Minnesota Joins Connecticut as the Only States in the Nation to Have a State Gift Tax

Effective June 30, 2013, for any amounts gifts over a $1,000,000 exemption gifted during lifetime, Minnesota residents will pay a flat tax of 10%.

Some other changes that may become important as other states look for ways to raise revenues:

  • There is now a 3 year look back for gifts transferred within 3 years of death.  In other words, if someone gifts assets in 2014, and dies in 2016, those gifts come back into the estate for Minnesota estate tax purposes.
  • If a non-Minnesota resident owns real property in Minnesota, then, the value of that real property is subject to gift and estate tax in Minnesota, if transferred during life.  So, a traditional way to avoid Minnesota estate for individuals who move out of Minnesota or buy a second home in Minnesota would be to place that real estate in an entity, such as a corporation or LLC.  However, the new Minnesota law disregards or "looks through" any pass-through entities, for estate and gift tax purposes.

Due to these changes, Minnesota Estate tax returns are now required if the sum of the federal gross estate including federal adjusted taxable gifts within 3 years of death exceed $1,000,000.  While there will be a credit for prior gift tax paid to Minnesota, whether or not there is additional estate tax will depend on the value of the decedent’s taxable estate (which includes the prior taxable gifts).

While this does not affect any of my clients and DC, Virginia and Maryland do not have a gift tax or 3 year look back for prior taxable gifts, this change is important because it may signify a trend in future changes in the  gift and estate tax laws of other states.

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