An effective estate plan will help you lessen or avoid Federal and Minnesota State estate tax.
Estate tax is tax applied to the value of an estate. Federally, your first $10.9M of assets per person ($11.25M per couple) are free from estate tax. The value that exceeds $10.9M is taxed at a rate of 40%.
In Minnesota for 2018, your first $2.4M is exempt from state estate tax. In 2019, this number goes to $2.7M per person ($5.4M per couple), and in 2020 it climbs to $3M per person ($6M per couple). The Minnesota Qualified farm exemption allows each spouse to take a $5M exemption, assuming the rules are complied with. The value that exceeds $1.6M is taxed at rates between 10-16%. There is no estate tax in Wisconsin.
You can think of these exemptions as ‘coupons’. Federally, spouses automatically get to count both coupons upon death. State coupons, however, are not ‘portable’, meaning that when you die your coupon expires. Between spouses, the use of advanced tools, like trusts, means that these coupons can become portable.
Upon death, a trust continues to hold the decedent’s assets. When both spouses have deceased, the trust delivers assets to its heirs. Because the trust is an extension of the couple, both Minnesota state death tax ‘coupons’ are usable, and they can protect $3.2M of assets combined. An effective estate plan has the potential to save you hundreds of thousands of dollars in estate tax.
UPDATE: The past 2017 Minnesota legislature increased our estate tax exemptions.
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