Minnesota’s New Gift Tax May significantly Impact Minnesota Families and Small Businesses
In the waning hours of the 2013 legislative session, the state legislature passed a new state gift tax as part of the Omnibus Tax Bill. Governor Dayton is expected to sign the bill into law. When he does, Minnesota will become only the second state to have a state gift tax (Connecticut is the other). This new tax will have a significant impact on Minnesota families and small-business owners.
The new gift tax will impose a 10% tax on gifts in excess of a $1 million dollar lifetime total. That means any gifts over and above $1 million total over your lifetime will be subject to the new tax. Federal exclusions that permit people to make gifts without gift tax will also apply. Currently, the federal gift tax exclusion is $14,000 per year, per person. Charitable gifts and gifts to a spouse will be treated the same way as they currently are under the federal rules.
One additional note is that the new gift tax applies not only to Minnesota residents, but also to non-residents who own property in Minnesota. So, for example, if you own a home in Minnesota but reside in another state, you are potentially subject to the new gift tax. If you own a pass-through entity (such as a limited liability company “ LLC”, an S corporation, partnership and certain trusts) that owns property in Minnesota, the new gift tax will also apply to gifts made from that entity.
In other words, Minnesota families looking to gift assets to their children and grandchildren in excess of $1 million are now subject to a brand new gift tax in Minnesota. In addition, non-residents who own property in Minnesota may also be subject to Minnesota’s new gift tax; which may significantly impact small business owners and others who have established residency in other states due to a retirement, taxes or both, that would like to leave those assets to their children, grandchildren or the next generation of their business.
If you have been contemplating a gift, you now need to seek legal and accounting advice before doing so.
If you have questions about how you and your family can minimize Minnesota estate taxes, call Maple Grove, MN will, trust, and estate planning lawyer Chuck Roulet.