
Minnesota Estate Tax: What Residents Need to Know
Have you ever heard of the so-called “death tax”? If so, what folks are truly talking about is the estate tax. An estate tax is a tax on the transfer of your property to your beneficiaries at your death. This property is known as your estate and includes your investments, cash, real estate, and other assets with ownership. The value of your estate is assessed as of your date of death, and this value will potentially be subject to estate tax. Estate taxes reduce the total value of the property that your beneficiaries inherit, which means they reduce the transfer of wealth from one generation to the next.
Everyone living in the United States is potentially subject to the federal estate tax. However, not all states have their own estate tax laws. Minnesota imposes a state-level estate tax, making it one of only 13 states to do so. This means Minnesota residents may be subject to both federal and state estate taxes, which makes taking advantage of coordinated and proactive planning critical for residents. Federal and Minnesota tax laws each have different estate tax exemption amounts- a dollar amount used to reduce the taxable estate before imposing estate taxes. This makes it much more challenging to determine if you will owe estate tax and if so, how much.
Does Minnesota Have an Estate Tax?est
Yes – Minnesota imposes its own estate tax separate from the federal estate tax. One key difference between Minnesota and the federal estate tax is that Minnesota has a significantly lower exemption amount. As of 2025, the federal estate tax exemption is $13.99 million, while Minnesota’s estate tax exemption is $3 million. As you can imagine, for Minnesota residents, this means that many more households will be subject to Minnesota estate taxes than federal estate taxes.
As of 2025, there are 13 states that impose a state-level estate tax:
- The states other than Minnesota include Connecticut, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, New York, Oregon, Rhode Island, Vermont, and Washington.
- The various state exemption amounts range from $1 million on the low end (Oregon) to $13.99 million (identical to the federal exemption) on the high end (Connecticut).
Minnesota has made changes to its estate tax exemption amount in the past. In fact, prior to 2014, the estate exemption amount was $1 million. Between 2014-2020, the estate exemption amount was gradually raised to the current $3 million level. Folks who created estate plans prior to 2014 and have not updated them may be using estate planning techniques that are outdated for the current exemption amount. If your goal is to reduce your taxable estate, it’s important to stay up to date with changes to Minnesota tax law by working with coordinated professionals such as financial advisors, tax planners and estate attorneys.
What’s the Difference Between Estate Tax and Inheritance Tax?
It can be easy to get confused between estate and inheritance taxes, as the terms are related.
An inheritance tax is a tax paid by individuals (known as beneficiaries) who receive assets from a deceased person’s (known as a decedent’s) estate. This is different from an estate tax, which will be paid by the decedent’s estate rather than the beneficiary directly.
Although Minnesota does have an estate tax, it does not have an inheritance tax currently. Only Maryland has both an estate tax and an inheritance tax as of 2025. To learn more about inheritance taxes, please check out our prior blog post Minnesota Inheritance Tax: What Residents Need to Know.
The absence of an inheritance tax for Minnesota does help to simplify estate planning, but it does not eliminate potential tax liability. If your estate is over the exemption amount, it will be subject to estate ta,x and the beneficiaries will receive less value from the estate property. Making use of estate planning strategies can help reduce your taxable estate and the eventual estate tax liability.
How the Minnesota Estate Tax Works
What is the exemption amount?
The current Minnesota estate tax exemption amount is $3 million. This means that if, upon your death, your estate is under $3 million, then you will not be subject to the Minnesota estate tax. If your estate is above $3 million, then tax applies to any excess value, and the estate will owe estate taxes.
What is the Minnesota estate tax rate that will be used on your estate over $3 million?
Minnesota uses marginal tax brackets that range from 13% to 16%. Estates with just over $3 million will start at the 13% rate, increasing incrementally to a maximum of 16% for larger estates. Therefore, your Minnesota estate tax rate will fall somewhere between 13% to 16%.
What is included in the taxable estate?
The taxable estate includes most of what you own upon your death, such as real estate, investment accounts, business ownership, and life insurance. There are some exceptions for qualified small businesses and farms that will be covered in a subsequent section. To correctly calculate the estate tax, you must complete the federal Form 706 and the Minnesota Form M706.
Is the Minnesota exemption amount portable?
One major difference between the Minnesota and federal estate tax, beyond the much lower exemption amount, is that the Minnesota exemption is not portable between spouses. Portability allows a deceased spouse’s unused estate tax exclusion amount to be transferred to the surviving spouse.
The federal estate tax does allow for portability, but Minnesota does not. This means that married couples do not get to double their total exemption.
Federal Estate Tax: What Minnesotans Need to Know
What is the exemption amount?
