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Minnesota and the Federal Estate Tax
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Minnesota and the Federal Estate Tax

Minnesota has its own estate tax at a $3 million threshold plus the federal estate tax. Learn the 2026 exclusion, portability, Form 706, and Form M706.

By Settled Editorial

Two different estate taxes can reach a Minnesota estate: the federal estate tax and Minnesota's own state estate tax. The federal tax touches almost no one, because the exclusion is very high. Minnesota's tax is the one more families actually run into, because it starts at a threshold five times lower than the federal one. Understanding both, and how they differ, is the key to knowing whether an estate owes anything at all.

This guide explains the federal estate tax as it applies to Minnesota families, the separate Minnesota estate tax that sits on top of it, the portability election, what counts in the estate, and how the estate tax differs from the step-up in basis. If you want to run numbers, our Minnesota estate tax calculator estimates the state tax at your estate value.

Minnesota Has Its Own Estate Tax

Start with the fact that sets Minnesota apart. Most states levy no estate tax at all, so only the federal tax can reach their residents. Minnesota is different: it is one of a small group of states that impose their own estate tax, and Minnesota's threshold is far lower than the federal one.

Minnesota taxes estates above a $3,000,000 exclusion at graduated rates of 13% to 16%, reported on Form M706. The return is generally due nine months after death when the federal gross estate plus adjusted taxable gifts exceeds $3,000,000. This is the key insight for Minnesota families: an estate worth, say, $6 million owes no federal estate tax (the federal exclusion is $15 million) but may owe Minnesota estate tax, because it sits well above the $3,000,000 state threshold.

Two features of the Minnesota tax matter for planning:

  • The exclusion is a flat $3,000,000 that is not adjusted for inflation. It does not rise each year the way the federal figure does, so more estates cross it over time as asset values grow.
  • Minnesota does not allow portability. A married couple cannot carry a deceased spouse's unused Minnesota exclusion to the survivor. Each spouse's $3,000,000 is use-it-or-lose-it, which is why Minnesota couples with larger estates often plan around the gap with trusts rather than relying on the survivor's exclusion alone.

Minnesota also has no inheritance tax, which is a separate tax some states levy on the people who receive an inheritance. The Minnesota Department of Revenue confirms the state inheritance tax was repealed starting in 1980. So a Minnesota estate faces the state estate tax and the federal estate tax, but never a state inheritance tax.

The Federal Estate Tax Exclusion

The federal estate tax applies only to estates whose value exceeds the basic exclusion amount, the exemption threshold set by federal law.

For deaths in 2026, the federal basic exclusion is $15 million per person. That means:

  • One person can pass up to $15 million free of federal estate tax.
  • A married couple can shield up to $30 million using portability (covered below).
  • Only the amount above the exclusion is taxed.
  • The top federal estate tax rate is 40%.

The federal exclusion is indexed for inflation, so it rises in future years. Because the federal tax reaches only the amount over $15 million, very few Minnesota estates will ever owe it. For most families, the Minnesota $3,000,000 threshold is the one to watch, not the federal figure.

A Note on the 2026 Law

Many older estate planning documents warned that the federal exclusion would roughly cut in half at the start of 2026 under a sunset provision in the 2017 tax law. That sunset did not take effect. Under current federal law the exclusion is $15 million per person for 2026, indexed going forward. If your plan includes trusts or gifting programs designed around a lower federal exclusion, review it with your attorney, because the strategy may need updating, especially in Minnesota where the state $3,000,000 threshold, not the federal one, often drives the plan.

What Counts in the Gross Estate

The "gross estate" is broader than what passes through probate or is listed in a will. Under Internal Revenue Code Sections 2031 through 2046, it generally includes:

  • Real estate, bank and brokerage accounts, stocks, and bonds
  • Life insurance proceeds on a policy the decedent owned or controlled (ownership, not who the beneficiary is, drives inclusion)
  • Retirement accounts such as IRAs, 401(k)s, and 403(b)s
  • Business interests and closely held company stock
  • The decedent's share of jointly owned property
  • Assets in a revocable living trust
  • Certain gifts made within three years of death, particularly transfers of life insurance
  • Powers of appointment the decedent held

Someone with a paid-off Minnesota home, a large IRA, and a life insurance policy can have a gross estate far bigger than their probate estate, because most of those assets pass outside probate but still count. Minnesota starts from a similar gross estate figure to decide whether the $3,000,000 threshold is crossed, so a family that is comfortably under the federal exclusion can still land above the state one. The gross estate is then reduced by debts, funeral and administration expenses, and the deductions below to reach the taxable estate.

