Minnesota may hold a steady place near the top of Gallup’s annual Best Places to Live, but a recent Wall Street Journal article claimed the state is also edging out the competition on another list: Worst Places to Die.
Minnesota’s place on the list, which also recommends against passing away in Washington and Nebraska, was established by its high 16% estate tax (or “death tax”). But the state’s number shot up recently after the state passed an additional 10% gift tax—a fee for transferring property to another person during your lifetime.
Here’s the breakdown: 10% of gifts in excess of $14,000 are counted toward your lifetime credit of $100,000 (which comes to an exemption of about $1 million in gifts total). While legislators are quick to assure panicked residents that the majority of people in the state won’t ever see the tax, for many small-business or multiple-property owners, the Minnesota lifetime credit will be maxed out quickly. Consider, too, that the tax will be applied even to non-residents who transfer Minnesota property (for example, a couple from Iowa who gifts their Minnesota summer lake house to their child).
The new legislation has raised several eyebrows, as Minnesota is only the second state (after Connecticut) to impose such a tax. And it’s in addition to the federal gift tax, which doesn’t kick in until after surpassing a more generous $5.25 million exemption. The new law has left many wondering if those who flee Minnesota’s harsh winters for sunny Florida may simply decide to stay there for good.
Keep in my mind that there is some good news: some gifts are exempt from both state and federal gift taxes—such as those transferred between spouses or to charities—and certain direct payments to medical or educational expenses are exempt from the Minnesota tax.
The gift tax kicked into effect on June 30, so any gifts you made prior to this summer won’t be counted toward your exemption. But it’s wise to start estate planning early, and utilize the help of a professional, in order to navigate the sometimes murky waters of estate tax laws and ensure that you’re making the wisest choices with your money.