Do You Have a Minnesota Estate Tax Issue?

Understanding How Estate Taxes Could Affect You

I recently had a meeting with a couple that is in their early 40s to talk through their current estate plan.

Their combined net worth — including their home, investments, and retirement accounts — was a little over $500,000.

It might seem like estate taxes won't affect this couple. However, that's not the case. Net worth and estate value are not always the same thing.

Keep reading to find out if you may have an estate planning issue in MN.

Your estate might be bigger than you think.

By Michael Urch, CFP® Senior Wealth Manager

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning.

What’s the Minnesota Estate Tax Threshold?

The estate of Minnesota residents is taxed when it exceeds $3,000,000. 

To complicate matters, the $3,000,000 estate tax exclusion (unlike the federal one) is not portable. That means the estate tax exclusion cannot be shared between spouses after the first spouse dies.

Why Talk About Estate Taxes with a $500,000 Net Worth?

You might be wondering: Why am I talking about estate taxes when this couple’s net worth is only around $500,000?

The answer is that net worth and estate value are not always the same thing.

This couple owns over $2,500,000 in life insurance. When that life insurance coverage is added to their net worth, their total estate value will be over the $3 million estate tax threshold. That means estate taxes could come into play despite what their net worth alone suggests.

Looking Ahead

In 10 years, it’s likely their estate could grow beyond $4,000,000 as investments increase and their life insurance remains in force.

Minnesota estate taxes on amounts above $3 million range from 12% to 14%. To put that in perspective, 12% on $1,000,000 over the exemption would mean a tax bill of $120,000 — which is a significant cost.

Fortunately, this couple was able to identify the potential tax issue early on. 

We worked through their concerns and brought in an estate attorney to update their legal documents and put a plan in place.

Your Advisor Should Be Helping to Guide Your Estate Planning

You may be in a similar situation. However, the big takeaway here isn't that you need to do your estate planning. Of course you do.

But you shouldn't be doing it alone.

Is your financial advisor guiding you through the process and aiming to ensure that you're on top of your estate planning? If not, it may be time to switch advisors.

And, if you aren't working with a wealth management team, I recommend you schedule a call today.

About the Author

Michael Urch

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning. He prides himself on being a professional advisor who puts planning before products. This is one of the reasons he was attracted to 360 Financial’s client-focused culture. Michael likes to start with each client’s “why.”

By understanding what’s truly important to them, the “what” of investment and planning strategies can be custom-designed to support their long-term ambitions.

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This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.