Eight Options for Estate Tax Reform

Several bills were heard in the Senate Tax Committee this week aimed at updating the way estate taxes are assessed and imposed across the state. In 2014, the Minnesota Legislature made the first substantive changes to the estate tax brackets since 2001. As a result, Minnesota’s estate tax exclusion is currently increasing in $200,000 increments every tax year through 2018, up to a maximum exclusion of $2 million. While a significant increase, that is still about $3 million less than the total estate value subject to the federal estate tax. The Department of Revenue estimates about 800 people – those with total estates valued at more than $1.4 million for 2015 – will be subject to the Minnesota estate tax this year. If the state matched the federal exclusion, about 100 taxpayers would still owe tax.

Three bills heard this week would adjust the state’s policy to conform to the federal estate tax exclusion – currently $5.43 million and indexed for inflation. (S.F. 1623/S.F. 743/S.F. 198).

Additional bills gave the committee a broad variety of items to consider when addressing the estate tax this year. The proposals included:

  • Providing taxpayers more flexibility in gift-making decisions by allowing a shorter timeline in which taxable gifts (more than $14,000 per year, per recipient) may be included in the value of an estate. (S.F. 577)
  • Allowing estate taxes to be apportioned according to the proportion of value each beneficiary receives instead of being apportioned equally among beneficiaries. (S.F. 881)
  • Retroactively providing a refund to estates that made a taxable gift within three years of the 2013 law change that included these gifts in the value of the estate. (S.F. 837)
  • Adopting the federal rule that allows unused estate tax exclusions to be transferred between spouses. (S.F. 1055)
  • Increasing the small business and farm property estate tax subtraction in order to make it easier to pass on the family farm or business. (S.F. 554)

All eight estate tax-related bills were laid over for possible inclusion in the 2015 Tax Bill.

Senate DFL Media