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Will gifts made under new tax laws be 'clawed back' in 2026?

The Tax Cuts and Jobs Act made sweeping changes to America's tax landscape. While certain changes affect those of any wealth, other changes will have a significant effect on those with large estates. People in Minnesota who have a large estate will want to pay particular attention to the new gift and estate tax exemption.

Is there a state-level estate tax in Minnesota?

When a person dies, their loved ones may not initially think of all the financial logistics they now face. This goes beyond simply paying for funeral costs and distributing assets per a person's will or trust. It also includes possibly paying taxes to the Internal Revenue Service. The threshold for who must pay federal estate taxes is high, so many people will not have to worry about this tax. However, they should know that some states levy estate taxes. Minnesota is one of these states.

Federal law recognizes certain estate tax deductions

As the saying goes, two things that are certain in life are death and taxes. Sometimes, these two things intertwine. In 2018, if a U.S. citizen dies leaving an estate worth $11,180,000 or more, they may need to file an estate tax return. While this may not affect many people in Minnesota and elsewhere, those who are subjected to the federal estate tax likely do not want to see the size of their estate reduced, as it means there will be less left to their heirs. They may wonder if there are any deductions they may use to reduce the amount they will owe in federal estate taxes.

Changes to estate tax laws may thwart the purpose of one's will

People in St. Paul may have gone through the process of drafting a will and have considered the matter done. However, recent changes to estate tax laws may warrant a dusting off of a previously created will. For wills drafted prior to 2018, this could be especially important if the will does not contain a specific amount of money that is to be funneled into a trust for one's children. These wills might simply have broader language stating that their children should inherit per the current amount of the federal estate-tax exemption, and that the rest of the person's estate (usually a bigger amount) should be funneled into a trust for the person's living spouse.

Some propose raising the threshold of the estate tax exemption

The issue of the estate tax has come to the forefront of American politics lately, as the government looks to revamp U.S. tax laws. Therefore, it is important for people in Saint Paul and across the nation to have a basic understanding of what the estate tax does and who it affects.

Estate tax serves an important role, but may not affect many

Many people in Minnesota may have heard of the estate tax but may not have a very good understanding of it. In essence, the estate tax is the tax the federal government levies on your assets when they are transferred to your heirs upon your death. However, for the most part, it only affects the wealthy, as it only applies to the part of a person's estate that amounts to more than $5.49 million. Nevertheless, the federal estate tax is a significant component of our nation's revenue. Therefore, it is important to understand how it works.

Don't put off estate planning while awaiting tax reform

President Donald Trump and the United States Congress have made proposals for tax reform, including the possibility of reforming the estate tax. Currently, assets above the $5.49 million exemption for individuals are subject to a 40 percent estate tax. With the uncertainty as to the future of the estate tax, wealthy individuals in Saint Paul may be holding off on making estate planning decisions.

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