The recent federal tax overhaul has had a significant impact on the estate tax.
Previously, individuals could shelter up to $5.49 million in assets from federal estate taxes; married couples could shelter $10.98 million. The new law increased that limit to an estimated $11.2 million for individuals and $22.4 million for married couples.
Minnesota limits still lower than federal
While this is good news for our country's wealthiest families, Minnesotans are still subject to a state estate tax with a much smaller threshold.
In Minnesota, individuals can shelter up to $2.4 million in assets before being subject to the state estate tax. This exemption amount is scheduled to increase to $2.7 million in 2019 and $3 million in 2020.
When it comes time to start estate planning, families will need to consider both the state and federal limits if they want to attempt to avoid taxation on their assets.
Minnesota does allow certain exclusions for small business property and homestead farmland. The combined value of these exclusions and the general exemption cannot exceed $5 million, but the decedent or spouse must have owned the qualifying property for three years prior to the date of death. Heirs must own and use the property in the business for three years after the date of death.
To ensure estates are protected and heirs are not hit with a large tax burden, families can work with an estate planning attorney to navigate the state and federal exemptions in conjunction with their existing assets to find a favorable solution.