How to Avoid the Estate Tax in Minnesota

The estate tax, sometimes called the “death tax,” applies to the total value of a deceased person’s assets before distribution to their heirs. In Minnesota, estates exceeding $3 million are subject to this tax, with rates between 13% and 16%. By comparison, the federal exemption is significantly higher at $13.99 million. This gap makes proactive financial and estate planning essential to help minimize potential tax exposure and preserve more wealth for beneficiaries.

You can also consult with a financial advisor to help create a comprehensive estate plan to protect your assets.

What Is the Estate Tax in Minnesota?

Unlike an inheritance tax, which is paid by the recipients of the estate, the estate tax in Minnesota is levied on the total value of the estate before it is distributed to the beneficiaries. This form of taxation primarily targets larger estates and serves two purposes: generating revenue for the state and attempting to mitigate wealth disparities. State-level taxes such in Minnesota have varying exemption thresholds and rates, which require a thorough understanding by estate planners and beneficiaries to navigate these local specifics effectively.

The estate tax rates in Minnesota are structured progressively. They apply to estates that exceed a certain value threshold, beginning at 13% and potentially rising up to 16% for significantly large estates. For the year 2025, the exemption threshold is set at $3 million, meaning that estates valued below this figure are exempt from the estate tax. This threshold can change, depending on legislative and economic conditions. Therefore, you should keep updated with current policies to manage your tax liabilities effectively.

Who Is Subject to Estate Tax in Minnesota?

The estate tax in Minnesota applies to all state residents as well as non-residents who possess tangible property or assets within the state. The primary determinant of tax liability is the total value of the estate at the time of the owner’s death.

If this value exceeds the state’s exemption limit of $3 million, the estate is subject to taxation. The definition of residency for these purposes is based on your domicile; essentially, the place where a person has their permanent home and intends to return. This will determine your tax responsibilities and requires careful consideration when planning your estate.

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Minnesota vs. Federal Estate Tax

A senior couple reviewing their estate plan in Minnesota.

The exemption differences between Minnesota’s estate tax and the federal estate tax are important. Federally, the estate tax exemption in 2025 is set at $13.99 million for individuals, meaning that estates valued below this threshold are not subject to federal estate taxes. The rates for taxable amounts above this exemption can go up to 40%.

By comparison, Minnesota’s estate tax exemption is considerably lower, with the threshold set at $3 million. The rates in Minnesota start at 13% and can go up to 16% for larger estates. High-net-worth residents in Minnesota, therefore, must take into consideration both levels of taxation, which can significantly impact estate planning strategies and the overall tax burden on the estate.

4 Ways to Avoid the Minnesota Estate Tax

Here are four common ways to help you lower or avoid your potential estate tax liability:

Use a trust: In Minnesota, the use of irrevocable trusts is particularly advantageous as it removes assets from the estate’s taxable base, thereby reducing the overall estate tax liability. These trusts, once set, cannot be altered or revoked, thus offering a secure way to manage assets outside of the taxable estate.
Gift more money: Gifting is another effective strategy to reduce the size of an estate and thus the associated tax burden. By strategically gifting assets within the legal limits, an individual can significantly decrease the taxable value of their estate over time.
Donate more to charity: Charitable donations not only fulfill philanthropic goals but also provide a practical benefit in estate planning. Large charitable bequests can significantly reduce an estate’s taxable value, potentially bringing it below the taxable threshold and thus minimizing or eliminating estate tax liabilities.
Buy real estate in another state: Geographic diversification of assets, particularly through the acquisition of real estate in states with lower or no estate taxes, is a strategic approach to reducing overall estate tax burdens. States like Florida and Texas, which do not impose a state estate tax, can offer attractive opportunities for property investment.

How Minnesota Calculates Estate Tax

Understanding how Minnesota determines your estate tax liability can make the planning process more manageable. While the state’s rates range from 13% to 16%, those percentages are applied only after several calculations are completed. Here’s a straightforward look at how Minnesota computes estate tax.

1. Determine the Gross Estate

The gross estate includes the total fair market value of all assets you owned or controlled at death. This can include:

Real estate
Investment and bank accounts
Retirement accounts
Life insurance proceeds (if you owned the policy)
Business interests
Tangible personal property

2. Subtract Allowable Deductions

Minnesota allows several deductions that reduce the size of your taxable estate. Common deductions include:

Funeral and burial expenses
Debts and outstanding liabilities
Administrative and legal fees related to estate settlement
The marital deduction, which generally excludes assets left to a surviving spouse
Charitable bequests, which reduce the taxable estate dollar-for-dollar

Once these deductions are applied, you arrive at your Minnesota taxable estate.

3. Apply the Minnesota Exemption

For 2025, Minnesota excludes the first $3 million of the taxable estate. Only the value above this threshold is subject to estate tax.

4. Apply the Progressive Minnesota Estate Tax Rates

Minnesota uses a bracket system with marginal rates ranging from 13% to 16%. As the taxable value increases, portions of the estate fall into progressively higher brackets, similar to the federal income tax system.

How the Tax Is Calculated

Suppose an estate is valued at $4,000,000, with $200,000 in allowable deductions.

Gross estate: $4,000,000
Minus deductions: –$200,000
Minnesota taxable estate: $3,800,000
Minus exemption: –$3,000,000
Amount subject to Minnesota estate tax: $800,000

This remaining $800,000 would then be taxed using Minnesota’s marginal estate tax brackets. For instance, the first portion above the exemption may be taxed at 13%, with higher portions taxed at 14%–16% depending on bracket placement.

This example demonstrates how deductions and the exemption can significantly reduce the portion of an estate that is actually taxable.

Bottom Line

A senior couple creating an estate plan in Minnesota.

Minnesota’s estate tax exemption is significantly lower than the federal threshold, making it essential to understand the difference and determine whether your estate may be subject to state taxes. Knowing the applicable limits and common strategies to reduce or avoid estate tax, such as establishing a trust, gifting assets, making charitable contributions or diversifying holdings into tax-friendly states, can help you manage your estate more efficiently.

Tips for Estate Planning

A financial advisor can help you optimize your estate to avoid or minimize taxes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Consider an estate planning checklist when you start planning your estate.