What are the parts of an estate plan?

Preparing a will and a plan for settling your estate is the place to start. A Trust or a Limited Liability Company can help you take best advantage of exemptions to estate tax (the rate is 10-16%) and capital gains tax (the rate is up to 33%), and possibly save you hundreds of thousands of dollars. In the process, you’ll devise a plan to pass your family farm or business on to heirs of your choosing to ensure your family legacy continues.

The estate planning process also allows you to prepare a health care directive and power of attorney. If you become incapacitated, these ensure that your medical and financial matters will be handled according to your wishes by the person you trust most. 

How will Pat help me put an estate plan together?

This can all be done easily at Pat Lowther Law offices in Lake City, Sleepy Eye and Slayton, Minnesota or Alma, Wisconsin.

You begin by attending a workshop to learn the many details and benefits of the estate planning process. Pat gave 50 workshops in 15 different cities last year and will continue to do so. Then comes a free hour of consultation to review your needs and design a comfortable plan for your future.

Whatever estate planning you choose to have done can be accomplished in one, two, or three appointments at the most. When completed, you’ll have all the proper legal documents you need and the accompanying peace of mind.

Pat Lowther has been an attorney in Minnesota since 1980. His law practice has progressed from general law, to litigation, and now to his own practice with a focus on estate planning. “Living in a small town has helped me see the need families, farmers, and small business owners have for detailed estate plans,” Pat says. “I enjoy meeting with both new and long-time clients and each day brings a unique situation for me to solve.”

If you’d like to learn everything you need to know about estate planning, just give Pat a call at 507-794-5291. 

Are Minnesota tax exemptions the same as Federal exemptions?

Additional legislation has been proposed to make the Minnesota exemption (currently $1.4M) the same as the Federal exemption ($10.9M). This would greatly relieve estate tax calculation for farms and small businesses as follows: 

Farms: Farmland classified “2a land” (tillable) and “AG Homestead” qualifies for the Minnesota farm property estate tax exemption of $3.6M but there are two problems. First, property owners who move into eldercare facilities keep the AG Homestead classification only if they leave the home unoccupied. If someone, such as their children, moves in, owners lose the AG Homestead classification. This is a serious consideration in that vacant homes attract vandals, squatters, and meth labs. Second, property owners who move to town for safety or personal reasons, but are not ready for eldercare, automatically lose AG Homestead status. In both these situations the estate does not qualify for the $3.6M deduction. Neither of these points is widely known. Even if the property owners consult a lawyer before moving, not all lawyers are familiar with the problem. 

Small Businesses: To qualify for the small business deduction of $3.6M, owners must show proof of “material participation.” This means they must somehow work in the business until they die. Since farmers do not have to work their farms forever to qualify, changes to relieve the material participation requirement for small businesses are being proposed to establish balance.

I know I can make a tax-free gift of $15,000 each year. What happens if I give more than that?

At present, anyone can give anyone up to $15,000 as a tax-exempt gift. But if the gift is more than $15,000 the person making the gift must live for three years after the gift is made, otherwise the amount in excess of $15,000 is considered part of the estate for purposes of calculating estate taxes. A proposal to the state legislature is to reduce the three year period to one year or eliminate it altogether.

Another adverse consequence is the need to file a gift tax return for gifts over $15,000. There is no tax, but a return is still required.

How can I protect my assets from taxes, lawyers, courts, and discontented heirs?

Famed entertainer Sonny Bono died without a will. Twelve years later, his heirs were still contesting his estate. Marilyn Monroe left ¾ of her estate to her acting coach. When he died, his share passed to his third wife whom Marilyn didn’t even know. Brilliant 60s guitarist Jimi Hendrix died without a will. His brother, with whom he was close, received nothing after probate finished.

There are many such celebrity stories, famous people with tons of money, but you don’t have to be famous to be concerned about your estate. A hundred or so acres of farmland could be worth nearly $1,000,000 these days. If you have no will or trust to say how you wish it and your other assets distributed (and more than half of Americans don’t!) the State will decide for you. This is the probate process. It costs an average of 2-3% of your estate’s value and could drag on for years. 

The simple solution is to prepare an estate plan and keep lawyers, courts, and discontented heirs from making distribution decisions for you. Many lawyers want you to go through probate (“Oh, your heirs can afford it.”) because it means more money for them. Keep your money. Plan your estate.

Do my tax exemptions go to my spouse when I die?

One of the many reasons to create a Revocable Living Trust is to preserve the value of Minnesota estate tax exemptions.

In 2018, the Federal exemption is $10.9M for a single person or $11.25M for a married couple. If one person dies, his or her exemption is “portable” meaning that it passes to the surviving individual. When that person dies the entire $11.25M can be used on the Federal estate tax return to minimize or eliminate Federal death taxes.

The Minnesota exemption for 2018 is $2.4M per person. But unlike the Federal exemption, this exemption is not portable. It is lost when one person dies. When the second person dies only $2.4M can be used as an exemption on the Minnesota estate tax return. In Minnesota, married couples do not have the same portability as under the Federal law. So when one person dies that person’s $2.4M exemption dies with them.

This personal exemption can be saved by placing assets in a Revocable Living Trust so that when Minnesota estate taxes are computed, the personal exemption becomes portable and both spouses can use up to $4.8M for exemptions in 2018.

The Minnesota Qualified farm exemption allows each spouse to take $5M exemption, assuming the rules are complied with.

UPDATE: The 2017 Minnesota State Legislature raised the exemption rates. Read more on our News page.