Does Minnesota Have an Estate Tax? An Explanation

Minnesota imposes its own estate tax, a financial consideration for the transfer of a person’s assets after their death. This state-level tax operates independently of the federal estate tax system. The tax is levied on the decedent’s estate before any assets are distributed to heirs or beneficiaries.

Minnesota Estate Tax Thresholds

A Minnesota estate tax return must be filed when the total value of a decedent’s gross estate meets the $3 million threshold. If the estate’s value is at or below this amount, no tax is owed and a return is not required. This threshold is lower than the federal estate tax exemption, so some estates exempt from federal tax may still have a Minnesota filing obligation.

A “Minnesota decedent” is an individual who was a resident of Minnesota at their time of death. For these residents, the entire gross estate is considered when determining if the $3 million threshold has been met. This includes all property owned by the decedent, regardless of where it is physically located, such as out-of-state real estate, bank accounts, and investments.

A different standard applies to nonresidents. For a nonresident, a return is required if their estate includes real property (like land or a cabin) or tangible personal property (such as vehicles or boats) physically located within Minnesota and their total federal gross estate exceeds the $3 million Minnesota exemption. The tax is then calculated on a prorated basis, considering only the value of the Minnesota-based assets.

As of early 2025, legislation has been proposed to increase the estate tax exemption from $3 million to $6 million. If enacted, this change would apply to decedents dying after June 30, 2025. Taxpayers should monitor the status of this pending legislation as it could significantly alter filing requirements.

Calculating the Minnesota Estate Tax

The calculation for the Minnesota estate tax begins with the federal gross estate, a comprehensive valuation of all property and assets the decedent owned or had an interest in at death. This includes real estate, cash, stocks, bonds, business interests, and life insurance proceeds. For Minnesota purposes, certain gifts made within three years of death that exceeded the annual federal gift tax exclusion may be added back to the estate’s value.

From the Minnesota gross estate, several deductions can be subtracted to arrive at the taxable estate. The primary deduction is the unlimited marital deduction, which allows for the tax-free transfer of any amount of assets to a surviving spouse. Other deductions include funeral expenses, administrative costs, and charitable contributions. Minnesota law also provides for specific deductions not available at the federal level.

Two state-specific deductions are for qualified small business property and qualified farm property, each capped at $2 million. To qualify for the farm property deduction, the decedent or their spouse must have owned the property for at least three years before death. The heirs who inherit the land must continue to own it and ensure it maintains its agricultural classification for three years after the death. Failure to meet these post-death requirements can result in a recapture tax.

Once all applicable deductions are subtracted, the remaining amount is the taxable estate. Minnesota applies a progressive tax rate to this value, ranging from 13% to 16%. The top marginal rate of 16% applies to taxable estates valued over $10.1 million.

Filing the Minnesota Estate Tax Return

The estate’s personal representative must complete and file the Minnesota Estate Tax Return, Form M706. It is important to use the current version of this form, which can be downloaded from the Minnesota Department of Revenue’s website.

The deadline for filing Form M706 and paying any tax due is nine months after the decedent’s date of death, which aligns with the federal estate tax filing deadline. If more time is needed, the personal representative can request an extension to file. An extension to file does not grant an extension to pay; the estimated tax liability must be paid by the original deadline to avoid penalties and interest.

The completed Form M706, along with a full copy of the federal Form 706 and any required supporting documents, must be mailed to the address specified in the form’s instructions. Tax payments can be made via check mailed with the return or through electronic payment options on the Department of Revenue’s website. After the return is filed and processed, the department will review it. Once the review is complete and all tax has been paid, the estate’s representative will receive a closing letter, which serves as official confirmation that the estate’s tax obligation has been satisfied.