A Twin Cities Estate Planning Attorney Explains Minnesota's New Gift Tax Law
What does Minnesota now have in common with Connecticut? We are the only two states that have their own gift tax law.
The legislature passed a bill creating a new Minnesota gift tax in the last legislative session. The law was hastily crafted and has numerous discrepancies so it's fair to say that courts will be needed for future interpretation. But here is a quick summation for your reference.
You will now have to pay a flat 10% tax on any gifts made after June 30, 2013 and totaling greater than $1,000,000 over a lifetime. the law does include a lifetime credit of $100,000 allowed on the first $1,000,000 gifted. The Minnesota gift tax will not apply to present-value "annual exclusion" gifts of up to $14,000 (in 2013) or gifts to a spouse or a charity.
You are still allowed to use the federal annual exclusion amount of $14,000 without worrying about the gift being added to your lifetime total. But, any amount beyond that and which is made within three years of the decedent's death must be added to the value of the decedent's estate to determine if the estate exceeds the $1,000,000 filing requirement. This provision is retroactive to December 31, 2012. It is unclear how this 3 year retroactivity clause will play out as it seems unfair (perhaps unconstitutional) to subject a decedent's estate to a gift tax that did not exist when he/she originally drafted an estate plan.
For questions on the new gift tax, please contact me to discuss whether you may save on taxes by gifting an asset prior to July 1, 2013.