Minnesota's Estate Tax Starts at One-Fifth of the Federal Line, and the Unused Half of a Couple's Exclusion Is Gone

Two numbers, five times apart

Federal law and Minnesota law both stop taxing an estate below a threshold. The thresholds are not close.

26 U.S.C. § 2010(c)(3)(A), as amended on July 4, 2025:

For purposes of this subsection, the basic exclusion amount is $15,000,000.

Minn. Stat. § 291.016, subd. 3(b), listing exclusion amounts by year of death, ends here:

(4) $3,000,000 for decedents dying in 2020 and thereafter.

Five to one. And the ratio is scheduled to widen, because only one of the two numbers moves. Section 2010(c)(3)(B) indexes the federal figure for inflation “[i]n the case of any decedent dying in a calendar year after 2026,” and the IRS confirms in Rev. Proc. 2025-32 § 2.14 that “[t]he basic exclusion amount will be adjusted for inflation for calendar year 2027 and future years.” Minnesota’s subdivision contains no indexing provision at all. Its history line stops at the 2017 special session, and the 2026 omnibus tax bill — Laws 2026, ch. 128, signed May 27, 2026 — left the exclusion in § 291.016 and the rate schedule in § 291.03 alone. Chapter 128 did reach the estate tax in one place, and it is worth naming because it changes nothing about the numbers on this page: Article 1, Section 31 amended a single figure in Minn. Stat. § 291.005, subd. 1(3), moving the date through which Minnesota conforms to the Internal Revenue Code from May 1, 2023 to May 1, 2026.

So an estate can owe Minnesota tax while owing the IRS nothing, and the range of estates in that position gets larger every year the federal number is adjusted and the state number is not.

The filing threshold measures the gross estate, not what is left over

This is the arithmetic error that surprises families, and it is written plainly in Minn. Stat. § 289A.10, subd. 1:

In the case of a decedent who has an interest in property with a situs in Minnesota, the personal representative must submit a Minnesota estate tax return to the commissioner, on a form prescribed by the commissioner, if:

(1) a federal estate tax return is required to be filed; or

(2) the sum of the federal gross estate and federal adjusted taxable gifts, as defined in section 2001(b) of the Internal Revenue Code, made within three years of the date of the decedent’s death exceeds … $3,000,000 for estates of decedents dying in 2020 and thereafter.

The test is the federal gross estate plus three years of adjusted taxable gifts. Gross. Not the number after the mortgage, the funeral bill, the charitable bequest, or the marital deduction. A house appraised at $900,000 with $600,000 still owed on it contributes $900,000 to this test. The Department of Revenue’s filing-requirement page uses the same word: returns are required “when the total gross value of the estate exceeds” the figure in its table, which reads $3,000,000 for 2020-present.

The 2025 Form M706 instructions apply the same test to nonresidents, adding only that the nonresident estate must also include Minnesota-situs property in the federal gross estate.

Two other numbers from the same instructions, because they are the ones that generate penalties. Form M706 and the payment are due nine months after the date of death (Minn. Stat. § 289A.18, subd. 3; § 289A.20, subd. 3). There is an automatic six-month extension to file and none to pay. The late-payment penalty is 6 percent of the unpaid tax, a further 5 percent attaches if the return is late and the reported tax is unpaid at filing, the late-filing penalty is 5 percent, and interest runs from nine months after death at 8 percent for 2025 and 7 percent for 2026.

Who owes it

The executor. The M706 instructions state it directly: “The executor is responsible for paying the Minnesota estate tax.” Then the sentence that matters more —

However, if the assets were distributed without reserving enough to pay the various taxes, the executor and beneficiaries are personally responsible for payment to the extent of the value of assets received respectively.

The instructions cite Minn. Stat. § 270C.585 and § 291.12 for that. Section 270C.585 is the transferee-liability rule, and this is the whole of it:

The personal representative and person to whom property that is subject to taxation under chapter 291 is transferred, other than a bona fide purchaser, mortgagee, or lessee, is personally liable for that tax, until its payment, to the extent of the value of the property at the time of the transfer. Personal liability also does not extend to subsequent transferees from bona fide purchasers, mortgagees, and lessees.

So an executor who distributes first and calculates later, and the beneficiaries who took the distributions, are both in the collection path — each up to the value of what passed to them, measured at the time of transfer. The carve-out is narrow, and it is the second sentence that draws its outer edge: bona fide purchasers, mortgagees and lessees are outside the rule, and so is anyone who later takes from one of them.

