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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28996
Experience:  Taxes, Immigration, Labor Relations
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this question pertains to the new minnesota gift tax of 10

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this question pertains to the new minnesota gift tax of 10 percent that goes into effect
july 1st 2013. my parents just set up a irrevocable trust one in each name. it is the family farm 513 acres. ther are farmers that are land rich and cash poor
. and it is there wish to pass it on down to my 3 siblings and myself and grandchildren next. we do not want to sell the land,
my question is should we do nothing and as our parents pass are we going to get hit with
this 10percent gift tax. i know each person has a million dollar limit. that would leave quite abit exposed to the tax there estate is about 5million dollars estate please expalain if we need to make some changes quick to the gifting part of it thanks joel

LEV : Hi and welcome to Just Answer! Minesota Omnibus Tax Bill (“Tax Bill”) will be in effect starting July 1 this year. The Tax Bill adopts the Federal rules with respect to “annual exclusion” gifts, which is $14,000 (for 2013) per recipient without triggering the gift tax.
LEV : The rate is 10% Minnesota gift tax on lifetime gifts in excess of $1 million that is larger compare to $5,250,000 Federal gift tax exemption (for 2013).
LEV : So if you want to avoid Minnesota gift tax liability - the transfer should be completed before June 30.
LEV : This law exempts some family farms from Minnesota estate tax - there a limit of $5 million per person in some situations.
Customer:

so what you are telling me is. if we do nothing with the trust and let it play out when our parent pass we the beneficsere will be stuck with this tax. on any thing we recieve over the 2 million exclusion. of there estate. can my parents have not gifted anything up till now. how do they change there trust?this is all new to us.

LEV : If that is an irrevocable trust - it is a separate legal and taxing entity. As long as the farm already transferred into the trust - you may continue to have the trust after your parents will pass away - and there is nothing you need to do. If you want the farm to br titled into your name and that will be transfer from your parents to you - that should be done before June 30th.
Customer:

it is a revocable trust and all my parent assets are in it. we set it up this way because we did not worry about gifting or transfering it into our names because

Customer:

we could not protect it because our mom is already in a nursing home. my dad with the cash rnt and long term care can support his and her needs. that why he want to just pass it on through the trust. so are we okay if we let it play out

LEV :

You originally mentioned irrevocable trust - may be that is a typo. With revocable trust - which is basically ignored upon the settler's death - transfer into the trust makes no difference.
The trust will become irrevocable after the settler's death - and you will be able to continue maintain the trust and use the farm owned by the trust. Generally - family farms are excluded from Minnesota estate tax - there a limit of $5 million per person. So far - nothing to worry - if you do not want to transfer thr ownership into your name.

LEV :

Only if you plan immediately transfer the title to yourself - you need to do that before June 30 - otherwise I think - just let it go to the trust - and you will keep the trust after your parents will pass away.

LEV :

Sorry - I have to step out - please keep posting - I will be back and will address all your concerns.

Customer:

sorry for the mistake. thank you for help now i think i understand we will just leave it as setup now, because my parents wishes were to pass it down in the trust. he does not want to gift it to our names. so it should not affect us correct

Customer:

did you see my post from 11.01 that should be my last thanks

Customer:

i will check for your response in an hour thanks

LEV :

Sorry for the delay...
If your parents plan to pass the property to you as part of their estate - gift tax would not be an issue.
In this case - a property will be subject of estate taxes. Generally each person is able to pass tax free to beneficiaries $1,000,000. However additional $4,000,000 exemption is allowable for estates that include a small business or farm. So - each of your parents will be able to pass $5,000,000 before estate tax liability woudl be in effect.
You may take a look at this new law here - see page 28 - http://www.house.leg.state.mn.us/hrd/bs/88/HF0677.pdf
See on page 30 - Qualified farm property definition.
Minnesota Department of Revenue will issue detailed publication - but so far nothing is available yet.

Customer:

thank you for all your help. very satisfied

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