In 2025, the federal estate tax exemption amount is $13.99 million per person. This means that if upon your death your estate is under $13.99 million, then you will not be subject to federal estate tax. If your estate is above $13.99 million, then tax applies to the excess value, and the estate will owe estate taxes.
Is the federal exemption amount portable?
Yes – this is a difference from the Minnesota estate exemption, which is not portable. For couples, any unused portion of the $13.99 million exemption for the first spouse to die may be transferred to the surviving spouse. Essentially, couples have $27.98 million for a total federal estate tax exemption.
Can I be subject to both federal and Minnesota estate taxes?
In certain cases, Minnesota residents may be subject to both the Minnesota estate tax and the federal estate tax upon their death. This would only happen for an estate over the federal estate exemption of $13.99 million. Let’s say that a single Minnesota resident dies with an estate of $15 million in value. They will owe Minnesota estate taxes on $12 million of the estate value in addition to federal estate taxes on $1.01 million of the value.
Is there any change to the federal estate exemption amount now that the OBBB has passed?
No – the OBBA has enacted a permanent increase in the federal estate tax exemption amount for 2025 on. In 2026, the exemption amount will be $15 million per person.
Important Factors When Inheriting Property in Minnesota
For those Minnesota residents who will be inheriting property from an estate, there are several key considerations as you determine how estate and income tax impact your inheritance.
Step-Up in Basis
Inherited property, such as taxable investment accounts and real estate, receives what is known as a step-up in basis upon inheritance. This means that the cost basis (what the decedent invested in the property) gets reset to its fair market value (what it’s worth now) on the date of the previous owner’s death. Let’s look at an example to understand how this might apply:
Step-Up In Basis Example
Let’s say your uncle purchased a house for $200,000 originally and put in $50,000 in capital improvements. His cost basis in the home is $250,000. When he dies, the home is now worth $500,000. If you are his beneficiary and inherit the home, your new cost basis will be $500,000.
How does this benefit you? If you go to sell the house, you will only realize capital gains income on the difference between what you sell the home for and your new cost basis of $500,000 (instead of $250,000). This can greatly reduce the federal taxes and state taxes you will need to pay upon the sale of the home.
Assessment of Assets
Real estate can be a challenging asset to consider for estate tax and inheritance purposes. Assets need to be assessed for fair market value to determine any estate tax liability.
For real estate, this means the price that a willing buyer would pay for the property and that a willing seller would accept, assuming both parties have reasonable knowledge of the relevant facts and are under no pressure to buy or sell.
Real estate is also much less liquid than an investment account, and so it may be challenging to find the funds to pay any federal taxes or state taxes due.
Out-of-State Estate Tax
You may think that if you inherit property located out of state that you will avoid estate tax in Minnesota. However, if the decedent was a Minnesota resident who owned some out-of-state property, this may not be the case. All property owned will be considered for determining the potential Minnesota estate tax.
Probate
Probate is the legal process of settling your estate in court after you die. Your personal representative is responsible for probating you. In Minnesota, probate applies to the estates of people who were residents of Minnesota at the time of their death or those who owned real property in Minnesota.
Having a will does not avoid probate. Whether or not you will need probate depends on the amount, type, and ownership of your property.
Strategies to Reduce or Avoid Estate Tax in Minnesota
Given that many more Minnesota residents will be subject to state estate tax liability than federal taxes, here are some strategies to consider if you’d like to reduce your taxable estate.
Making Use of the Annual Exclusion Gifting
Technically, the estate tax exemption amount also includes lifetime gifts. However, you are allowed to gift up to $19,000 per person currently without the gift eating into your lifetime exemption amount. For those folks who would rather see their beneficiaries enjoy gifts during their lifetime rather than wait until their death, making full use of the annual gift exclusion can be a great strategy to reduce their taxable estate. Couples can double up on their annual excluded gifts ($38k), and if they are gifting to a coupl,e the annual exclusion amount quadruples ($76k).
Lifetime Gifting Beyond the Annual Exclusion
You are certainly not limited to the annual gift exclusion amount. Many people choose to make gifts above $19,000 per person. While this reduces your taxable estate, be aware that these amounts above the annual exclusion will reduce your lifetime estate and gift tax exemption. Any gift in excess of the annual exclusion amount must be recorded on IRS Form 709 (meaning a gift tax return will need to be filed). However, you will not owe any federal taxes or state taxes for the gift in that year. You will only owe if you use up your lifetime federal or state exemptions upon your death.
Tuition and Medical Payments Made Directly
There are two types of gifts that never reduce your lifetime estate and gift tax exemptions. You are allowed to pay for someone’s educational and medical expenses without the payments being considered a gift. For example, you can pay for your grandchild’s entire college career by directly paying for tuition without any of the payments counting towards your lifetime exemption amount.
