Minnesota's Estate Tax is Not Impacted by the 'Fiscal Cliff' Vote

The Congressional vote to avert the so-called fiscal cliff exempts estates of $5 million in value from the federal estate tax. However, Minnesota’s estate tax exemption remains at $1 million and is not expected to change anytime soon.

Given that many Minnesotans do not have $5 million or more in individual assets, most Minnesotans should focus on estate planning strategies to avoid the Minnesota estate tax.         

The $5 million exemption from the federal estate tax is somewhat surprising given that it was $1 million as recently as 2002 and 2003; $1.5 million in 2004 and 2005; $2 million in 2006, 2007 and 2008; and $3.5 million in 2009. It jumped to $5 million in 2010 when Congressional leaders earlier wrangled over various issues, including the estate tax.

Many estate tax observers did not expect Congress to continue the exemption at a level as high as $5 million, which is indexed for inflation.  Large estates will be taxed at a top rate of 40 percent (40%) under the new legislation compared to a top rate of 35 percent (35%) in 2012.

The new 40% rate is low on an historical basis.  The top federal estate tax rate ranged from 45% to 50% between 2002 and 2009. 

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Bonnie Wittenburg, Wittenburg Law Office, PLLC, Minnetonka, MN  952-649-9771 www.bwittenburglaw.com   bonnie@bwittenburglaw.com