Estate and Gift Tax Update for 2017

On January 1, 2017, both the Minnesota and federal estate tax exemptions were updated for decedents dying in 2017. The federal estate and gift tax exemption is $5.49 million per individual (up from $5.45 million in 2016). The Minnesota estate tax exemption is $1.8 million per individual. Minnesota has no gift tax (though gifts made within three years of death can be included in the gross estate). While the federal estate tax is pegged to inflation, the Minnesota estate tax exemption is continuing its gradual increase of $200,000 per year until the year 2018 when it is set to cap at $2 million. The exemption limit is the amount an individual can leave to heirs without paying estate or gift tax.

The Minnesota qualified farm land deduction is $3.2 million in 2017. This deduction is also revised each year so that it equals the difference between $5 million and the Minnesota estate tax exemption in the year of death. Though the amount of the deduction gradually decreases until the year 2018 when it will be set at $3 million, an overall higher exemption amount means Minnesota farmers have more flexibility in their estate plans.

As in 2016, the first rate bracket for Minnesota estate taxes is 10%. The following table shows the Minnesota estate tax for selected Minnesota estates of decedents dying in 2017:

Unlike the federal estate tax, the Minnesota estate tax does not include provisions for “portability”. Portability allows couples to double their exclusion amounts by letting the second spouse to die use any unused exemption amount of the first spouse to die. For Minnesota couples, doubling the Minnesota estate tax exemption amount requires some advance planning. A properly crafted estate plan can help defer and minimize estate tax by ensuring your estate is eligible for certain deductions like the qualified farm land deduction and by giving your surviving spouse the opportunity to do some post-mortem planning.

Finally, the federal annual exclusion for gifts remains unchanged. For calendar year 2017, gifts of up to $14,000 to any person are not included in the total amount of taxable gifts for that year. This means that no gift tax return will be required for the gift and the gift will not be pulled back into the estate. Married couples can double the annual exclusion amount to so that they can give gifts of up to $28,000 to any person without worrying about gift taxes.

We are also closely watching proposals to repeal both the federal and Minnesota estate tax. President Trump and the GOP Congress have both proposed to repeal the federal estate. A bill to repeal the Minnesota estate tax effective for decedents dying in 2017 was also proposed in Minnesota. To stay up to date on these changes, subscribe to our quarterly newsletter.