The Federal Estate Tax Exemptions Will Be Changing.

Federal estate tax code allows for an exemption for estate taxes due after a person's death. This exemption has been increasing annually over the past several years, and is currently $13.61 million for an individual and $27.22 million for a married couple. This exemption is the amount the federal government allows each person to pass to non-charitable and non-spouse heirs before any federal estate tax is owed.

Beginning on January 1, 2026, the federal exemption for estate taxes will be reduced. This change is not due to recent law changes, as it was built into current law. The law included a sunset provision that would roll back the exemption after the end of 2025. After the law's sunset, we can expect these exemptions to be cut in half in 2026, to approximately $7 million for an individual's estate and $14 million for the estate of a married couple. It is possible that Congress could act on this before 2026, but it appears unlikely, and one should not count on that.

Note that Minnesota's estate tax exemption stands at $3 million for an individual and $6 million for a married couple. At this time, there is no Minnesota tax law provision changing those exemption amounts.

While exact numbers for the 2025 exemption have yet to be announced (it's based on inflation), it is estimated that next year's estate tax exemption will be approximately $14 million per couple. What this means is that if your estate is valued at greater than $7 million or $14 million for a couple, you may need to make some plans before the end of 2025.

There are a number of ways you can shelter some of your estate assets while you are still alive. For example, you can set up trusts, give to charities, or give gifts to people. It should be noted that there are no plans at this time for the federal government to reduce the annual gift tax exclusion, which is $18,000 per person gifted per year.

The impact of these changes can be complicated, and can vary based on many factors. The sunset deadline is approaching and will be here before you know it. It would be wise to seek the advice of a qualified estate planning attorney and a qualified financial planner.

Why Have A Will?

I often field the question: "Do I (we) need a Will?" More often than not--actually, MUCH more often than not--the answer is YES.

Let's look at some reasons why a valid Will should be in your estate planning portfolio.

First of all, not having a valid Will means a probate court must decide how your assets are divided up and distributed to your descendants. This is called intestacy. Intestacy is merely a fail-safe created by the Legislature, an attempt at a one-size-fits-all solution, but it is far from perfect.

Having a valid Will helps ensure that your assets go to the persons you want them to, in the amounts you choose. Without a valid Will, Minnesota intestacy law requires the probate court to distribute your assets based on a certain hierarchy, a particular order of who is in line to inherit your estate assets. Without a valid Will giving instructions, the court has to rely on this state-mandated default to determine how your estate is to be divided. That hierarchy may or may not be what you wish to happen.

A valid Will allows you to tailor the proportions of your estate assets you wish to give to family members. Maybe you don't want to divide up assets evenly. Perhaps there is a child who is closer to you or needs more financial help and deserves more. Conversely, there may be a family member who, due to dependency issues or poor money management skills, or who is estranged, is deemed one who should receive less--or none at all. Without a valid Will, the probate court will likely distribute your assets evenly between your descendants, without your input to the contrary.

A valid Will enables you to give certain items of property or money--specific gifts--to individuals or charities. The laws of intestacy make no provision for specific gifts to be given to people outside of the shares given to the legally-mandated heirs. Want to donate some money to a friend or relative, or a charity? Sorry, the laws of intestacy do not accommodate those kinds of wishes. You need a valid Will to make those choices.

A valid Will allows you the freedom to nominate persons to act as your fiduciary--the Personal Representative (executor) of your estate. The job of the estate PR is absolutely crucial and I cannot emphasize enough the importance of this selection. You may have certain individuals in mind whom you can trust to manage your estate after you are gone. Without a valid Will, the probate court decides who will act as the fiduciary. The person they choose may not be the person you want acting in that important role. The PR collects estate assets, pays valid debts, and distributes the remainder to the beneficiaries. If you see no other reason to obtain a valid Will, this is the one that should tip the scales in favor of it.

If you have children who are under the age of 21, a valid Will allows you to nominate a custodian to manage the minor's inheritance until that minor attains the age of 21. Without a valid Will, the probate court chooses that custodian.

If you own real property, your estate must pass through probate, unless you have executed a Transfer On Death Deed (TODD). With a valid Will your chosen Personal Representative will be someone you can trust to work with the probate court, and handle any real estate transactions.

