BULLETIN. Estate Planning MAJOR CHANGES IN MINNESOTA ESTATE AND GIFT TAX LAW. May In this issue. shared values. firm results.

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1 May 2014 Exper tise Common Sense I ntegrity Fairness Hard Work Estate Planning BULLETIN shared values. firm results. MAJOR CHANGES IN MINNESOTA ESTATE AND GIFT TAX LAW The state legislature has made major changes to Minnesota estate and gift tax laws in the 2014 legislative session. As part of an omnibus tax bill which touched on most parts of Minnesota tax law, the legislature passed, and the governor signed into law, the following estate and gift tax changes: Minnesota s gift tax was repealed in full. The short-lived tax, adopted at the end of the 2013 legislative session, was only the second state gift tax in the nation. The repeal was made retroactive to original adoption of the tax. A Minnesota resident can now pass an increased estate to his or her heirs before paying Minnesota estate tax. The lifetime exclusion amount will be increased from $1 million to $2 million, phased in over five years in steps of $200,000 per year. The new exemption equivalent amount for 2014 is $1.2 million and the new $2 million threshold will be reached effective January 1, continued on page 2 In this issue p. 1 Major changes in the Minnesota Estate and Gift Tax Law p. 4 Changes to the Minnesota Power of Attorney Law p. 6 Served With (or Serving) Divorce Papers? Time to Review Your Estate Plan

2 2 Major changes in the Minnesota Estate and Gift Tax Law continued

3 Minnesota s estate tax rates are modified. The draconian starter rate of up to 40% on the first few thousand dollars over $1 million in an estate has been eliminated. A new rate scheme will range between 9% and 16% in By 2018 the estate tax rate will begin at 10% for estates between $2.0 and $2.6 million and rise to 16% on estates valued in excess of $10.1 million. The legislature modified rules regarding what is included in the Minnesota taxable estate. The new law expands the list of assets includable in the Minnesota estate. When real estate or other tangible property located in Minnesota is held by a non-minnesota resident in a pass-through entity (such as an LLC, partnership, or Subchapter S corporation) it will now be included in the Minnesota estate. Under prior law, the non-resident owner of intangible property (the pass-through entity) escaped Minnesota tax. This new provision of the law will capture estate tax on nonresidents who own, directly or indirectly, Minnesota located property. By Wade Wacholz wwacholz@gislason.com The Minnesota taxable estate will also now include taxable gifts made by a person within three years prior to the date of death. This provision is intended to eliminate the perceived tax advantages of so-called deathbed gifting. The 2014 Legislature s changes are significant and give Minnesota residents with higher net worth significant additional flexibility in planning their estates. Non- Minnesota residents now may have to pay Minnesota estate tax in more cases. Please contact your Gislason & Hunter estate planning attorney to discuss how this new law may impact your estate plan. 3

