2017 Minnesota Legislative Session Provides Tax Relief to Estates and Trusts

Estate tax exemption increased

Minnesota is one of fifteen jurisdictions (fourteen states plus the District of Columbia) which impose an estate tax, which is an excise tax on the assets passing due to a person's death. This state level estate tax is in addition to the estate tax imposed by the federal government (for estates of persons dying in 2017 which exceed $5.49 million).

Under previous law, for decedents dying in 2017 the amount exempt from estate taxes was $1.8 million. However, the Minnesota legislature during its regular session last Spring raised the amount which may pass free of estate tax for decedents dying this year and incrementally raised it in subsequent years. The exemption amount and filing requirement for the Minnesota estate tax will increase to $2.4 million in 2018, $2.7 million in 2019, and $3.0 million in 2020. For Minnesota residents dying in 2017, the filing requirement for the Minnesota estate tax retroactively increased from $1.8 million to $2.1 million. The Qualified Small Business Property or Farm Property Deduction which augments the estate tax exemption is reduced to $2.9 million for decedents dying in 2017, $2.6 million in 2018, $2.3 million in 2019, and $2.0 million in 2020. The estate tax rate ranges from 12% to 16%.

Revocable trusts no longer "Corporate Farms"

Under previous law, revocable trusts which owned farmland or operated a farm were considered "corporate farms," which required the taxpayer to annually register his or her revocable trust with the Minnesota Department of Agriculture to maintain the property tax classification as agricultural property and avoid criminal penalties. However, the Minnesota legislature during its regular session last Spring removed this requirement if the trust settlor, the trust settlor's spouse, or both are the primary beneficiaries during the settlor's lifetime and the trust is revocable. Further, a revocable trust owning farmland is no longer required to register as a corporate farm with the Minnesota Department of Agriculture at the time of the settlor's death to qualify for the Qualified Farm Property Deduction from the Minnesota estate tax in the deceased settlor's estate (if the other requirements are met). This will allow taxpayers who use revocable trusts for estate planning purposes to be treated similarly to who do not use revocable trusts and forgo certain tax benefits due to inadvertence or paperwork errors.