Deductions That Shrink the Taxable Estate

Two deductions eliminate estate tax for many families, at both the federal and Minnesota level:

Unlimited marital deduction. Property left outright to a surviving spouse who is a U.S. citizen passes free of estate tax with no dollar limit. This is why most married couples owe nothing when the first spouse dies. The tax is deferred, not erased, and can apply when the second spouse dies. Because Minnesota does not allow portability, relying only on the marital deduction can waste the first spouse's $3,000,000 Minnesota exclusion, which is exactly the trap trust planning is meant to avoid.

Unlimited charitable deduction. Property left to a qualified charity is fully deductible from the estate, dollar for dollar.

Debts, funeral costs, and estate administration expenses also reduce the taxable estate.

Portability: A Federal Election Minnesota Does Not Offer

When the first spouse in a marriage dies, their unused federal exclusion does not vanish automatically. Under the portability election, the surviving spouse can claim the deceased spouse's unused exclusion, called the deceased spousal unused exclusion, or DSUE, and add it to their own.

Example. A husband dies in 2026 with a $4 million estate and uses $4 million of his $15 million federal exclusion. His remaining $11 million can transfer to his wife. She then has her own $15 million exclusion plus his $11 million, a combined $26 million shielded from federal estate tax.

Here is the trap: federal portability is not automatic. The executor must file IRS Form 706, the United States Estate Tax Return, to make the election. The return is due nine months after death, with a six-month extension available. Portability requires the filing even when the estate owes no tax and is far below the exclusion.

The bigger caution for Minnesota families is that portability applies to the federal tax only. Minnesota does not let a surviving spouse inherit the deceased spouse's $3,000,000 state exclusion. A couple that wants to preserve both spouses' Minnesota exclusions usually needs a credit shelter or bypass trust, funded when the first spouse dies, rather than a portability election. This is the single most common Minnesota estate tax planning step for couples above $3,000,000.

When Form 706 and Form M706 Must Be Filed

A Minnesota estate can face two separate returns.

Federal Form 706. File it when the federal gross estate plus adjusted taxable gifts exceeds the federal exclusion, when you want to elect portability, or when the estate has generation-skipping transfers to allocate. It is due nine months after death, and Form 4768 grants an automatic six-month filing extension, though any tax owed is still due at the nine-month mark.

Minnesota Form M706. File it when the federal gross estate plus adjusted taxable gifts exceeds the $3,000,000 Minnesota exclusion, even if no federal return is required. It is also generally due nine months after death. Because the state threshold is so much lower than the federal one, many Minnesota estates file M706 without ever filing a federal 706.

Both returns are among the more complex filings an estate faces, so estates that must file usually benefit from a CPA or estate attorney to document valuations, claim deductions, and, on the federal side, elect portability correctly.

Gifts During Life and the Annual Exclusion

The federal gift tax and estate tax are unified: lifetime gifts and transfers at death share the same lifetime exclusion. Minnesota has no separate state gift tax, though gifts made within three years of death can be pulled back into the Minnesota estate.

Annual gift exclusion. For 2026, you can give up to $19,000 per recipient per year without touching your lifetime federal exclusion or filing a gift tax return. A married couple can give $38,000 per recipient, and there is no limit on the number of recipients.

Gifts that never count. Some transfers are entirely outside the gift tax: amounts paid directly to a medical provider for someone's care, amounts paid directly to a school for someone's tuition, gifts to a spouse, and gifts to qualified charities.

Larger gifts. A gift above the annual exclusion uses part of your lifetime federal exclusion and requires IRS Form 709. Filing the return does not mean you owe tax; it simply records the gift against your lifetime amount. Because the interplay between gift tax, the Minnesota estate tax, and capital gains can get complex, get advice before making large lifetime gifts.