4 CHANGES TO THE MINNESOTA POWER OF ATTORNEY LAW By Daniel Beckman The powers that can be granted pursuant to a power of attorney under Minnesota law are broad. Recent publicity has spotlighted cases of abuse of those powers. In an effort to address some of the abuses possible, the 2013 legislature enacted changes to the Minnesota power of attorney statute. All previously executed powers of attorney valid under Minnesota law remain effective despite the 2013 changes. Therefore, it is not necessary to execute a new powers of attorney. Given the changes to the statutory requirements those attempting to use a power of attorney executed prior to 2014 may find it easier to obtain acceptance of a power of attorney with the most current version. The power of attorney statute was modified in a number of different ways. First, both the principal and the attorney-in-fact must review and acknowledge important notice documents which are to be included as part of the power of attorney form. These documents are contained in the statute. The principal is the person granting the powers under a power of attorney, and the attorney-in-fact is the person to whom the powers are granted. The important notice to the principal contains language notifying the principal that the powers granted by the power of attorney are broad and sweeping. It encourages anyone with questions about the powers to seek competent advice. It notifies the principal that the power of attorney may be revoked, and that the power of attorney is automatically terminated if the attorney-in-fact is a spouse and proceedings are commenced for dissolution, legal separation or annulment of the marriage. The important notice to the attorney-infact reminds the attorney-in-fact that they must act with the interests of the principal utmost in mind, exercise the power as an ordinarily prudent person of discretion and intelligence would exercise in the management of their own affairs, render accountings if required by the principal, act in good faith, cease acting on behalf of the principal if they learn of an event terminating the power of attorney, identify themselves as acting as an attorney-in-fact when exercising their power under the power of attorney, and sign the power of attorney. The signature requirement is a new requirement as the old statute did not require the attorney-in-fact to sign the power of attorney prior to using it. The Minnesota Statutory Short Form Power of Attorney now specifies that the attorney-in-fact is not given power to make medical decisions for the principal. Those powers must be granted using a health care directive which is a separate document under Minnesota law. Gifts made to the attorney-in-fact under the power of attorney (or to anyone they have a legal obligation to support) must be specifically allowed under the power of attorney. If such gifts are allowed, they are limited to the current federal annual gift tax exclusion amount. The federal annual gift tax exclusion amount is currently $14,000 and is adjusted on an annual basis. The statute also added new provisions which went into effect on August 1, These provisions allow the principal or any interested person the right to petition the court for judicial relief from the actions of 4

5 an attorney-in-fact. This relief may include an accounting as directed by the court. It also may include other relief for persons who may need a conservator (third party who manages the financial affairs of the principal), such as vulnerable adults and minors. The new law also contains a specific provision which allows for damages in the case of an abuse of the power of attorney in the amount of three times any actual damages or $10,000, whichever is greater. Any person damaged by the failure to account appropriately is entitled to recover attorneys fees and costs. In conclusion, the new power of attorney statute does not require anyone with a valid power of attorney to execute a new form. The new law does provide additional rights and remedies for those who may have suffered harm as a result of an inappropriate use of the powers under a power of attorney. It also provides the court jurisdiction to require an attorney-in-fact to account for their actions while acting as an attorney-in-fact. The new law should provide clarity and ability to seek court intervention against those abusing their powers as an attorney-in-fact. 5

6 Served With (or Serving) Divorce Papers? Time to Review Your Estate Plan By Andrew M. Tatge In Minnesota, a divorce commences upon service of a Summons and Petition. The Summons includes a mandatory restraining order, ordering that neither party may dispose of any asset except: (1) for the necessities of life or for the necessary generation of income or preservation of assets; (2) by an agreement in writing; or (3) for retaining counsel to carry on or to contest the divorce. All insurance coverage must be maintained and continued without change in coverage or beneficiary designation. Your family court judge can modify these restraints, but only after a motion is filed. Months, and sometimes years, can pass between commencement of the divorce and dissolution of the marriage. After you serve (or are served) the Summons and Petition, you are still legally married. You still owe a fiduciary duty to your spouse, even if he or she is now your estranged spouse. Your marriage is only dissolved by a decree of dissolution granted by a judge, either after a trial or by stipulation of the parties. Absent a revised estate plan, if you die during that period of time, your estranged spouse will likely receive a greater share of your estate than you intend. To protect yourself and your assets, you should: 1. Get a New Will. Early on in your divorce, talk to your lawyer about proper estate planning. Execute a new will and revoke your old will. This is especially important if you own significant assets or wish to preserve assets for your children or for some other beneficiary. Keep in mind that until your marriage is dissolved, you cannot completely cut your spouse out of your estate though. Because you are still legally married to your spouse, he or she also has the right to a certain percentage of your estate (called the elective share ), which your will cannot prevent. Under the elective share statute, your spouse in entitled to certain benefits and a right to a percentage of your estate, which increases over time up to half of your augmented estate if you die having been married fifteen years or more. This elective share can only be waived if your spouse signed a valid antenuptial agreement (commonly called a prenup ) or a valid post-nuptial agreement. As mentioned above, you must also abide by the restraining order in the Summons and any other order issued by your family court judge. Once your marriage is dissolved, the restraining order is lifted and your spouse s right to, among other things, the elective share automatically terminates. Also, the will you create during the divorce process is still valid and does not need to be rewritten until you want to change your estate plan again. 2. Set Up a Trust for Your Children. As part of your estate planning, you can set up a trust to hold your estate assets in the event of death. There are many different kinds of trusts. But talk to your divorce lawyer before you fund any trust with assets during your divorce, since doing so may run afoul of the mandatory restraining order. 3. Determine Who You Want to Care For Your Kids If You Die. While you can name a guardian of your children in the event you die before they become adults, if your former spouse is still alive, he or she will be the children s guardian and your guardian designation will not matter. But if your former spouse pre-deceases you and you then die, your guardian designation will be adopted by the Court. 6

