What Is the Minnesota Gift Tax and How Does It Work?

Minnesota imposes a state-level estate tax but does not have a separate gift tax. While individuals can give gifts during their lifetime without incurring a Minnesota gift tax, certain gifts can have tax consequences after death. The value of some gifts made shortly before death can be added back into an individual’s estate. This can trigger or increase the Minnesota estate tax due.

Identifying Gifts That Impact the Estate Tax

The primary concern for gift-giving in Minnesota is the state’s “three-year lookback” rule, which applies to “federally adjusted taxable gifts.” When a Minnesota resident dies, the state will look back at the three years prior to the date of death. Any federally taxable gifts made during this period must be added to the decedent’s estate for calculating the Minnesota estate tax. This prevents individuals from avoiding the estate tax by giving away assets right before they pass away.

A gift becomes federally taxable when its value exceeds the annual federal gift tax exclusion, which is $19,000 per recipient for 2025. A person can give up to this amount to any number of individuals annually without creating a taxable gift. For instance, giving $15,000 to five different people in one year results in no taxable gifts.

If a gift to one person exceeds the annual exclusion, the excess amount is a taxable gift. For example, if you give $50,000 to a child in 2025, $31,000 is a federally taxable gift ($50,000 – $19,000). This $31,000 is subject to the lookback rule if the giver dies within three years of making the gift.

This rule applies to all types of property, including cash, stocks, and real estate. For a Minnesota resident making the gift, the location of the property or the recipient’s residency does not alter this treatment.

Calculating the Impact on Minnesota’s Estate Tax

The calculation begins by determining the total value of the decedent’s assets at death. To this amount, you add the value of all federally taxable gifts made within the three years before death. This combined total forms the Minnesota adjusted taxable estate, which is the figure used to calculate the tax.

Minnesota provides a lifetime estate tax exemption of $3,000,000 for 2025. An estate owes tax only if its adjusted value exceeds this amount. For example, if a person with a $2.9 million estate made a taxable gift of $200,000 two years before death, that gift is added to the estate. The adjusted taxable estate becomes $3.1 million, subjecting it to the tax.

Once the adjusted taxable estate exceeds the $3 million exemption, a progressive tax rate from 13% to 16% is applied. The 13% rate applies to the amount just over the exemption. The top rate of 16% applies to the portion of an estate’s value exceeding $10.1 million.

For another example, consider an estate worth $4 million. If the decedent made $500,000 in taxable gifts within three years of death, the adjusted taxable estate becomes $4.5 million. The tax would then be calculated on the $1.5 million that is over the $3 million exemption.

Information and Forms for Estate Tax Reporting

Gifts subject to the three-year rule must be reported on the Minnesota Estate Tax Return, Form M706, as there is no separate state gift tax form. The estate’s personal representative is responsible for gathering information for each gift. This includes the recipient’s full name and address, a description of the property, and the date the gift was made.

The estate must have evidence of the gift’s fair market value on the date it was transferred. For assets like cash, this is straightforward. For other property, such as real estate or shares in a family business, a formal appraisal may be required to substantiate the value reported. This documentation verifies the amount of the taxable gift added to the estate.

This information is reported on Form M706. Filing a federal gift tax return, Form 709, does not satisfy the state requirement. The gift’s value must be included in the Minnesota adjusted taxable estate calculation on Form M706, which is available on the Department of Revenue website.

The Filing and Payment Process

The completed Minnesota Estate Tax Return, Form M706, must be filed, and any tax due must be paid, within nine months after the decedent’s date of death. The personal representative of the estate should begin gathering information well in advance of this deadline, as failure to meet it can result in penalties and interest.

The Minnesota Estate Tax Return, Form M706, and its attachments must be mailed, as there is no electronic filing option for the return. The mailing address is in the form’s instructions, available on the Minnesota Department of Revenue’s website.

While the return must be mailed, tax payments can be made electronically. Payment can also be made by a check or money order payable to the “Minnesota Department of Revenue.” The decedent’s Social Security number should be included on the memo line to ensure the payment is applied correctly.