2013 Minnesota Estate & Gift Tax Legislative Changes

2013 Tax Law Changes Overview: Estate Tax

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 million filing requirement.
Effective for estates or decedents dying after December 31, 2012
Estate Tax 289A.10 Sub 18 Estate Tax: Requires qualified heirs file two informal returns if a decedent deducted qualified small business or qualified farm property. First return is due two years after decedent’s death. Second return is due three years after decedent’s death. Effective for returns required to be filed after December 31, 2013

Estate Tax 291.005 Sub 1 Estate Tax: Includes the amount of Minnesota taxable gifts made by the decedent after June 30, 2013 and within 3 years of death in the Minnesota adjusted taxable estate. Effective for estates of decedents dying after December 31, 2012
Estate Tax 291.005 Sub 1 Estate Tax: Provides gifts of tangible personal property are assigned to the place where it was normally located at time of gift and gifts of intangible property is assigned to donor’s
domicile at time of gift.
Effective for estates of decedents dying after December 31, 2012
Estate Tax 291.005 Sub 1 Estate Tax: For nonresidents who have ownership interests in pass-through entities, assigns any real and tangible personal property located in Minnesota as if the pass-through does not exist. Effective for estates of decedents dying after December 31, 2012
Estate Tax 291.005 Sub 1 Estate Tax: Updates the estate tax for federal changes enacted through January 3, 2013, but without regard to the federal termination of the federal credit for state death taxes. This change has no substantive effect. Effective for estates of decedents dying after December 31, 2012
Estate Tax 291.03 Sub 1 Estate Tax: Provides that any Minnesota gift tax paid on gifts included in the Minnesota adjusted taxable estate reduces the estate tax due Effective for estates of decedents dying after December 31, 2012
Estate Tax 291.03 Sub 1c Estate Tax: Allows a credit against the Minnesota estate tax for estate or inheritance tax paid to another state on property held in pass-through entities, as provided under section 4.
The credit cannot exceed the Minnesota estate tax attributable to that property.
Effective for decedents dying after December
31, 2012
Estate Tax 291.03 Sub 8 Estate Tax: Clarifies that a trust whose beneficiaries are all family members qualifies as a family member for purposes of the qualified small business property and qualified farm property exclusion Effective retroactively for estates of decedents dying after June 30, 2011
Estate Tax 291.03 Sub 9 Estate Tax: Modifies the qualified small business property requirements for purposes of the exclusion (see bill language for details) Effective retroactively for estates of decedents
dying after June 30, 2011
Estate Tax 291.03 Sub 10 Estate Tax: Modifies the qualified farm property requirements for purposes of the deduction (See bill for details) Effective retroactively for estates of decedents
dying after June 30, 2011
Estate Tax 291.03 Sub 11 Estate Tax: Clarifies that for sole proprietor property, the qualified heir will not be treated as having disposed of an interest in the qualified property if the heir replaces qualified small business property with similar property. Effective retroactively for estates of decedents
dying after June 30, 2011

(2013 Regular Session)

Bulletin Date: May 31, 2013

Minnesota Revenue
Appeals and Legal Services Division
600 North Robert Street
Saint Paul, Minnesota 55146-2220

Unless otherwise noted, the provisions discussed in this bulletin can be found in 2013 Minn. Laws, Chapter 143.

Estate Tax

Estate tax filing requirement

Minn. Stat.§ 289A.l 0, subd. 1, was amended to provide that taxable gifts (those in excess of the annual per-recipient federal exclusion amount made within three years of decedent’ death) must be added to the value of the federal gross estate to determine ifthe estate exceeds the $1 million filing requirement. Effective for estates of decedents dying after December 31, 2012.

Recapture return required

By adding subdivision 1a to Minn.Stat.§ 289A.l 0, the return filing requirement for the recapture tax was moved from the estate tax chapter (Chapter 291) to the administration and compliance chapter (Chapter 289A). Effective retroactively for estates of decedents dying after June 30, 2011.

Recapture informational return required

Subdivision 18 was added to Minn. Stat.§ 289A.12 to require that qualified heirs file two information returns if a decedent deducted qualified small business property or qualified farm property from the taxable estate. The first return is due two years after decedent’s death. The second return is due three years after decedent’s death. Effective for returns required to be filed after December 31, 2013.

Recapture return filing due date

Subdivision 3a was added to Minn. Stat.§ 289A.18 to clarify the filing due date of the recapture tax return on or before 6 months after the disqualifying event. Effective retroactively for estates of decedents dying after June 30, 2011.

Recapture payment due date

Minn. Stat.§ 289A.20, subd. 3 was amended and subdivision 3a adde to clarify the recapture tax payment due date: on or before 6 months after the disqualifying event. Effective retroactively for estates of decedents dying after June 30, 2011.

Minnesota adjusted taxable estate

The definition of “Minnesota adjusted taxable estate found in Minn. Stat.§ 291.005, subd. 1, was amended to include the amount of taxable gifts, as defined for Minnesota gift tax purposes made by the decedent within three years of death. Effective for estates of decedents dying after December 31, 2012.

