federal tax rules. At times like these, we confirm with our clients the legacy benefits to the family of the gifting, independent of tax savings.  For those clients are in a position to consider a gifting strategy, clients might create a gift plan assuming the TCJA will expire, and then wait until year-end for further Congressional action before gifting. Through proper planning, we can minimize the negative ramifications if Congress pulls the football out from underneath our feet.

The late comedian Bob Newhart was famous for his fictional one-sided telephone comedy routines. In the spirit of the Newhart one-sided telephone call, imagine the following one-sided call, heard from the perspective of a father calling his adult son.

Hi Son.  Yes, Dad here, how are you?

Great.  Good to hear.  Hey, listen, my attorney has told me that I need to send you a letter about this trust. 

Right, the trust I told you and your sister about at Christmas.   The letter will say that you can take out some of the cash from the trust. 

Except, yes, well, we don’t really want you to.

Yes, I know, but, well, we don’t really want you to actually take the money out.

Right, even though we are sending you a letter telling you that you can take it out.

Uh-uh. Uh-huh.  Yes. 

You said you want to know what other clear directions and wisdom I can impart to you today? 

In this month’s update, I explain the use of withdrawal rights within an irrevocable trust and provide factors to consider in deciding whether to use withdrawal rights in an irrevocable trust.

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The Veritage Law Group recently enjoyed an “escape room” experience as part of our annual Christmas Party.  Our group “escaped” the room after successfully solving the various riddles.  While none of us are particularly adept at such riddle games, we regularly advise clients attempting to “escape” estate taxes on behalf of their children at death.

In this month’s advisory update, I provide a brief update on 2025 tax rules, and three useful strategies for escaping federal and Minnesota state estate taxes at death.

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