The Minnesota estate tax exemption is $3 million. Estates valued above that threshold owe Minnesota estate tax at graduated rates running from 13% to 16%, and that bill is separate from anything owed to the IRS. Because the federal exemption sits at $15 million per person for 2026, many Minnesota families owe nothing federally but still face a state tax bill.
What the $3 Million Threshold Covers
Minn. Stat. § 291.016 fixes the exclusion at $3 million for anyone dying in 2020 or later.1Minnesota Office of the Revisor of Statutes. Minnesota Code 291.016 – Minnesota Taxable Estate The figure is not indexed for inflation. It stays at $3 million until the legislature changes it.
The tax applies to the Minnesota taxable estate, which starts with everything the decedent owned: real estate, bank accounts, investments, retirement accounts, and life insurance proceeds payable to the estate. From that gross figure, the estate subtracts debts owed at death, funeral expenses, and administration costs. A gross estate of $3.4 million can drop below the threshold once legitimate deductions come off.
Even so, the filing obligation is triggered by the gross estate, not the net. If the gross value exceeds $3 million, Form M706 is required, whether or not tax is ultimately owed.2Minnesota Department of Revenue. Estate Tax Filing Requirement The Department of Revenue wants to verify the deductions on paper.
Tax Rate Brackets
Minn. Stat. § 291.03 sets the rate schedule.3Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates For deaths in 2018 and later:
- $2,600,000 to $7,100,000: $60,000 plus 13% of the amount over $2,600,000
- $7,100,000 to $8,100,000: $645,000 plus 13.6% of the amount over $7,100,000
- $8,100,000 to $9,100,000: $781,000 plus 14.4% of the amount over $8,100,000
- $9,100,000 to $10,100,000: $925,000 plus 15.2% of the amount over $9,100,000
- Over $10,100,000: $1,077,000 plus 16% of the amount over $10,100,000
The state calculates tax on the full estate using these brackets, then subtracts the tax that would apply to the exclusion amount. The net effect is that the first dollars above $3 million are taxed at roughly 13%, and the marginal rate climbs to 16% at the top. A $4 million estate produces a bill in the neighborhood of $130,000. A $5 million estate runs about $260,000. An $8 million estate lands near $650,000.
The Married-Couple Trap
Assets passing to a surviving spouse qualify for a marital deduction under Minnesota law, and estates can make a QTIP election for Minnesota purposes even if no federal return is filed.4Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates – Section: Subd. 1d Elections Everything left to a surviving spouse generally avoids Minnesota tax at the first death.
Here’s the catch. Minnesota does not allow portability of the unused exemption. Federal law lets a widow or widower inherit whatever exemption the first spouse didn’t use; Minnesota offers no equivalent. When the first spouse dies and leaves everything outright to the survivor, that first $3 million exemption is gone. When the survivor later dies with the combined assets, only one $3 million exemption is available to shelter the estate.
For a couple with a combined estate of $5.5 million, the difference between doing nothing and using a credit shelter trust (sometimes called a bypass trust or AB trust) is the difference between zero Minnesota estate tax and a substantial bill. This is one of the most costly planning oversights Minnesota families make.
Farm and Small Business Deduction
Owners of qualifying farms and small businesses can claim an additional deduction of up to $2 million, which effectively raises the tax-free threshold to $5 million.5Minnesota Office of the Revisor of Statutes. Minnesota Code 291.016 – Minnesota Taxable Estate – Section: Subd. 3 Subtraction The rule exists so families aren’t forced to sell working operations to pay the tax.
Eligibility is strict. The decedent or their spouse must have owned the qualifying property for at least three continuous years before death, and the property must have been actively used in farming or a qualifying trade or business during that period. The detailed definitions of qualified farm property and qualified small business property live in Minn. Stat. § 291.03, subdivisions 9 and 10.3Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates
Heirs face a three-year holding requirement. If the property is sold or stops being used for its qualifying purpose within three years of the decedent’s death, Minnesota imposes a recapture tax of 16% of the deduction amount.3Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates On a full $2 million deduction, that recapture is $320,000. The break is meant for families who plan to keep the operation running.
Non-Residents Who Own Minnesota Property
You do not need to live in Minnesota to owe Minnesota estate tax. If a non-resident owned real property in the state, whether a lake house, farmland, or rental property, that property is subject to Minnesota estate tax.6Minnesota Office of the Revisor of Statutes. Minnesota Code 291 – Estate Tax The estate computes tax as if the whole estate were subject to Minnesota tax, then multiplies by the ratio of Minnesota-situs property to the total federal gross estate.3Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates
Holding the property through an LLC does not solve the problem. Minnesota looks through the entity and treats the underlying real property as if the decedent owned it directly.6Minnesota Office of the Revisor of Statutes. Minnesota Code 291 – Estate Tax A credit is available if the home state also imposes an estate or inheritance tax on the same property.
Why the Federal Exemption Doesn’t Help
For 2026, the federal estate and gift tax exemption is $15 million per person, five times the Minnesota threshold.7Internal Revenue Service. Frequently Asked Questions on Estate Taxes A married couple can shelter up to $30 million federally, with portability available to preserve any unused amount.
For most Minnesota families with taxable estates, Minnesota tax is the only estate tax they’ll face. An $8 million estate owes nothing to the IRS but roughly $650,000 to the state. Federal Form 706 is required only above $15 million (or when electing portability). Minnesota’s Form M706 kicks in at $3 million, sweeping in far more families.
Filing Deadline and Penalties
Form M706 is due nine months after the date of death.8Minnesota Department of Revenue. Estate Tax Due Dates and Extensions Minnesota grants an automatic six-month extension for filing with no formal application. The extension covers paperwork only. It does not extend the deadline to pay. At least 90% of the estimated tax must be paid by the original nine-month deadline, using Form PV86 as the payment voucher. Any unpaid balance after nine months accrues interest.
Late filing carries a penalty of 5% of the unpaid tax, and interest compounds on both the unpaid tax and the penalty.9Minnesota Department of Revenue. Penalties and Interest for Businesses Valuing an estate takes time when it includes real property, closely held business interests, or unusual assets, but delay is where estates get into trouble.
Gifting to Reduce Exposure
Minnesota repealed its state gift tax in 2014, so lifetime gifts are not subject to a separate state tax.10Minnesota Department of Revenue. Gift Tax and Taxable Gifts Federal gift tax rules still apply, but the federal annual exclusion for 2026 is $19,000 per recipient.11Internal Revenue Service. Frequently Asked Questions on Gift Taxes A married couple can jointly give $38,000 per recipient each year without filing a gift tax return or using any lifetime exemption.
Lifetime gifting is one of the more straightforward ways to bring an estate below the $3 million threshold. A couple giving $38,000 a year to each of three children removes $114,000 from the taxable estate annually. Over a decade, that’s more than $1 million in assets that never get counted for Minnesota estate tax. Because Minnesota has no gift tax, there’s no state-level clawback, and with a $15 million federal exemption, the federal add-back for adjusted taxable gifts is irrelevant for the vast majority of Minnesota families.