If you're a resident of Minnesota and leave behind more than $3 million (for deaths occurring in 2022), your estate might have to pay Minnesota estate tax. The Minnesota estate tax is different from the federal estate tax, which is imposed on estates worth more than $12.06 million (for deaths in 2022). So even if your estate isn't large enough to owe federal estate tax, it might still owe Minnesota estate tax.
But it's not just state residents who might owe Minnesota estate tax. If you're a nonresident but own real estate or other tangible assets (a boat or plane, for example) located in Minnesota, your estate might also need to file a Minnesota estate tax return.
If the gross estate of a Minnesota resident has a value of more than $3 million, the personal representative or executor of the estate must file a state estate tax return. (Smaller estates won't need to file a return.) Your gross estate will include just about all of the property you own at your death:
If you own assets with someone else, generally only your share will be included in your estate. In other words, if you and your spouse own your house, half of its value would be included in your estate.
Notably, your gross estate also includes non-probate assets. For example, the property you hold in a revocable living trust avoids probate, but it does not avoid estate taxes, and is counted in your gross estate.
In Minnesota, gifts made within three years of death might also subject to estate tax. This law aims to prevent people from reducing their estate tax liability by giving away their property shortly before they die. However, the tax applies only to gifts that are taxable under federal law—that is, gifts larger than $16,000 per recipient per year. In other words, gifts less than $16,000 (per recipient, per year) would not be subject to Minnesota estate tax. Moreover, each individual in a couple can give away $16,000, per recipient, per year, without the tax applying.
Although this law makes giving large gifts less attractive, it still leaves plenty of room for reducing the size of an estate through tax-free gifting.
Example: If a couple leaves $16,000 to each of their three children and the children's spouses (that is, each person in the couple makes a gift of $16,000 to six separate people), after five years, the couple will have reduced their estate by $960,000.
Even if a Minnesota estate tax return must be filed, it doesn't necessarily mean that the estate will owe estate tax. Your executor might also be able to take certain deductions from the gross estate. These deductions might lower the value of your estate below $3 million, in which case the estate will not owe estate tax.
If you leave behind a small business or family farm when you die, your estate might qualify for a special $2 million deduction from Minnesota estate tax. (See the Minnesota Department of Revenue.)
To qualify, a small business must meet several requirements, including:
Many of the requirements are the same for a farm, but there are some additional hurdles to clear. Talk to an experienced estate planning lawyer if you think your farm or business could qualify for this special estate tax exemption; the rules can get quite complicated.
If your estate owes estate tax, how much will it actually owe? In Minnesota, the tax rate currently ranges from 13 to 16%. Within this range, the larger the size of the estate, the higher the tax rate. (Compare these rates to the current federal rate of 40%.) See the Minnesota Department of Revenue's estate tax rate chart.
If a Minnesota return is necessary, the executor must file the return 15 months after the date of death (nine months after the death plus an automatic six-month extension). However, the tax itself (or an estimate) must be paid within 9 months after the date of death, or penalties and interest will accrue on the unpaid amount. Professional help (someone experienced with estate tax, not just regular income tax) will likely be necessary to prepare these complicated tax returns.
The Minnesota Revenue Department provides downloadable estate tax forms and instructions.
For more on estate planning issues specific to Minnesota, see Nolo's Minnesota Estate Planning section.