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Probate and Estate Litigation Blog

Minnesota estate tax may apply to more than many realize

There has been a lot of debate in recent years about the federal estate tax, but in fact that tax applies to relatively few estates. Earlier this year, Congress set the level at which estate taxes kick in at $5,250,000. Next year, that number is set to rise to $5,340,000. What sometimes gets lost in all the media attention to the federal estate tax is the fact that Minnesota has its own estate tax, and it kicks in at a much lower level.

Minnesota's estate tax kicks in for estates worth over $1 million. That is a healthy amount of money, but it can be relatively easy to reach that amount for a middle-class family. When a person dies, every asset that person owns goes into that person's estate. This can include the proceeds from a life insurance policy. If a life insurance policy provides $500,000 for a beneficiary, this can easily push an estate into the over-$1 million mark if it is combined with the value of a home and a retirement account.

Minnesota's estate tax does not apply when the estate passes to a spouse, even if it is worth more than $1 million. However, when the surviving spouse collects the first spouse's life insurance policy and estate, the second spouse can leave an estate worth more than $1 million when he or she dies. Because this estate triggers the estate tax, the second spouse's heirs and beneficiaries can see a chunk taken out of their inheritance.

Minnesotans who want to maximize the amount that they leave behind for their heirs should consider this tax when crafting their estate planning documents. Those who are involved in a dispute over their inheritance must also take Minnesota's estate tax into account.

Source: MPR, "Estate tax could also bite the middle-class," Martin Moylan, Oct. 8, 2013

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