Perspective on GOP Plan to Eliminate Estate Tax

One of the more controversial proposals in the 2017 GOP tax cut plan being debated currently includes the potential elimination of the federal estate tax. Under current federal estate tax law, the federal estate tax only applies to amounts above an “excluded” dollar amount.

For persons dying in 2017, only assets above $5,490,000 are subject to the federal estate tax. Up to nearly $11 million may be excluded for a couple.

For some historical perspective, note that for several years in the 1990s, the exclusion was $600,000. In 2001, the federal exclusion 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.

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.

Minnesota also has an estate tax, and Minnesota also provides a dollar exclusion before Minnesotans owe state estate taxes. The dollar value of assets that can be owned by a Minnesotan at death without incurring Minnesota estate taxes has also changed significantly over the past several years, but the exclusion isn’t nearly as high as the federal exclusion. For several years, the dollar value of Minnesota’s exclusion mirrored the federal exclusion. But as the federal exclusion climbed above significantly above $1 million, Minnesota stayed at the $1 million level for a time.

Minnesotans dying in 2014 received a $1.2 million exclusion; 2015 deaths received a $1.4 million exclusion; and 2016 deaths received a $1.6 million exclusion. In 2017, Minnesota lawmakers retroactively increased the initial $1.8 million exclusion for 2017 deaths to $2.1 million. Minnesota lawmakers also changed future exclusions such that the exclusion for 2018 deaths is $2.4 million; for 2019 deaths is $2.7 million, and for deaths in 2020 or later is $3 million. The tax rate for Minnesota’s estate taxes varies from roughly 12% to 16%.

The path to claiming the Minnesota estate tax exclusion for both spouses is not as convenient as it is at the federal level, but the inclusion of certain trust provisions in a Minnesota trust can create the possibility of doing so.

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Bonnie Wittenburg, Wittenburg Law Office, PLLC, 601 Carlson Parkway, Suite 1050, Minnetonka, MN 55305 952-649-9771