Legal Alerts

New Minnesota Gift Tax and Changes to Minnesota Estate Tax


On Thursday, May 23, Governor Dayton signed into law a new Minnesota Omnibus Tax Bill that includes major changes to Minnesota's transfer tax laws that impacts residents of Minnesota and nonresidents who own property in Minnesota. The following summarizes the new Minnesota gift tax and changes to the Minnesota estate tax.

New Minnesota Gift Tax

Minnesota will be the second state in the nation to have its own gift tax. The new law implements a 10% Minnesota gift tax on lifetime gifts made on or after July 1, 2013, in excess of the $1,000,000 allowable exclusion amount per person. 

You will still be able to make annual exclusion gifts, which is currently limited to $14,000 per gift recipient per year, as you have been able to do under federal law without having to file a gift tax return or pay any gift tax. Currently, federal law provides a lifetime exclusion amount that allows individuals to make gifts of up to $5,250,000 and couples to make gifts up to $10,500,000 (assuming the couple files a split gift election and has not previously made any taxable gifts) without paying any gift tax. Due to this new law, however, if you want to make asset transfers in excess of $1,000,000 as part of your estate planning, you must do so prior to July 1, 2013, in order for that transfer to be a tax-free transfer under Minnesota law. We are urging individuals who desire to make gifts before July 1, 2013, to call us immediately to discuss this option.

Minnesota Estate Tax Broadened

The new Minnesota law reaches more assets than it has in the past:

First, gifts made within three years of a decedent's death will now be brought back into his or her taxable estate to determine the total value of the estate, for purposes of determining estate tax liability. This provision applies to decedents who have died after December 31, 2012.

Second, Minnesota will now impose an estate tax against real and personal property located in Minnesota for nonresident decedents if such property is owned by a pass-through entity, including but not limited to partnerships, entities taxed as partnerships, single-member limited liability companies, S corporations and some trusts. This provision also applies to decedents who have died after December 31, 2012.

Third, more decedents' estates will be required to file Minnesota estate tax returns. If a decedent's gross estate plus the value of prior taxable gifts is equal to or greater than $1,000,000, the estate will now be required to file a Minnesota estate tax return. This might mean that an estate tax return is required now where none was previously. This provision also applies to decedents who have died after December 31, 2012.

These laws impact both Minnesota residents and nonresidents who have Minnesota assets, as well as the estates of decedents who have died after December 31, 2012. Please call us to discuss how these changes might impact you and your family.

The information provided above is intended for general informational purposes only. It should not be construed as legal advice or legal opinion on any specific facts or circumstances and you are urged to consult a Lindquist & Vennum LLP attorney or one of your own choosing concerning your situation and specific legal questions you have.

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