What Are Estate Taxes?
Estate taxes, often called the death tax, apply to estates before their assets transfer to beneficiaries. The tax amount is based on the fair market value of the estate at death, minus deductions and exemptions. In 2024, Minnesota taxes estates valued above $3 million.
Who Pays Estate Taxes?
Estate taxes usually affect larger estates. Minnesota’s progressive rates start at 13% and rise to 16% for high-value estates. Estates under $3 million are exempt. Even if you live in a state without an estate tax, your estate may still owe federal estate tax if it exceeds the federal exemption. Understanding both state and federal laws helps you preserve your assets.
How Trusts Help Reduce Estate Taxes
Trusts are powerful tools for reducing estate taxes and avoiding probate. A trust transfers property ownership from the grantor to a trustee, who manages it for beneficiaries. A living trust lets you control assets during your lifetime while ensuring a smooth transfer after death.
Revocable trusts allow flexibility and control, while irrevocable trusts remove assets from your taxable estate. Because the trust owns the property, those assets no longer count toward estate tax calculations. The Minnesota House Research Department reports that strategic trust planning can significantly lower a family’s estate tax liability.
Common Types of Irrevocable Trusts
- Grantor-Retained Annuity Trust (GRAT): Freezes asset values and passes appreciation to heirs with minimal tax exposure.
- Generation-Skipping or Dynasty Trust: Transfers wealth to grandchildren or later generations while avoiding double taxation.
- Spendthrift Trust: Protects assets from mismanagement by giving trustees control over beneficiary distributions.
- Special Needs Trust: Provides for individuals with disabilities without affecting eligibility for Medicaid or SSI.
- Charitable Remainder Trust: Pays income to beneficiaries during life, then donates the remainder to charity after death.
Steps to Establish an Irrevocable Trust
- Draft the trust document with your attorney.
- Appoint a trustee and list beneficiaries.
- Transfer assets into the trust to remove them from your taxable estate.
How Strategic Gifting Reduces Estate Taxes
You can lower your estate’s value through annual tax-free gifts of up to $17,000 per individual or $34,000 per married couple. Gifting keeps your estate below taxable thresholds and benefits loved ones now. To stay compliant, review the IRS gift tax FAQ or consult your estate planning attorney.
Metropolitan Law Group can help you structure gifts that reduce taxes and protect your heirs from financial burdens.
How Charitable Donations Impact Estate Taxes
Charitable giving reduces your taxable estate while supporting meaningful causes. Donations to qualified organizations can provide lifetime deductions and reduce estate tax after death. Check IRS charitable deduction guidelines before finalizing contributions through your estate plan.
Partner with Minnesota Estate Planning Attorneys
Managing estate taxes requires strategy and expert legal guidance. The attorneys at Metropolitan Law Group help Minnesotans design trusts, gifting plans, and charitable strategies that preserve family wealth and fulfill personal wishes. Call 612-524-9414 or schedule a complimentary 15-minute Discovery Call with an experienced staff member today.
