Historical Estate Tax Perspective

Tax TimeThe dollar value of assets that can be owned by a Minnesotan at death without incurring federal or Minnesota estate taxes has changed significantly over the past several years.

Thus, many Minnesotans will not owe any Minnesota estate taxes, and fewer still will owe a federal estate tax.

The exclusion from federal estate taxes for a person dying in 2017 is $5,490,000. As recently as 1997, the exclusion was $600,000.  In 2001, the exclusion from federal estate taxes was $675,000.

The federal estate tax exclusion jumped to $1 million in 2002; $2 million in 2006, and $3.5 million in 2009. Since 2010 or so, it has been $5 million or a bit more.

Moreover, because of a concept called “portability”, a married couple can claim the federal exclusion for each of them, which means a total exclusion of nearly $11 million currently.

At the same time that the federal estate tax exclusion grew higher, the top tax rate went lower. It dropped from 55% in 1997 to 40% today.

All of the deceased’s assets are counted as assets of the deceased for estate tax purposes, including the value of any life insurance owned by the deceased. The inclusion of life insurance often surprises because the life insurance didn’t buy the deceased any groceries during the deceased’s lifetime, and he or she had to die before the named beneficiary received the money.

Minnesota also has an estate tax, and also has an exclusion. For several years, the dollar value of Minnesota’s exclusion mirrored the federal exclusion. But as the federal exclusion climbed above $1 million, Minnesota stayed at the $1 million level for a time.

Minnesotans dying in 2014 were allowed a $1.2 million exclusion. The Minnesota Legislature has allowed the Minnesota estate tax exclusion to climb $200,000 each year such that 2015 deaths receive a $1.4 million exclusion; 2016 deaths receive a $1.6 million exclusion; 2017 deaths receive a $1.8 million exclusion, and deaths in 2018 or later receive a $2 million exclusion.  The tax rate for Minnesota’s estate taxes varies from roughly 10% to 16%.

Minnesota does not allow the “portability” concept, but the use of certain trust language can create the possibility of claiming more than a single exclusion for a married couple. Consult with an estate planning lawyer to learn more about how an enhanced exclusion may be possible.

©2016 Wittenburg Law Office, PLLC. All rights reserved.

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Bonnie Wittenburg, Wittenburg Law Office, PLLC, 601 Carlson Parkway, Suite 1050, Minnetonka, MN 55305         952-649-9771     bonnie@bwittenburglaw.com   www.bwittenburglaw.com