Section 291.12 works from the other end, on whoever is still holding the property. Subdivision 1 requires a representative or trustee holding property whose transfer is taxable, and from which the tax may lawfully be paid, to “either deduct the amount of tax due or … collect from the person entitled to such property, the amount of tax due, together with any accrued interest thereon, before completing the transfer of such property or making delivery thereof.” Subdivision 2 makes that representative or trustee personally liable, to the extent of the value of the property, for a tax they know to be due — with no such liability where the property cannot lawfully be used to pay it. Subdivision 3 then protects the one who holds back: no representative or trustee “shall be required to transfer or deliver any property” until the taxes and interest due have been deducted, collected, or paid to the commissioner.

The two sections close from opposite directions. One gives the holder a reason to withhold. The other reaches the recipient when nothing was withheld.

The rate schedule, and what it is applied to

Minn. Stat. § 291.03, subd. 1(b) sets a five-bracket schedule for estates of decedents dying in 2018 and thereafter. The statute’s own two-column table, reproduced with its headings and every figure exactly as enacted:

Thirteen percent is the floor, not a starting rate that phases in. There is no bracket below it. The Department of Revenue’s rate page carries the same top and bottom figures — 16 percent high, 13 percent low, for 2018-present — as a guide, while noting that the actual computation runs through federal Form 706 and Minnesota Form M706.

What the schedule is applied to is the Minnesota taxable estate, which is a different figure from the gross estate that triggered the filing obligation. Minn. Stat. § 291.016, subd. 1:

For purposes of the tax under this chapter, the Minnesota taxable estate equals the federal taxable estate as provided under section 2051 of the Internal Revenue Code, without regard to whether the estate is subject to the federal estate tax:

(1) increased by the value of any property in which the decedent had a qualifying income interest for life and for which an election was made under section 291.03, subdivision 1d, for Minnesota estate tax purposes, but was not made for federal estate tax purposes;

(2) increased by the additions under subdivision 2; and

(3) decreased by the subtraction under subdivision 3.

The federal taxable estate under 26 U.S.C. § 2051 is the gross estate less the deductions allowed in that part — administration expenses, debts, charitable bequests, and the marital deduction. The $3,000,000 comes off after that, as the subdivision 3 subtraction. So the working sequence is: gross estate, minus federal deductions, plus the additions, minus $3,000,000, then the rate table.

An estate with a federal taxable estate of $3,500,000 has a Minnesota taxable estate of $500,000. Thirteen percent of $500,000 is $65,000.

One more step sits on top of that. The opening of § 291.03, subd. 1 multiplies the scheduled amount by

a fraction, not greater than one, the numerator of which is the value of the Minnesota gross estate plus the value of gifts under section 291.016, subdivision 2, clause (3), with a Minnesota situs, and the denominator of which is the federal gross estate plus the value of gifts under section 291.016, subdivision 2, clause (3)

For a Minnesota resident whose property is all in Minnesota, the fraction is one and does nothing. For everyone else it is the apportionment mechanism, and it is why the situs rules below matter.

Minnesota repealed its gift tax and kept the three-year rule

Minnesota enacted a gift tax in 2013 and repealed it in 2014; the Department of Revenue’s page says only “Minnesota Gift Tax was repealed in 2014.” What survived the repeal is Minn. Stat. § 291.016, subd. 2(3), an addition in computing the Minnesota taxable estate:

the aggregate amount of taxable gifts as defined in section 2503 of the Internal Revenue Code, made by the decedent within three years of the date of death. For purposes of this clause, the amount of the addition equals the value of the gift under section 2512 of the Internal Revenue Code and excludes any value of the gift included in the federal estate.

“Taxable gifts as defined in section 2503” is the operative limit. Gifts inside the federal annual per-recipient exclusion are not taxable gifts, so they are not added back. For calendar year 2026 that exclusion is $19,000 — Rev. Proc. 2025-32 § 4.42(1): “the first $19,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year.”

Portability: the federal rule Minnesota did not copy

Federal law lets a widow or widower use what the first spouse did not. 26 U.S.C. § 2010(c)(2):

For purposes of this subsection, the applicable exclusion amount is the sum of—

(A) the basic exclusion amount, and

(B) in the case of a surviving spouse, the deceased spousal unused exclusion amount.

It is not automatic. Paragraph (c)(5)(A) requires that “the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return,” that the election is irrevocable, and that no election may be made on a return filed late.

