How Much Is Inheritance Tax in Minnesota?
Understand Minnesota's approach to taxing assets after death. Learn about state regulations, exemption amounts, and how tax liability is determined.
Minnesota does not impose an inheritance tax on assets beneficiaries receive. Instead, the state levies an estate tax, which is a tax on the deceased person’s total taxable estate before any assets are distributed to heirs. This distinction is important because an inheritance tax is paid by the individual receiving the inheritance, while an estate tax is paid by the estate itself.
Understanding Minnesota’s Estate Tax
The Minnesota estate tax is imposed on the transfer of a deceased person’s wealth, applied to the taxable estate before any assets are distributed. The estate, through its personal representative or executor, is responsible for calculating and paying this tax. This tax generates revenue for the state, impacting a small percentage of estates that exceed a specific value threshold.
Determining Taxable Estates
An estate in Minnesota becomes subject to the estate tax if its gross value exceeds a specific exemption amount. For deaths occurring in 2024 and 2025, this exemption is $3 million.
The “gross estate” for Minnesota estate tax purposes includes nearly all property the decedent owned or had an interest in at the time of death. This broadly encompasses real estate, bank accounts, investment portfolios, retirement accounts, life insurance proceeds (if the decedent owned the policy), and personal property such as vehicles and jewelry. Gifts made within three years of death that exceeded the federal annual gift tax exclusion may also be included in the gross estate.
Several deductions are allowed from the gross estate to arrive at the “taxable estate.” These include funeral expenses, administrative costs of the estate, debts owed by the decedent, and charitable bequests. An unlimited marital deduction also allows for the tax-free transfer of assets to a surviving spouse. Additionally, estates may qualify for a special deduction of up to $2 million for qualified small business or farm property, provided certain conditions regarding ownership and continued use are met.
Calculating the Tax Liability
Once the taxable estate is determined, the Minnesota estate tax is calculated using a progressive rate schedule. The rates range from 13% to 16%, with the specific percentage depending on the value of the taxable estate. For instance, the lowest rate of 13% applies to estates just above the $3 million exemption, and the rate incrementally increases for larger estates, reaching the maximum of 16% for estates exceeding $10.1 million in taxable value.
To calculate the tax, the value of the taxable estate is first identified. A base tax is applied to the lower portion of the bracket, and then a marginal rate is applied to the amount exceeding that bracket’s threshold. Unlike federal estate tax, Minnesota does not offer portability of the exemption between spouses, meaning each spouse’s $3 million exemption must be utilized separately.
Filing and Payment Requirements
The personal representative or executor of the estate is responsible for filing the Minnesota estate tax return, known as Form M706. A copy of the federal Form 706 and other supporting documentation must be attached to the Minnesota return.
The Minnesota estate tax return and any tax due must be filed and paid within nine months after the decedent’s date of death. An automatic six-month extension to file Form M706 is available without a formal request, but this extension does not apply to the payment of the tax. The estate tax can be paid electronically or by mail with a check using the appropriate payment voucher, such as Form PV47. Failure to file the return or pay the tax by the due date can result in penalties and interest.