Irrevocable Trusts
Some higher net worth folks may make use of estate planning techniques involving irrevocable trusts. Property that has been moved to an irrevocable trust will not be included in the estate at death. Some popular estate planning tools include the use of grantor retained trusts such as GRATs, GRUTs, and GRITs. These types of trusts can help to reduce the taxable estate, but can be complex to implement. Working with an estate attorney is important to consider in these cases.
Charitable Bequests and Foundations
For those with philanthropic goals, giving to charities during your lifetime can help reduce your taxable estate and will not count towards your lifetime exemption. There are several strategies for giving that will also reduce your federal taxes and state taxes for the year, including donor-advised funds (DAFs) and qualified charitable distributions (QCDs).
Entity-Based Discounts (e.g., FLPs or LLCs)
If you have ownership in any private investment partnerships, minority interests in limited liability companies (LLCs) or family limited partnerships (FLPs), you may find making use of valuation discounts to be a helpful strategy to reduce your estate tax liability. As discussed previously, the property of the estate is valued at its fair market value. Due to the nature of family-owned or closely held businesses, they may be subject to valuation discounts when arriving at fair market value. Some common valuation discounts include lack of marketability, lack of control, minority share and future interest discounts. In this situation, you will need to work with a qualified business appraiser to determine an appropriate discount and coordinate with your estate planning.
Work with Coordinated Advisors
As noted throughout the article, estate planning can be complex. To fully understand your situation and what strategies you would most benefit from, we recommend working with coordinated professionals. These would typically include a financial advisor, tax advisor, and estate planning attorney.
Minnesota Estate Tax FAQs
How do I calculate whether my estate exceeds the Minnesota exemption amount?
The Minnesota Department of Revenue site includes links to calculators you can use to determine your Minnesota estate tax: https://www.revenue.state.mn.us/estate-tax-calculators. It is important to file the Form M706, Estate Tax Return, along with your regular state tax filing in the year of the decedent’s death.
For any amount exceeding the Minnesota estate tax exemption, your estate will pay rates ranging from 13% to 16% in taxes.
Does Minnesota tax life insurance proceeds?
Minnesota does include life insurance proceeds in the taxable estate.
What deductions or exemptions does Minnesota offer for small businesses or farms?
In 2011, legislation was passed to provide two exclusions for qualifying small business property and homestead farms. The combined value of these exclusions and the general exemption amount cannot exceed $5 million. There are some requirements to earn the exclusion, including owning the property for three years before the date of death and the heirs continuing to own and use the property in the same way for three years after death.
If I move out of Minnesota, can I avoid the estate tax in Minnesota?
Yes – It is possible to avoid Minnesota estate tax liability by moving out of state. However, it can be tricky to do so. You will first need to establish residency in a new state, which means adhering to stringent rules around days spent in state vs. out along with several other items. Also, if you continue to own property in Minnesota, that property could be subject to Minnesota estate taxes. And finally, there is a 3-year look-back back the state performs to determine if any gifts you made during the three years preceding your passing should be included in the estate for tax purposes. Easier said than done!
Will my heirs owe Minnesota estate tax if I have assets in other states?
Potentially – Assets located in other states will be included in the Minnesota estate tax calculation. If the taxable estate exceeds the $3 million exemption amount, then you may have state estate tax liability.
How Can I Secure My Legacy?
As a Minnesota resident, it is important to fully understand and plan for state estate taxes early. Working with a financial advisor in coordination with your estate attorney and tax experts can help ensure you are creating a personalized plan to meet your legacy goals. Both federal and state laws are subject to changes, so be sure to have your plans reviewed regularly so you are confident they will work the way you intended. Schedule an initial call with us to better understand how Minnesota estate tax rules and related issues apply to your situation.
Sources:
https://www.revenue.state.mn.us/qualified-small-business-and-farm-property-deduction
https://www.house.mn.gov/sessiondaily/Story/18473
https://taxfoundation.org/data/all/state/estate-inheritance-taxes/
https://taxpolicycenter.org/briefing-book/how-do-state-and-local-estate-and-inheritance-taxes-work
https://www.house.mn.gov/hrd/pubs/ss/ssesttx.pdf
https://www.ag.state.mn.us/consumer/handbooks/probate/CH2.asp
https://www.revenue.state.mn.us/estate-tax
https://www.captrust.com/resources/valuation-discounts-estate-tax-savings/
Liz Alf is the Principal of Clerestory Advisors and fee-only CERTIFIED FINANCIAL PLANNERTM located in Minneapolis, MN. She is a member of the National Association of Personal Financial Advisors (NAPFA), the Fee Only Network and Wealthtender. She enjoys serving clients with on-going financial planning and investment management services.