Taxpayer Examples: Faces of the Estate Tax

Couple dealing with Alzheimer's
Duluth, MN

This couple has a gross estate of $950,000. She has Alzheimer’s, so her husband wishes to put her share of the estate in trust to ensure someone else manages it for her benefit. Let’s assume that he puts all of it in trust for her lifetime, and then upon her death it goes to the children.

If a federal estate tax return was filed, the estate could make a QTIP election to treat the trust as marital property going to the surviving wife, and no tax would be paid on it until the wife died.

Under Minnesota law, no QTIP election is available, and the husband's estate will need to pay Minnesota about $33,760 in estate tax on money that is completely set aside for his wife's medical care. This tax could have been deferred until the wife's death if Minnesota allowed the QTIP election when no federal return is required.

Widower
Minneapolis, MN

When this taxpayer's wife died, her estate was valued at $1.4 million.  It then declined in value to $1.1 million within 6 months after the date of death. Federal law allowed the widower to pay tax on a $1.1 million estate, while state law requires you to pay tax on the $1.4 million value. The taxes are roughly $42,640 and $61,840. Essentially the widower paid a $19,200 tax on value that is no longer there.

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