Minnesota Now Has a Gift Tax

During this legislative session, the DFL House and Senate passed, and the DFL Governor signed into law, a tax on gifts. While estate planners are familiar with federal gift tax, the new state gift tax has some significant differences. For "taxable gifts" transferred after June 30, 2013, Minnesota will impose a tax of 10%. "Taxable gifts" are "transfers by gift which are included in taxable gifts for federal gift tax purposes". While the gifts subject to tax appear to track with the federal gift tax, Minnesota did not change it's estate exclusion amount to be a lifetime transfer exclusion, like the federal estate and gift tax. For federal gift tax, while a gift may be large enough to be reported, tax would not have to be paid as long as total lifetime gifts were lower than the lifetime transfer exclusion, which this year is over 5 million. Unlike the federal estate and gift tax system, Minnesota chose not apply their estate exclusion of between 1 million to 5 million to gifts. Rather, the lifetime credit on gift tax is $100,000.00. That allows for up to 1 million to be gifted in a lifetime without being taxed, but not the additonal 4 million in farm property that is exempt from estate tax. A credit covering the tax on 1 million dollars is significant, but land rich, cash poor farmers looking to transfer to the next generation may still run into a tax bill. If you are small business owner or farmer in Minnesota, you should schedule a meeting with your estate planner immediately.