Situs rules for gifts

Minn.Stat.§ 291.005 subd. 1, was amended to provide situs rules for gifts: gifts of tangible personal property are assigned to the place where the property was normally kept or located when the gift was executed and gifts of intangible property are assigned to the decedent’s domicile at the time the gift was executed. Effective for estate of decedents dying after December 31,2012.

Situs rules for nonresidents

Minn. Stat.§ 291.005, subd 1, was amended to provide a special situs rule for nonresidents who have ownership interests in pass-through entities that own real or tangible personal property in Minnesota.Pass-through entities are defined as S corporations, partnerships single-member limited liability companies, and trusts.The amendment assigns the situs of the real and tangible personal property as if the pass-through entity does not exist. Effective for estates of decedents dying after December 31,2012.

Estate tax reduction for Minnesota gift tax

Minn. Stat.§ 291.03 subd. 1, was amended to reduce the Minnesota estate tax by any Minnesota gift tax paid on gifts included in the Minnesota adjusted taxable estate. Effective for estate of decedents dying after December 31,2012.

Nonresident decedent tax credit

Minn. Stat.§ 291.03, subd 1, was amended and subdivision 1c added to provide a credit for any estate or inheritance tax paid to another state by a nonresident on property held in a pass-through entity. Effective for estates of decedents dying after December 31,2012.

Family member

Minn. Stat.§ 291.03, subd. 8, was amended to provide that a trust whose present beneficiaries are all family members qualifies as a family member for purposes of the qualified small business property and qualified farm property deduction. Effective retroactively for estates of decedents dying after June 30, 2011.

Qualified small business property

Minn. Stat.§ 291.03, subd. 9, was amended to:

  • clarify that during the taxable year that ended before decedent’s death the trade or business must not have been a passive activity and the decedent or the decedent’s spouse must have materially participated in the trade or business;
  • exclude publicly traded securities and assets not used in the operation of the trade or business from qualifying for the deduction;
  • allow, in the case of a sole proprietor, that if property is replaced by similar property within the three-year period prior to decedent’s death, the replacement property will be treated as having met the three-year ownership test prior to decedent’s death; and
  • provide that for three years following the decedent’s death the trade or business must not be a passive activity and a family member must materially participate in the trade or business.

Effective retroactively for estates of decedents dying after June 30, 2011.

Qualified farm property

Minn. Stat.§ 291.03, subd. 10, was amended to:

  • clarify that the property must be agricultural land that is owned by a person or entity that either not subject to or is in compliance with section 500.24;
  • clarify that for property taxes payable in the taxable year of decedent’s death, the property must be classified as class 2a agricultural property and as agricultural homestead, agricultural relative homestead, or special agricultural homestead;
  • remove the requirement that for three years after decedent’s death a family member must continuously use the property in the operation of the trade or business; and
  • require that for three years after decedent’s death the property must be classified for property tax purposes as class 2a agricultural property.

Effective retroactively for estates of decedents dying after June 30, 2011.

Recapture tax

Minn. Stat.§ 291.03, subd. 11, was amended to provide in the case of a sole proprietor that the qualified heir will not be treated as having disposed of an interest in the qualified property if the qualified heir replaces qualified small business property with similar property. Effective retroactively for estates of decedents dying after June 30, 2011.

Gift Tax

Chapter 292 was created, imposing a 10% tax on taxable gifts with a lifetime credit of$100,00 (the equivalent of a $1 million exemption). The tax does not apply to transfers of tangible personal property or real property with situs outside Minnesota. All provisions are effective for taxable gifts made after Jun 30, 2013.

  • Definitions. “Resident” has the same meaning as for individual income tax. Other terms defined in the estate tax chapter apply to the gift tax chapter.
  • Taxable gifts. Taxable gifts are defined by reference to the federal gift tax. As a result, gifts below the annual exemption amount are excluded. Federal generation skipping gifts are excluded. Gifts to charities, gifts to spouses, and certain transfers for educational or medical expenses are also excluded.
  • Filing. Returns are required to be filed by April 15 after the close of the calendar year in which the gift was made. If the donor dies, the due date is the time for filing the federal gift tax return.
  • Filing extensions. The commissioner may extend the time for filing upon written request, filing a tentative return, and a showing of good cause. However, tentative tax must be paid with interest.
  • Appraisals. The commissioner is authorized to require the donor or donee to show the property subject to tax and to hire suitable persons to appraise the property.
  • Payments. Payment is required by April 15 after the close of the calendar year in which the gift was made. If the donor dies, the payment due date is the due date for paying the federal gift tax. A 10% penalty (or $100, if greater) applies to late payments.
  • Federal changes. Taxpayer must notify the commissioner of federal changes in the value of taxable gifts within 180 days of a final determination. If a federal amended gift tax return is filed, the taxpayer must file an amended Minnesota return within 180 days.

Minnesota tax laws

Minn. Stat.§ 270B.Ol, subd. 8, was amended to reflect that “Minnesota tax laws” includes the newly created gift tax chapter. Effective for gifts made after December 31, 2012.

Data subject

Minn. Stat.§ 270B.03, subd. 1, was amended to reflect that a donor may inspect the gift tax return and return information. Effective May 24,2013.

The information in this post has been adopted from publications by the Minnesota Department of Revenue.