Minnesota Estate Tax Changes May Be on the Horizon

The Minnesota Department of Revenue (“DOR”) is preparing a report that analyzes Minnesota’s current estate tax laws. The report will provide the Legislature with options to consider for changes to or elimination of the estate tax. This report, due Feb. 1, 2013, was mandated by the Legislature after many discussions about federal conformity and the impacts of current estate tax laws on taxpayers. The DOR estimates about $150 million in estate taxes will be collected next year, and it is seeking input on ways to improve the current system.

The study is to include the following elements:

• Evaluation of the estate tax using standard tax policy principles and methods of analysis;
• Consideration of the implications of recent federal estate tax changes, including the repeal of the federal credit for state death taxes, the increase in the federal exclusion amount, and the portability of the federal exclusion, for state estate and inheritance taxes;
• Consideration of the advantages and disadvantages of revenue-neutral alternatives to the estate tax, such as an inheritance tax, a complementary gift tax, or imposition of the income tax on bequests; and
• Analysis of the available empirical evidence on the effects of the present and alternative tax structures of a Minnesota tax on estates or inheritances on domicile and migration decisions of residents and the implications for state revenues.

The commissioner will consult with and seek advice from the probate and estate section of the Minnesota State Bar Association.  The results of this survey should be very interesting to the estate planning community and could have profound impacts on future estate tax legislation.