The Minnesota estate tax is a state-level tax on estates worth more than $3 million, separate from the federal estate tax and payable even when nothing is owed to the IRS. Rates run from 13% to 16% on the amount above the $3 million exclusion, and the return is due nine months after death. Because the federal exemption sits at $15 million per person for 2026,1Internal Revenue Service. What’s New – Estate and Gift Tax plenty of Minnesota estates owe the state six figures while owing the federal government nothing.
Who Has to File
The personal representative must file a Minnesota estate tax return if a federal estate tax return is required, or if the federal gross estate plus any taxable gifts made within three years of death adds up to more than $3 million.2Minnesota Office of the Revisor of Statutes. Minnesota Code 289A.10 – Returns Required
That three-year gift lookback catches families who assume the estate alone controls the answer. Someone with $2.7 million in assets at death who gave $400,000 to their children two years earlier is over the filing threshold. Filing does not automatically mean tax is owed. The return is where deductions and the exclusion are applied. But missing a required filing invites penalties, so when the numbers are close, file.
The $3 Million Exclusion
Minnesota subtracts $3 million from the federal taxable estate to arrive at the Minnesota taxable estate.3Minnesota Office of the Revisor of Statutes. Minnesota Code 291.016 – Minnesota Taxable Estate If that number is zero or less, no tax is due. The exclusion amount has been fixed at $3 million since 2020.
The exclusion is not portable between spouses. At the federal level, a surviving spouse can inherit the deceased spouse’s unused exemption. Minnesota does not allow this. If the first spouse to die leaves everything to the survivor and uses none of the $3 million exclusion, that exclusion is gone for good. Legislation to add portability has been introduced in the Minnesota Legislature more than once, but as of early 2026 no such bill has become law.3Minnesota Office of the Revisor of Statutes. Minnesota Code 291.016 – Minnesota Taxable Estate
For married couples with combined assets above $3 million, that gap is the single most expensive planning failure. A straight all-to-spouse plan effectively wastes the first exclusion and can double the eventual tax bill.
What Counts Toward the Estate
Minnesota starts with the federal gross estate, which is broad. For a Minnesota resident, it includes real estate in the state, tangible property such as vehicles and collectibles, and intangible assets like bank accounts, investments, and retirement accounts wherever those accounts are held.
Life insurance surprises families most often. If the decedent owned the policy at death, or held any ownership rights within three years before death, the full death benefit is part of the gross estate. A $1 million policy can push an otherwise non-taxable estate well past $3 million. Moving ownership to an irrevocable life insurance trust at least three years before death is the standard way to keep proceeds out.
Non-residents are not off the hook. If someone lived in another state but owned real property or tangible personal property in Minnesota, those Minnesota assets are subject to the tax. Only the Minnesota-located property is taxed, not the non-resident’s full estate. Intangible assets of non-residents are generally excluded.
Rates and Worked Examples
Minnesota’s graduated rates apply to the Minnesota taxable estate, meaning the amount left after subtracting the $3 million exclusion and any other allowable deductions.4Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates
- Up to $7,100,000: 13%
- $7,100,001 to $8,100,000: $923,000 plus 13.6% of the amount over $7,100,000
- $8,100,001 to $9,100,000: $1,059,000 plus 14.4% of the amount over $8,100,000
- $9,100,001 to $10,100,000: $1,203,000 plus 15.2% of the amount over $9,100,000
- Over $10,100,000: $1,355,000 plus 16% of the amount over $10,100,000
A $4 million estate has a Minnesota taxable estate of $1 million, all in the first bracket: $130,000 in tax. A $10 million estate has a Minnesota taxable estate of $7 million, still entirely in the first bracket: $910,000. The higher brackets do not kick in until the Minnesota taxable estate crosses $7.1 million, which means a total estate of roughly $10.1 million before deductions. The 16% top rate applies only to taxable estate amounts above $10.1 million.4Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates
Deductions for Farms and Small Businesses
Minnesota carves out extra deductions for estates containing qualified farm property or qualified small business property, so families are not forced to sell productive land or an operating company to pay the tax.
Qualified Farm Property
Agricultural land qualifies if the decedent or their spouse owned it continuously for at least three years before death, it was classified as agricultural homestead property for property tax purposes, and it remains classified that way for three years after death.5Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates – Subdivision 10 The estate and heir must elect the treatment and agree to recapture.
Qualified Small Business Property
A business qualifies if it had gross annual sales of $10 million or less in its last taxable year, the decedent or spouse materially participated in it, and it was not a passive activity. The decedent must have owned the business for at least three years, and a family member must materially participate for three years after death.6Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates – Subdivision 9 Publicly traded stock does not qualify. Cash, cash equivalents, and assets not used in the business must be stripped out of the valuation.
Recapture
Selling qualified property within three years of death (other than to a family member) or failing to meet the continuation requirements triggers a recapture tax equal to the original exclusion multiplied by 16%. It is due six months after the sale or violation.7Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates – Subdivision 11
Filing and Payment Deadlines
The Minnesota estate tax return is Form M706, filed with the Minnesota Department of Revenue. It is due nine months after the date of death, and a copy of the federal Form 706 must be attached if one was filed.8Minnesota Department of Revenue. 2025 Estate Tax Form M706 Instructions
An automatic six-month filing extension is available. If the IRS grants a longer extension for the federal return, Minnesota matches whichever period is longer. The filing extension does not extend the payment deadline. Tax is still due nine months after death. A separate payment extension of up to six months can be requested in writing for good cause, but the Department of Revenue must approve it before the regular due date.
Penalties, Interest, and Installments
Tax not paid by the nine-month due date triggers a 6% late payment penalty. If the return itself is also filed late and the tax is not paid in full when it is filed, an additional 5% penalty applies.9Minnesota Department of Revenue. Penalties and Interest for Businesses The penalties do not apply if the estate properly elects installment payments, receives a federal payment extension, or pays at least 90% of the tax by the regular due date and covers the rest by the extended due date.
Interest accrues on unpaid tax and unpaid penalties from the nine-month due date until paid in full. The rate for 2026 is 7%, and it can change annually.
If the IRS grants an installment plan under IRC Section 6166 for a closely held business interest, Minnesota generally allows proportional installments as well. The personal representative must notify the Department of Revenue within nine months of death to preserve that option. Interest keeps running during the installment period, and missing one payment accelerates the full remaining balance plus penalties.
The Closing Letter
After reviewing and accepting the return, the Department of Revenue issues a Notification of Closed Estate letter to the personal representative.10Minnesota Department of Revenue. Minnesota Estate Closing Letters The letter is not a final seal. The Department can reopen the matter if the IRS changes the federal return, if there is evidence of misrepresentation, or if a substantial error surfaces later. Until the letter arrives, hold back enough in the estate to cover potential adjustments before making final distributions.