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Extension > Agricultural Business Management News > Homestead classification key to Minnesota $4 million estate exclusion

Homestead classification key to Minnesota $4 million estate exclusion

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Gary Hachfeld

MANKATO, Minn. (10/22/2013) - During the 2011 Minnesota legislative session, state lawmakers initiated a Qualified Small Business Property & Qualified Farm Property Exclusion. This $4 million dollar Minnesota estate tax exclusion for qualified small business and qualified farm property was signed into law July 2011 for decedents dying after June 30, 2011. Legislative law tied qualifying for the farm property exclusion to maintaining homestead classification on the farm land. If homestead classification is lost before the decedent's death, the estate will not qualify for the additional exclusion.

Many folks feel qualifying is not going to be a problem and is a panacea for eliminating Minnesota estate tax upon their death. However, without planning there could be major issues. There are several scenarios where the decedent could lose homestead classification and therefore not qualify for the exclusion. Those scenarios include: 1) Decedent has retired from farming and lives in town within 4 contiguous townships of the farm land, none of their children live on the farm and none of their children farm the land, the decedent rents the land to a tenant unrelated to them, 2) Decedent has retired from farming and lives in town within 4 contiguous townships of the farm land, none of their children live on the farm and none of their children farm the land, the decedent crop-share rents the farm land, 3) Decedent has retired from farming and lives in town within 4 contiguous townships of the farm land, none of their children live on the farm and none of their children farm the land, the decedent custom farms the land and 4) landowner either lives on the farm land or in town within 4 contiguous townships of the farm land, has placed the farm land in an entity and rents the land to a son or daughter who is not a member of the entity. These scenarios will render the estate ineligible for the $4 million exclusion.

If the decedent lived on the farm and farmed the land, rented the land to a farming child or rented the land to an unrelated party, they will have maintained homestead classification. If the decedent moved to town but remained within 4 contiguous townships of the farm land and they had a farming child farm the land, whether the child lives on the farm or not, they will have also maintained homestead classification. Maintaining homestead classification would qualify the estate for the additional estate tax exclusion.

This is an area that can cause huge and unnecessary estate tax issues if done incorrectly. When doing estate and business transition planning, seek the assistance of a competent attorney. Farm families today have a lot at risk. Seeking professional help will secure the future of their business and personal assets.

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