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Estate taxes can affect your legacy without advance planning

On Behalf of | Feb 9, 2023 | Estate Planning

There are numerous expenses that arise in the wake of someone’s death, ranging from end-of-life medical care costs to funeral expenses. The property you own when you die will typically become your estate, and your estate resources will help to manage those final financial obligations.

The executor or personal representative of your estate will also need to use your resources to pay your creditors and fulfill your tax obligations. If you have a sizable estate, estate taxes could potentially “eat up” a significant percentage of the property you hold at the time of your death.

Minnesota imposes an estate tax

Large estates worth more than $12,920,000 are subject to federal estate taxes. There are also several states that impose a state-level estate tax, and Minnesota is one of those states.

The threshold for taxation is lower in Minnesota than it is at the federal level. Someone’s estate only needs to be valued at $3 million in assets for state estate taxes to apply. The tax rate that will be applicable in any given situation will vary depending on the total value of the estate, but it could be as high as 16% at the state level and as much as 40% at the federal level. Without planning, some testators will lose more than half of their estates to such taxes.

You can limit what your estate will pay in estate taxes

Those likely to have large estates can plan ahead of time to preserve as much of their wealth for the next generation as possible. Acknowledging that your most valuable resources could potentially trigger state or federal estate taxes can help you to put documents in place that can limit your tax liabilities.

Every situation is unique, but changing ownership of certain assets, creating a trust or making gifts to loved ones and charitable organizations while you are still alive are all means of reducing estate tax risks. Holding major assets in a trust will also diminish the proportion of your assets that will need to pass through probate court.

Discussing your financial circumstances in depth can help you create an estate plan that works well for your situation, whether you’re in a position to worry more about creditor claims or estate taxes.