7 4. Change Your Power of Attorney and Health Care Directive. It is also important to modify any power of attorney documents you have signed and to modify your health care directive. Normally, these documents are automatically revoked by commencement of the divorce, but it is important to think about revisiting your wishes and who you want to have the power to act on your behalf in the future. 5. Keep in Mind Life Insurance. Think about using life insurance to fund or protect child support and spousal maintenance orders. Life insurance policies should have a death benefit sufficient to cover any child support or maintenance obligation and may even be used to cover property settlement payments or other obligations to your former spouse. 6. Get Professional Help. Divorce sometimes brings great wealth to people who have no experience managing money or controlling financial resources. Appropriate professionals, such as divorce and estate planning attorneys, financial advisors, bankers, and accountants, can provide a great deal of value to newly wealthy individuals to ensure that resources are being appropriately utilized and managed. As Benjamin Franklin said, an ounce of prevention is worth a pound of cure. Proper estate and financial planning, especially after a divorce is commenced, is well worth the time, effort, and money. Andrew M. Tatge is a partner and chair of the Family Law and Divorce Practice Group at Gislason & Hunter LLP ( He regularly represents farmers, business owners, professionals, and other high earning and high net worth individuals (or their spouses) with marriage planning, family law and divorce actions, and related matters. This information is general in nature and should not be construed as tax or legal advice. 7

8 LOCATIONS Common Questions in Regard to Estate Planning Question: When should I update my Will? Answer: You should consider updating your Will whenever you experience a major life change. You should consider changing your Will if you marry or divorce, if there is a birth or death in the family, if a named guardian for your children dies or is no longer available, if the value or type of your property changes significantly, or if you move to another state. We recommend, however, that you periodically review your Will to ensure that it provides for your family as you originally planned, or to take into account new or changed circumstances, including changes in the law. Gislason & Hunter Wills, Trusts, Estate Planning & Probate Practice Group: Minneapolis Office Golden Hills Office Center 701 Xenia Avenue S, Suite 500 Minneapolis, MN Des Moines Office Bank of America Building 317 Sixth Avenue, Suite 1400 Des Moines, IA Mankato Office Landkamer Building 124 E Walnut Street, Suite 200 Mankato, MN Daniel A. Beckman Reed H. Glawe David Hoelmer Marlin R. Kunard Abbie S. Olson Kaitlin M. Pals Andrew Tatge Wade R. Wacholz Andrew A. Willaert dbeckman@gislason.com rglawe@gislason.com dhoelmer@gislason.com mkunard@gislason.com aolson@gislason.com kpals@gislason.com atatge@gislason.com wwacholz@gislason.com awillaert@gislason.com New Ulm Office 2700 South Broadway New Ulm, MN Hutchinson Office 16 Washington Avenue, Suite 104 Hutchinson, MN C. Thomas Wilson twilson@gislason.com Sara N. Wilson swilson@gislason.com This publication is not intended to be responsive to any individual situation or concerns as the content of this newsletter is intended for general informational purposes only. Readers are urged not to act upon the information contained in this publication without first consulting competent legal advice regarding implications of a particular factual situation. Questions and additional information can be submitted to your Gislason & Hunter Attorney.