If you have had a successful career or if you inherited property from your parents, you may be in a good position to leave valuable resources for the next generation. Estate planning requires not just acknowledgment of your relationships to determine who should receive your property, but also consideration of your responsibilities and obligations so that you can properly fulfill them even after your death.
Taxes don’t necessarily end with your life. Some of your tax responsibilities will pass to your estate, and the estate itself may have its own unique tax burdens. What taxes may you need to consider when planning a Minnesota estate?
Federal and state estate taxes
Although they only apply to large estates, estate taxes can substantially diminish what you leave for others after your death. Estates worth $3 million or more in Minnesota may be subject to estate taxes at the state level.
Once the total value of the estate reaches $12,060,000, federal estate taxes may apply as well. Those who do not plan and who have to pay both state and federal taxes might lose more than half of the total value of their estate to these taxes.
The representative of your estate will typically need to file a final income tax return on your behalf, even if you retired years ago. This return may require a sizable payment, depending on your financial situation when you pass. Leaving adequate resources and clear financial records will be crucial to facilitate an accurate final income tax filing.
Estate income taxes
While you technically paid tax on income when you earned it and on assets when you acquired them, you may have to pay tax on those belongings again if you sell them off during estate administration.
Estate sales and the sale of the house where you live could trigger estate income taxes if the estate receives more than $600 for the sale. The representative managing your estate will need to retain resources from the estate to pay these taxes if you leave them with instructions to sell some of your property during estate administration.
Recognizing and properly planning for expensive tax obligations will help you maximize how much of your property goes to the people you love and support after you die.