In terms of estate planning news for 2015, you should be aware of several things:
Federal Estate Tax
When someone passes away, estate tax may be owed if the decedent dies with assets in excess of the estate tax exemption amount. The federal exemption amount for decedents passing away in 2015 increased to $5,430,000 (up from $5,340,000 in 2014). This means that a married couple can shelter up to $10,860,000 from federal estate taxes at the second death. There is a special concept called portability which allows a surviving spouse to use any of the first-to-die’s unused federal exemption. The federal estate tax rate on amounts in excess of the exemption amount remains at 40%.
Minnesota Estate Tax
Minnesota continues to have its own state estate tax. The 2015 exemption for Minnesota estate taxes is $1,400,000 per person (up from $1,200,000 in 2014). This exemption will increase by $200,000 increments each year until 2018 when it will cap at $2,000,000 per person. As such, here’s how the Minnesota exemption looks for the next few years:
2015 – $1.4M
2016 – $1.6M
2017 – $1.8M
2018 – $2.0M
Keep in mind that Minnesota does not recognize portability between spouses. Thus, it is important to incorporate tax planning provisions into your estate planning documents if your individual assets or the combined assets of you and your spouse (which include real estate, investment accounts, retirement plans, life insurance death benefits, etc.) exceed the exemption amount. Minnesota’s estate tax rate is calculated so that the first dollars are taxed at a 9% rate and increases to 16%.
Annual Exclusion Gifts
The annual gift tax exclusion amount for 2015 remains at $14,000 per person. Married couples may “gift-split” and double this amount to $28,000 per person, per year. This is the amount you can transfer to any individual free of federal gift tax. If a gift exceeds the exemption amount, a federal Gift Tax Return (Form 709) needs to be filed. Gift tax will not generally be paid at this time; the amount of the gift in excess of the $14,000 will simply reduce the amount of the federal estate tax exemption available in your year of death. In addition to these exclusion gifts, you may make tuition and medical payments on behalf of another individual and these are in addition to the $14,000 exclusion gifts. In March 2014, the Minnesota gift tax was retroactively repealed.
It is recommended that you review your estate plan every three to five years or sooner if a significant life event occurs, such as a marriage, divorce, birth, death or law change. If you would like to review your plan, please call to set up an appointment.
For more information about estate planning, visit www.minnesotaestateplanningattorney.com, where you can click on “Resources” to find checklists, questionnaires and videos addressing numerous estate planning questions.