A spousal lifetime access trust (SLAT) is an irrevocable trust benefiting the donor’s spouse and children. Through a SLAT, a donor may reduce a spouse's exposure to estate taxes at death by taking advantage of the gift tax exemption. In 2015 the applicable federal exclusion amount for gifts is $5,530,000. (IRS, What’s New-Estate and Gift
Minnesota Gift Tax Attorney
A gift tax is a tax placed on the transfer of property, including money. In order to be a gift, the person makes the gift expecting nothing in return. The most typical example of a standard gift is a parent giving a child or children a monetary gift. Most things given to another person as a gift are subject to the gift tax; however, there are a few exceptions to this rule. In general, the following will not have a gift tax:
- Gifts that are not more than the annual exclusion for the calendar year. The annual exclusion is an amount of money or property that you can give away in a year that will not have a gift tax. Currently the annual exclusion is $14,000. For example, you can give $14,000 to your child and that money will not be taxed. If, however, you gift your child $15,000, $1,000 of that gift will be taxed. The annual exclusion applies to each gift. This means that if you have three children and in one year you give each child $14,000, each gifts will not be subject to the gift tax.
- Gifts that are for tuition or medical expenses, so long as the payment of those gifts is made directly to the educational or medical institution for someone else.
- Gifts to your spouse.
- Gifts to political organizations for its use.
- Gifts to charities.
Each individual has a $5.25 million gift tax exemption under current federal law. What this means is that within your lifetime, you can make gifts up to $5.34 million dollars without having to pay federal taxes on those gifts. In practice, when you make a gift that is greater than the annual exclusion, you can choose to pay the gift tax on that amount or use the exemption credit to avoid paying the gift tax. Each person is able to make up to $5.34 million in gifts without having to pay gift taxes. Even if you do not have to pay a gift tax, you still have to file a gift tax return for certain kinds of gifts. These gifts include:
- If you gave a gift to at least one person more than the annual exclusion;
- If you and your spouse are splitting a gift;
- If you gave someone a gift of future interest that he or she cannot actually possess, enjoy, or receive income from until sometime in the future; or
- If you gave your spouse an interest in property that will be ended by some future event.
In additional to a federal gift tax, Minnesota recently passed legislation imposing a 10% gift tax on taxable gifts made on or after July 1, 2013. The Minnesota law tracks closely with the federal law where Minnesota adopted an annual gift tax exclusion of $14,000. The new Minnesota law, however, provides a $100,000 credit against gift tax liability. Thus, an individual can make up to $1 million of taxable gifts over their lifetime before any gift tax is due where each individual gift does not exceed $14,000. (Note: the Minnesota gift tax was repealed by legislative action March 21, 2014)
If you are planning on giving a gift to someone or working on planning your estate, you should contact an attorney to help you consider the potential tax consequences of your decisions. Even without having to pay gift taxes, most individuals making gifts will still have to file a gift tax return. It may be complicated to understand the tax responsibilities that come along with simply trying to give a loved one a gift. Planning to give assets and money away as gifts can have a direct impact on estate planning as well. An attorney will be able to advise you on potential strategies and help you to reduce your tax obligations.
2013 Minnesota Estate & Gift Tax Legislative Changes
Tax Type Statute Brief Description Effective Date Estate Tax 289A.10 Sub 1 Estate Tax: Modifies the filing requirements for the estate tax to provide that federal adjusted taxable gifts made within 3 years of decedent’s death must be added to the value of the federal gross estate to determine if the estate exceeds the $1