Minnesota $4 million estate exclusion

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Farm Forum

MANKATO, Minn. – During the 2011 Minnesota legislative session, state lawmakers initiated a Qualified Small Business Property & Qualified Farm Property Exclusion. This $4 million dollar Minnesota estate tax exclusion for qualified small business and qualified farm property was signed into law July 2011 for decedents dying after June 30, 2011. Legislative law tied qualifying for the farm property exclusion to maintaining homestead designation on the farm land. If homestead designation is lost before the decedent’s death, the estate will not qualify for the additional exclusion.

Many folks feel qualifying is not going to be a problem and is a panacea for eliminating Minnesota estate tax upon their death. Gary Hachfeld, University of Minnesota Extension Educator in Agricultural Business Management states that “However, without planning there could be major issues. There are at least three scenarios where the decedent could lose homestead designation and therefore not qualify for the exclusion.” Those scenarios are as follows: 1) Decedent has retired from farming and lives in town within 4 contiguous townships of the farm land, none of their children live on the farm and none of their children farm the land, the decedent rents the land to a tenant unrelated to them, 2) Decedent has retired from farming and lives in town within 4 contiguous townships of the farm land, none of their children live on the farm and none of their children farm the land, the decedent crop-share rents the farm land and 3) Decedent has retired from farming and lives in town within 4 contiguous townships of the farm land, none of their children live on the farm and none of their children farm the land, the decedent custom farms the land. All three scenarios will render the estate ineligible for the $4 million exclusion.

If the decedent lived on the farm and farmed the land, rented the land to a farming child or rented the land to an unrelated party, they will have maintained homestead designation. If the decedent moved to town but remained within 4 contiguous townships of the farm land and they had a farming child farm the land, whether the child lives on the farm or not, they will have also maintained homestead designation. Maintaining homestead designation would qualify the estate for the additional estate tax exclusion.

Hachfeld states that “This is an area that can cause huge and unnecessary estate tax issues if done incorrectly. When doing estate and business transition planning, seek the assistance of a competent attorney. Farm families today have a lot at risk. Seeking professional help will secure the future of their business and personal assets.”