Published on Wednesday, 30 November -0001 00:00
The 2011 Minnesota Legislative Special Session budget bill included an unexpected change in the state's estate tax for qualified farms and small businesses. The law change applies to individuals who farm or operate small businesses.
The amount a person who has died could pass through their estate without incurring a Minnesota estate tax has been $1 million dollars per person. The 2011 legislation increased that amount to $4 million per person for qualified farms and small businesses.
"This unforeseen change will help farm families and small business owners transition their business to the next generation," said Gary Hachfeld, agricultural business management educator with University of Minnesota Extension.
The legislation includes some very specific rules to qualify for the exclusion amount:
* For both farm families and small businesses, the property and business assets must be part of the estate value of the deceased person.
¥ For both farm families and small businesses, the deceased person must have continuously owned the property for the three-year period ending on the date of death.
* A farm must qualify as a farm as defined by Minnesota law and be classified as the agricultural homestead of the deceased person for property tax purposes.
* For small businesses: the business assets, shares of stock or any other ownership interest must be that of the deceased person; and that person must have materially participated in the business (had financial risk and a stake in the business).
* Stock ownership in a corporation or other business entity that is traded on a public stock exchange does not qualify for the tax exclusion.
* A small business cannot have had gross annual sales of more than $10 million for the last taxable year that ended before the date the person died.
* The family member, as defined in Section 2032A(e)(2) of the Internal Revenue Code, receiving the farm or small business must continually use the property and assets in the operation of the trade or business for three years following the deceased person's date of death. If they fail to do so, the property is subject to a recapture tax at a rate of 16 percent on the amount claimed by the deceased person's estate. The recapture tax is due within six months of the violation of the transfer.
This Minnesota estate tax law change is effective when a person dies after June 30, 2011.
Individuals who may have a farm or small business worth more than the old exemption amount of $1 million should review their business transition and personal estate plans and meet with a qualified financial planner.