January 24th, 2012
“Possible” Relief From Minnesota Estate Tax for Small Businesses and Family Farms?
During the 2011 Minnesota special legislative session, the Governor signed legislation that has the potential to eliminate the Minnesota estate tax for many Minnesota small businesses and farms. The new law excludes from the Minnesota taxable estate $4,000,000 or the value of such qualified business or farm, whichever is less. This new exemption is in addition to the $1,000,000 exclusion from Minnesota estate tax allowed to all individuals.
The concept may seem simple. However, there are many qualifications to meet. And until the Minnesota Department of Revenue formally promulgates regulations or the statute is vetted in the courts uncertainty surrounds the new law. For example, the statues provide no guidelines to qualification requirements for interests and farms inherited by family members in a trust.
As for the basics of the qualifications …
A “Qualified Small Business” must meet the following requirements:
- be a closely held business
- have less than $10 Million in gross annual sales
- the decedent or his or her spouse owned and “materially participated” in the operation of the property for three (3) years before his or her death
- the business must pass to a “qualified heir” (see below)
- the “qualified heir” must continuously “materially participate” in the operation of the operation of the business for three years after the decedent’s death (or pay a big penalty)
A “Qualified Family Farm” must meet the following requirements:
- the farm must meet the “material participation” and “qualified heir” rules for a qualified small business
- the farm must be classified as the decedent’s agricultural homestead
- the farm must also satisfy the requirements of Minnesota Statute §500.24 (the so-called “Corporate Farm Law” which places restrictions on the types of entities that may own a farm)
A “qualified heir” is a spouse, an ancestor, a descendant, or a spouse of lineal descendant.
Careful review of your situation is an absolute must before attempting to rely on this new law. If you have any questions or would like to discuss your situation with one of our estate planning attorneys, please feel free to contact us at 507-288-5440.