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Changes to MN gift and estate tax means change in estate plan

With just days left in the 2014 tax season, many St. Paul residents are working on getting their returns filed. This may be even truer this year than in years past, as State officials have urged individuals to wait to prepare their returns due to a pending tax relief bill before the Minnesota Legislature.

With that bill now passed into law, individuals can not only file their return, but they may benefit from having delayed. Though some taxpayers might be able to claim some new credits and deductions on their returns this year, the new law may also affect an individual's inheritance tax upon the distribution of assets at death.

Last year, a gift tax was enacted, which taxed the transfer of property from one person to another during the giver's life that was above a certain amount. That gift tax has now been repealed by the new legislation.

The new law also impacts a person's estate planning by gradually raising the estate tax exemption from $1 million to $2 million over the next five years. The federal amount is around $5 million, which was in line with the original State bill's goal, but the final bill failed to reach that amount.

The estate tax exemption affects how much value can transfer from a deceased person's estate tax free. As the tax exempt amount rises over the next few years from $1 million to $2 million, individuals will not have to pay taxes on inherited assets until their value exceeds those exemption amounts.

The repeal of the gift tax and the estate tax exemption's change are reasons why individuals may want to consider updating their estate plan. These two alterations in the law have dramatically changed the circumstances for many, and individuals should ensure their estate plan is adjusted accordingly to maximize the benefits of these changes.

Source: TwinCities.com, "Minnesota Legislature approves tax-relief bill," Bill Salisbury, March 21, 2014

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