Estate Tax Is Not the Step-Up in Basis

Two very different taxes get confused here, so keep them separate.

The estate tax, both federal and Minnesota, is a transfer tax on the value of the estate at death. The federal version reaches almost no one; the Minnesota version reaches estates over $3,000,000.

The step-up in basis is an income-tax rule that applies to nearly every inherited asset regardless of estate size. Under IRC Section 1014, an inherited asset's cost basis resets to its fair market value on the date of death. That lowers the capital gains tax the heir owes when they later sell. Minnesota is a separate-property state, so only the decedent's share of jointly owned property steps up. See the Minnesota step-up in basis guide for how the basis reset works and how Minnesota taxes any gain.

For the great majority of Minnesota families, the step-up is the tax rule that actually matters, not the estate tax. If you sell an inherited home, our guide on selling inherited property in Minnesota walks through how the stepped-up basis limits the gain.

Practical Takeaways for Minnesota Families

Most Minnesota estates need little or no estate tax planning. But the state $3,000,000 threshold catches more families than the federal rules do, so the moves below matter more here than in a no-tax state:

  1. Measure against $3,000,000, not $15 million. Add up everything, including life insurance you own and retirement accounts, not just probate assets. If the total is under $3,000,000, neither estate tax applies. If it is between $3,000,000 and $15 million, you likely owe no federal tax but should check the Minnesota tax.
  2. Plan around the missing Minnesota portability. Married couples above $3,000,000 usually need a credit shelter or bypass trust to preserve both spouses' state exclusions, since Minnesota does not port them.
  3. Preserve federal portability where it helps. For larger estates, filing Form 706 to lock in the deceased spouse's unused federal exclusion is still a low-cost safeguard.
  4. Lean on the step-up. Holding appreciated assets until death gives heirs a stepped-up basis. Gifting those same assets during life hands the recipient your old basis and wastes the step-up.
  5. Get help if the estate is near or above $3,000,000. Business interests, farms, out-of-state property, blended families, or an estate approaching the state threshold are the cases where a Minnesota attorney and CPA earn their fee.

To estimate the Minnesota estate tax at your estate value, use our Minnesota estate tax calculator. To estimate what settling an estate costs in your county, use the Minnesota probate fee calculator, and see the Minnesota probate costs guide for how the pieces add up.

Frequently Asked Questions

Does Minnesota have an estate tax?

Yes. Unlike most states, Minnesota levies its own estate tax on top of the federal one, and it starts at a much lower threshold. Minnesota taxes estates above a $3,000,000 exclusion at graduated rates of 13% to 16%, reported on Form M706. Minnesota has no inheritance tax, which was repealed starting in 1980.

How much can I leave without owing federal estate tax?

For deaths in 2026, the federal basic exclusion is $15 million per person. A married couple can shield up to $30 million using portability. Only the amount above the exclusion is taxed, at rates up to 40%. But a Minnesota estate can owe no federal tax and still owe Minnesota estate tax, because the state threshold is only $3,000,000.

Do I need to file an estate tax return in Minnesota?

You may need to file two returns. File IRS Form 706 if the federal gross estate plus lifetime taxable gifts exceeds the federal exclusion, or to elect portability. File Minnesota Form M706 if the estate exceeds the $3,000,000 Minnesota exclusion. Both are generally due nine months after death.

What is portability and why does it matter?

Portability lets a surviving spouse add the deceased spouse's unused federal exclusion (the DSUE) to their own. It applies to the federal tax only. Minnesota does not allow portability of its $3,000,000 exclusion, so married couples with Minnesota estates often plan around that gap with trusts.

Is the step-up in basis the same as the estate tax?

No. The estate tax is a tax on the estate at death. The step-up in basis is an income-tax rule that resets an inherited asset's cost basis to its date-of-death value, which lowers capital gains tax when you later sell.

Related Minnesota Guides

Sources

Last Updated: July 2026. This guide provides general information about the federal estate tax and the Minnesota estate tax as they apply to Minnesota estates. Tax law is complex and changes frequently. Consult a tax professional or estate planning attorney for advice specific to your situation. It is not legal advice.