Property and Revocable Trusts – MN Estate Tax Update

/ October 23, 2013

Injured Piggy Bank WIth CrutchesIndividuals that own property in multiple states often consider placing the property into a revocable trust for planning purposes. While this can be an effective planning technique, there are some important points to consider.

For purposes of the new Minnesota estate tax [2], a Minnesota resident’s gross estate includes any property that is physically located in Minnesota. So, placing property located in Minnesota into a trust created in Minnesota does not exempt that property from one’s gross estate. The good news is the property would not have to go through probate. On the other hand, say you own property that is located in Florida and you transfer that property into a trust created in Minnesota. Since the property is physically located in Florida, it would NOT be included in your estate for Minnesota estate tax purposes. You also avoid a Florida probate.  This means that for Minnesota residents, trusts can be a good planning tool for, among other things, avoiding the probate process in multiple states.

The same does not hold true for nonresident decedents. The new Minnesota estate tax now applies to additional types of assets owned by non-resident decedents. As explained by estate planning attorney Marya Robben in an article she wrote for weathmanagement.com, “Minnesota will now assess a state estate tax against real property that a nonresident decedent owns via a pass-through entity if the underlying assets are physically located in Minnesota.” [1] One of the various pass-through entities listed in the statute is a revocable trust.  So, if a trust is includible in the non-resident decedent’s federal gross estate, it is considered to be a pass-through entity for the purposes of the new statute.

Clients need to meet with their professional advisors to discuss the various tax and legal implications of transferring property. This especially true in the wake of the new Minnesota gift and estate tax provisions.


[1] http://wealthmanagement.com/estate-planning/minnesota-enacts-state-gift-tax-and-expands-state-estate-tax-residents-and-nonreside.

[2] New MN Estate and Gift Tax Statute at https://www.revisor.mn.gov

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