The Wealth & Wisdom Blog

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.

Briefly, current estate and gift tax rules impacting Minnesota residents are as follows:

• Annual Exclusion Amount Gifts. In 2025, a single individual can give up to $19,000 per beneficiary per year as an annual exclusion amount¹ If the value of annual gifts to any one individual is less than the annual exclusion amount, no gift tax return needs to be filed in the year(s) of the gifts.
• Federal Unified Credit Amount. If the total value of gifts to a family member exceeds the annual exclusion amount, a gift tax return must be filed.  On the gift tax return, a client’s gifts in excess of the annual exclusion amount would be deemed to utilize some of the client’s lifetime federal unified credit amount. The federal unified credit will be $13,990,000 per person in 2025.  Until one makes gifts of more than the federal unified credit amount, no gift tax liability is owed.
• Minnesota Estate Taxes. The Minnesota estate tax exemption will remain at $3.0 million per person into 2025.  A surviving spouse is not allowed to “port” a deceased spouse’s unused Minnesota estate tax exemption to the surviving spouse for subsequent use following the surviving spouse’s death.   Married Minnesota residents with at least $3.0 million in assets should continue to make use of a family trust structure.  Assets owned by a surviving spouse of more than $3.0 million will result in a 13-16% Minnesota estate tax.
• Minnesota Gift Taxes. Minnesota has no gift tax.  As a result, Minnesota residents should continue to consider lifetime gifts.  If a Minnesota resident makes a gift of more than the annual exclusion amount and lives at least three years past the date of this gift, the value of this gift is not taken into account in calculating a Minnesota estate tax liability.
• Charitable Deduction. Assets directed to tax-exempt charitable organizations and donor advised funds at death result in no state or federal estate tax liability.

Three Common Planning Strategies:

• Gifts to Children or Grandchildren. Many of our clients make significant lifetime gifts directly to children or grandchildren directly. Some of our clients create irrevocable gift trusts to make gifts to escape estate taxes without placing the children or grandchildren in immediate control.
• Spousal Lifetime Access Trusts. A spousal lifetime access trust, or “SLAT,” is a type of irrevocable trust that allows a trust creator to irrevocably gift assets to a trust for the benefit of spouse and children, keep the assets accessible to the creator’s spouse, and “lock in” the desired tax benefits of transfer.   If the assets are gifted to the SLAT at least three years before the trust creator’s death, all assets contributed to the SLAT would escape Minnesota estate taxes.
• Charitable Planning. Finally, clients who are charitably inclined can direct a portion of remaining assets to charitable organizations, thereby avoiding estate taxes on the contributed assets. Among other variations on the charitable planning theme, some married Minesota residents will direct that, after the second death, the total assets distributed to children will equal the $6.0 million Minnesota exemptions amounts ($3.0 million each), and all remaining asset passing to charities. This “zero tax plan” enables a wealthy Minnesota family to completely escape any Minnesota estate taxes.

Through judicious use of lifetime gifting opportunities and/or charitable giving, many of our clients see a significant portion of their assets escape estate taxes.  While our law firm will not be giving any escape room tutorials, we will be glad to help with estate tax planning questions.