Minnesota’s corresponding provision has no analogue to that second component. Section 291.016, subd. 3 does contain two clauses, but the second one is the farm and small-business subtraction discussed further down this page — not an unused exclusion carried over from a spouse who died first. Nothing in the subdivision moves anything from one spouse’s exclusion to the other’s. The Department of Revenue put the consequence in one line in its January 22, 2025 analysis of S.F. 30:

Portability is currently not available under Minnesota law.

The Department’s own analysis measures the size of what is being lost. Its estate tax database, covering roughly 11,100 returns for deaths from 2014 through 2023, shows about 1,419 estate returns with a surviving spouse that had some unused exclusion, totaling about $1.794 billion in unused exclusion. The Department estimated that a portability bill would benefit about 158 taxpayers a year, at an assumed average effective estate tax rate of 9.5 percent.

S.F. 30 is not law. Its Senate status page shows introduction and first reading on January 16, 2025, referral to the Taxes Committee that day, and nothing after that except authors being added — the most recent on March 2, 2026. No committee action. No floor vote.

What Minnesota provides instead: a state-only QTIP election

This is the piece most often left out of the portability discussion, and it is statutory. Minn. Stat. § 291.03, subd. 1d(a):

For the purposes of this section, the value of the Minnesota taxable estate is determined by taking into account the deduction available under section 2056(b) of the Internal Revenue Code. An election under section 2056(b) of the Internal Revenue Code may be made for Minnesota estate tax purposes regardless of whether the election is made for federal estate tax purposes. The value of the gross estate includes the value of any property in which the decedent had a qualifying income interest for life for which an election was made under this subdivision.

The Department of Revenue describes how that plays out: Minnesota recognizes a federal qualified terminable interest property election “only if it was made on a federally filed Form 706,” Minnesota separately “allows a Minnesota-only QTIP election for qualifying property,” it “is not necessary to file federal Form 706 to make the Minnesota-only QTIP election,” and the election is made on Worksheet A of Form M706. A federal QTIP election on some assets and a Minnesota-only election on different assets can coexist.

Note what the last sentence of subdivision 1d(a) does, and what § 291.005, subd. 1(2) repeats: property covered by a Minnesota-only election is added back into the federal gross estate figure used for Minnesota purposes at the survivor’s death. The election defers Minnesota tax on that property from the first death to the second. It does not create a second $3,000,000 exclusion. Minnesota House Research, in a July 2018 information brief surveying every state estate, inheritance, and gift tax, lists Minnesota among the states allowing a separate state QTIP election by legislation, and separately identifies Hawaii and Maryland as the only two states whose exemptions are portable. That brief has not been updated since 2018, so treat the national counts in it as of that date; the Minnesota half of it is confirmed by the statute and the Department’s current guidance above.

The alternative structure — funding a credit-shelter or family trust at the first death with an amount up to the exclusion, so that the amount and its later growth are not in the survivor’s taxable estate — is the arrangement portability was designed to make unnecessary at the federal level and that Minnesota law still leaves in place. Which of those two mechanisms fits a particular couple, or whether either does, is not a question this page answers.

Farm and closely held business property, and the tax attached to it

Minnesota allows a second subtraction. Minn. Stat. § 291.016, subd. 3(a) allows, in addition to the exclusion,

(2) the lesser of:

(i) the value of qualified small business property under section 291.03, subdivision 9, and the value of qualified farm property under section 291.03, subdivision 10; or

(ii) $5,000,000 minus the exclusion amount for the year of death under paragraph (b).

With the exclusion at $3,000,000, item (ii) is $2,000,000 and the combined ceiling is $5,000,000. The M706 instructions state the same figures for 2025 decedents.

The conditions are dense. For qualified small business property, § 291.03, subd. 9 requires among other things that the entity’s shares were not publicly traded at any time in the three years ending at death; that the trade or business was not a passive activity in the taxable year that ended before death and that the decedent or spouse materially participated in it; that gross annual sales were $10,000,000 or less for the last taxable year ending before death; that cash, cash equivalents, publicly traded securities, and any assets not used in the business are excluded from the qualifying value; that the decedent or spouse owned the property continuously for the three-year period ending at death; and that for three years following death the business remains non-passive and a family member materially participates.

For qualified farm property, § 291.03, subd. 10 requires that the land be classified as class 2a agricultural property and as agricultural homestead, agricultural relative homestead, or special agricultural homestead for taxes payable in the year of death, three years of prior ownership, and class 2a classification for three years after death.

Both require the estate and the qualified heir to elect the treatment and to agree, in the commissioner’s prescribed form, to pay the recapture tax. That tax is Minn. Stat. § 291.03, subd. 11, and paragraph (b) sets it:

The amount of the additional tax equals the amount of the exclusion claimed by the estate under subdivision 8, paragraph (d), multiplied by 16 percent.

