Is There an Inheritance Tax in Minnesota?
Gain clarity on Minnesota's estate tax. Understand its implications and navigate the process with confidence.
Minnesota does not levy an inheritance tax on beneficiaries receiving assets from a deceased person’s estate. An estate tax, however, is imposed on the total value of a deceased individual’s property before distribution. While beneficiaries are not directly taxed on inheritances, estates meeting certain criteria may still be subject to a state-level estate tax.
Minnesota’s Estate Tax Overview
The Minnesota estate tax is a levy on the right to transfer property at the time of death. This tax applies to the estates of Minnesota residents and to non-residents who owned tangible property, such as real estate, within the state.
For deaths occurring in 2025, the Minnesota estate tax exemption threshold is $3 million. Estates valued at or below this amount are generally exempt. The tax applies only to the portion of the estate’s value that exceeds this exemption. Minnesota’s estate tax rates are progressive, ranging from 13% to 16% on the taxable portion.
The Minnesota estate tax operates independently of the federal estate tax. The federal exemption amount for 2025 is $13.99 million per individual. Many estates may not owe federal estate tax but could still be liable for the Minnesota estate tax due to the lower state exemption. Unlike the federal estate tax, Minnesota’s exemption is not “portable” between spouses; each spouse must utilize their own $3 million exemption separately. This requires careful estate planning for married couples.
Valuing the Estate and Applying Exemptions
Valuing the gross estate determines Minnesota estate tax liability. The gross estate includes most property the decedent owned at the time of death, such as real estate, bank accounts, investment portfolios, personal belongings, life insurance proceeds (if the decedent was the owner), business interests, and assets held in a revocable living trust. Valuation generally uses the fair market value of assets on the date of death, adhering to federal Internal Revenue Code Section 2031.
From the gross estate, various deductions can be applied to arrive at the taxable estate. Allowable deductions include funeral expenses, administrative costs incurred during the estate settlement process, legitimate debts owed by the decedent, charitable bequests to qualified organizations, and assets transferred to a surviving spouse through an unlimited marital deduction.
Minnesota law also provides specific deductions for certain qualified small businesses and homestead farmland, potentially reducing the taxable estate by up to an additional $2 million. This special deduction, combined with the general exemption, cannot exceed a total of $5 million. Gifts exceeding the federal annual gift tax exclusion ($19,000 per recipient for 2025) made within three years of death are added back to the taxable estate. After deductions, the $3 million state exemption is applied, and any remaining value is subject to the Minnesota estate tax.
Filing and Paying the Estate Tax
The personal representative or executor of an estate that meets the filing threshold must complete and submit the Minnesota Estate Tax Return, Form M706. This form details the estate’s assets, deductions, and the calculation of any tax owed.
The filing deadline for Form M706 and the associated tax payment is nine months after the decedent’s date of death. While an automatic six-month extension is granted for filing the return, this extension does not apply to the payment of the tax. The full tax liability, or a reasonable estimate, must still be paid by the original nine-month deadline to avoid penalties and interest.
Payment of the Minnesota estate tax can be made through several methods. Estates can pay online via direct debit or by credit/debit card, though card payments may incur a service fee. Payments can also be mailed as a check or money order, accompanied by a payment voucher. Cash payments are accepted at the Minnesota Department of Revenue office in St. Paul. In certain situations, if the federal estate tax payment has been granted an extension by the IRS and the Minnesota tax due is $5,000 or more, the estate may be able to arrange installment payments for the state tax.