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New ways to reduce Minnesota inheritance taxes

With summer just around the corner, many Minnesota residents who spent the winter in the southern part of the country will soon be returning to Minnesota. It is common for so-called snowbirds to split the time they spend in Minnesota and elsewhere, due to the difference in the weather between the different states.

Some individuals began taking it a step further, by buying a home, registering a vehicle and taking other steps in the other states in an attempt to avoid paying taxes in Minnesota. That could now change after a recent court decision that may make it more difficult to avoid paying taxes in Minnesota. The decision indicates the state can use a number of criteria to determine who is and is not a Minnesota resident, which, in turn, will determine whether the person must pay taxes here.

Along with the income tax issues, many Minnesota residents have struggled with paying a high inheritance tax as the State is one of 19 that imposes its own estate tax. Fortunately, while there might not be too many things individuals can do to change their income taxes, there are estate planning steps individuals can take to reduce their estate taxes.

One step toward more wealth protection is to begin the distribution of assets before death. Individuals can make unlimited gifts of over $13,000 per person every year. These gifts are tax-free, and thus individuals can save money by gifting tax-free during life, instead of through their will where they will be assessed an estate tax.

By reducing the size of the person's estate, gifting also helps to reduce a person's estate tax liability. Ultimately, gifting is just one of many strategies that can be used to reduce a person's estate tax liability.

Source: Star Tribune, "Minnesota's wealthy caught in a tight tax net over residency," Adam Belz, April 16, 2014

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