Sixteen percent of the excluded value, triggered by a disposition outside the family or a failure of the continued-use requirement within three years, due six months after the disposition or cessation. Paragraph (d) carves out takings by a government or other condemning authority. Paragraph (e) carves out a reclassification of less than one-fifth of the acreage to class 2b, and the reclassification of a residence, garage, and surrounding acre to class 4bb, in each case where the heir has not substantially altered the property.

A nonresident who owns Minnesota land is inside the system

Minn. Stat. § 291.005, subd. 1(8) defines situs. One note on the text before quoting it: this subdivision was amended by Laws 2026, ch. 128, art. 1, § 31, and at the time this page was written the Revisor’s posted version of § 291.005 still showed the pre-amendment text. The quotations below are taken from the session law as enacted. Clause (8) and the pass-through paragraph that follows it were reprinted there without change — the only figure the 2026 act altered in this subdivision is the conformity date in clause (3).

(i) real property, the state or country in which it is located;

(ii) tangible personal property, the state or country in which it was normally kept or located at the time of the decedent’s death or for a gift of tangible personal property within three years of death, the state or country in which it was normally kept or located when the gift was executed;

…

(iv) intangible personal property, the state or country in which the decedent was domiciled at death or for a gift of intangible personal property within three years of death, the state or country in which the decedent was domiciled when the gift was executed.

A cabin, farmland, or a boat kept in Minnesota has Minnesota situs regardless of where its owner lived. And holding it through an entity does not change that. The same subdivision continues:

For a nonresident decedent with an ownership interest in a pass-through entity with assets that include real or tangible personal property, situs of the real or tangible personal property, including qualified works of art, is determined as if the pass-through entity does not exist and the real or tangible personal property is personally owned by the decedent.

Subdivision 1(9) defines the pass-through entities the look-through reaches: S corporations, entities taxed as partnerships, single-member LLCs and similar entities “regardless of whether it is taxed as an association or is disregarded for federal income tax purposes,” and “a trust to the extent the property is includable in the decedent’s federal gross estate.” Publicly traded entities are excluded.

Which trusts change the estate tax figure, and which do not

Life insurance you own. 26 U.S.C. § 2042(2) includes in the gross estate the amount receivable by beneficiaries under policies on the decedent’s life “with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person.” The full death benefit, not the premiums. An irrevocable trust that owns the policy is the structure that answers § 2042, because the decedent holds no incidents of ownership at death. Transferring an existing policy into such a trust does not work immediately: 26 U.S.C. § 2035(a) pulls back into the gross estate any interest transferred within the three-year period ending at death whose value would have been included under § 2042 had it been retained.

Qualified personal residence trusts. The name gets used in Minnesota planning conversations more often than the mechanism gets explained. 26 U.S.C. § 2702 normally values a retained interest in a trust for a family member at zero, which makes the gift of the remainder equal to the whole property. Subsection (a)(3)(A)(ii) carves out a transfer

if such transfer involves the transfer of an interest in trust all the property in which consists of a residence to be used as a personal residence by persons holding term interests in such trust

Treas. Reg. § 25.2702-5(a)(1) provides that “[a] trust meeting the requirements of a qualified personal residence trust (as defined in paragraph (c) of this section) is treated as a personal residence trust,” and paragraphs (b)(2) and (c)(2) limit the property to the term holder’s principal residence, one other residence, or an undivided fractional interest in either, plus appurtenant structures and adjacent land reasonably appropriate for residential purposes. The transferor keeps the right to live there for a stated term, and the taxable gift is the discounted remainder rather than the full value.

The risk sits in 26 U.S.C. § 2036(a)(1), which includes in the gross estate property transferred where the decedent “retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death … the possession or enjoyment of, or the right to the income from, the property.” Dying during the retained term returns the residence to the gross estate. The Minnesota overlay is narrow but worth stating: because § 291.016, subd. 2(3) “excludes any value of the gift included in the federal estate,” a residence pulled back under § 2036 is counted once, not twice.

What this page does not do

It sets out the statutes, the rates, the thresholds, and the elections as they read on the date at the top. It does not tell any reader which of them applies to a particular estate, and it does not evaluate whether a trust, an election, or a gift is a good idea for anyone. Those turn on facts a page cannot see — the composition of the estate, the marriage, the business, the domicile, and the year of death — and on federal income tax consequences this page does not address at all.