Note that I have used the term "valid Will" throughout this article. I want to point out that just having some "will" may not, in itself, be sufficient. You need a carefully constructed Will, a legal document that reflects your values and wishes. This should be a document crafted by a competent Minnesota estate planning attorney, ensuring that it complies with Minnesota law. Sure, you could go DIY, download some template from the internet and fill in the blanks. But without the careful guidance of a competent attorney who understands your wishes and the legal landscape, your money-saving DIY document may not hold up to legal scrutiny after you die. Is it worth the risk, just to save a little money?

Preserving your hard-earned assets for the security of your family members is too important to leave to chance. Contact a licensed Minnesota attorney to begin protecting your estate.

Choosing A Worthy Charity And Avoiding Scams.

When considering your estate plan, you might be thinking about giving to a charity, either out of generosity, or tax concerns, or both. There are countless charities, and some are better than others. Many of them are excellent and do wonderful things. But too many of them are, at best, inefficient, and at worst, complete ripoffs. It pays to do your research before setting up a gift in your Will.

Does the charity's mission reflect your values and objectives? Is the organization transparent with their goals, or are they astroturfing with hidden agendas? Do they do a good job of  managing resources and are efficient and responsible with your money? Will the charity protect your personal information, or do they sell your data to other entities? Is the charity even legit, or is it a scam?

It's often difficult to size up a charity, but here are some warning signs to look for.

• The organization uses high-pressure tactics. Do they insist that you commit to a donation now? Do they ask for credit card information? A legitimate charity will understand that you need time to look them over and learn about them before agreeing to give. 
• The charity does not have a physical address. If they only show a P.O. box or merely have an online payment form, this should sound alarm bells with you. If you send an inquiry and they start spamming you with solicitations, this might be a sign that you should move on.
  
• The charity is inefficient with donations, or worse yet, they don't provide financials at all. All charities have operating expenses. But if a large percentage of donations pays for things like lavish salaries and professional fund-raising, much of your gift will be wasted. Sites like Charity Navigator and Charity Watch have search functions where you can look up an organization and find out where the money goes. 
• The charity is not a tax-exempt non-profit or it does not readily disclose its tax-exempt status. Look to see if the organization is registered as a 501(c)(3) entity under the Internal Revenue Service Code. Search the charity's IRS Form 990. Checking with the Minnesota AG's office can also help you find good information on charities. Without getting this kind of tax status information you could end up dealing with a sham commercial enterprise disguised as a charity.
• An organization sends you an unsolicited gift. Things like t-shirts, address labels and holiday cards are a common way some organizations promote themselves and you are under no obligation to give them anything. Even if the trinket had come from a reputable charity, don't feel obligated to return in kind.
• Similar-sounding charity names (e.g., Find the Children vs Save the Children--the latter being the well-known, legit organization). Some online sleuthing can help you zero in on the bona fide charity and steer you away from the bogus, soundalike organizations.

There are many worthy charities, and they need donations more than ever. Don't throw away your money by giving to a bogus organization.

* * *

When putting together your estate plan, you may have questions and concerns about charitable giving. A qualified attorney can help guide you in crafting a Will that reflects your wishes.

What's All This Ademption Stuff, Anyway?

Ademption is when a specific gift of property in a Will is no longer a part of the estate at the time of probate. 

For example, if a testator's Will has a provision to give his Jeep to his niece, but he had sold it some time before his death, then the gift has adeemed and the niece would receive nothing--the gift is no longer part of the probate property.

While the above scenario may at first seem unfair (the testator did promise to give the Jeep to his niece), the law is designed to protect "innocent purchasers," such as the person who bought the Jeep. Without ademption, a purchaser of property would never know whether some beneficiary might pop up later to claim what the purchaser had already paid for.

There are some exceptions to ademption. Money cannot be adeemed. If the uncle had instead left a gift of $10,000 to his niece, and the money was gone at the time of probate, the estate would be responsible for satisfying the gift, perhaps through the sale of other assets.

Also, if the property has been disposed of after the testator has been declared incompetent, or has been disposed of by an agent acting under a power of attorney, then ademption is waived. After the testator's death the beneficiary could claim compensation in lieu of the missing gift.

 * * *

A qualified estate planning attorney can help you develop a plan for your assets and your family.