State Estate Tax Series: Minnesota
Minnesota Estate Tax: How It Works, Worked Examples, and How Life Insurance Is Used
The Minnesota estate tax is a state tax on the estates of people who die owning more than the state's exclusion amount. For 2026 deaths, that amount is $3,000,000, and graduated rates run from 13% to 16%. The federal exclusion for 2026 is $15 million, so many Minnesota estates can owe state tax while owing no federal tax.
This guide is written for financial professionals and the clients they serve. It is educational only and is not tax or legal advice.
Schedule a ConsultationHow It Works
What Is the Minnesota Estate Tax?
Minnesota taxes the value of an estate above its exclusion amount. The calculation starts from the federal estate tax figures. It then adds back federal taxable gifts made within three years of death and subtracts the exclusion and any qualifying deductions. Minnesota's graduated rates apply to whatever is left.
According to the Minnesota Department of Revenue's 2026 Form M706 instructions (updated September 11, 2026), an estate generally has to file if the federal gross estate plus adjusted taxable gifts made within three years of death exceeds $3 million, or if a federal estate tax return is required.
Key Points at a Glance (2026 Deaths)
- 1$3,000,000 exclusion and filing threshold
- 2Graduated rates from 13% to 16%
- 3No portability of an unused exclusion between spouses
- 4Federal taxable gifts made within three years of death are added back
- 5Non-residents with Minnesota real or tangible property may have to file
Minnesota vs. Federal, 2026
The Numbers That Drive Minnesota Estate Planning
$3M
Minnesota exclusion amount
13%-16%
Minnesota graduated rates
$2M
Maximum farm and small business deduction
$15M
Federal basic exclusion amount
Sources: MN Revenue 2026 M706 Instructions; MN Revenue QSBFP overview; IRS, What's New: Estate and Gift Tax. Figures as of October 7, 2026.
Rate Schedule
Minnesota Estate Tax Rates for 2026
Minnesota's rates apply to the Minnesota taxable estate, which is the amount left after the $3 million exclusion and any qualifying deductions are subtracted. The table below follows the brackets in the 2026 M706 instructions.
| Minnesota Taxable Estate (After Exclusion) | Marginal Rate |
|---|---|
| Up to $7,100,000 | 13% |
| $7,100,000 to $8,100,000 | 13.6% |
| $8,100,000 to $9,100,000 | 14.4% |
| $9,100,000 to $10,100,000 | 15.2% |
| Over $10,100,000 | 16% |
Applies to decedents dying in calendar year 2026. Confirm current figures with the Minnesota Department of Revenue before relying on them for a specific estate.
Rules That Catch Planners Off Guard
Four Minnesota Rules That Differ From Federal Law
No Portability Between Spouses
Federal law lets a surviving spouse use a deceased spouse's unused exclusion. Minnesota does not. The Minnesota Department of Revenue states that portability is not available under Minnesota law. If everything passes outright to the surviving spouse, the first spouse's $3 million Minnesota exclusion may go unused. Couples who want to use both exclusions often look at credit shelter (bypass) trusts, though these add complexity and cost.
Three-Year Gift Add-Back
Minnesota has no separate gift tax, but federal taxable gifts made within three years of death are added back into both the filing test and the tax calculation, according to the 2026 M706 instructions. Large gifts made late in life may reduce Minnesota tax less than a family expects. Gifts that fall within the federal annual exclusion are generally not taxable gifts, but how a particular gift is treated depends on the facts.
Non-Residents With Minnesota Property
Living outside Minnesota does not always keep an estate out of the Minnesota tax. A non-resident estate generally has to file if Minnesota-situs property is part of the federal gross estate and the filing test is met. The instructions point to Minnesota real property and tangible personal property, such as a lake cabin or farmland, and also cover property held through pass-through entities. Whether owning property through an entity changes the result depends on the details and should be reviewed with counsel.
Farm and Small Business Deduction (QSBFP)
Qualifying small business or farm property may support a deduction of up to $2,000,000, for a combined $5,000,000 with the exclusion, according to Minnesota Revenue. The requirements are strict. They include three years of ownership before death, material participation, and a $10 million gross sales cap for businesses. Heirs must also meet use and ownership conditions after death, and a 16% recapture tax may apply if those conditions are broken.
State and Federal Interaction
Minnesota Estate Tax vs. Federal Estate Tax
The two taxes are separate, but Minnesota starts its calculation from federal figures. For 2026, the IRS reports a $15 million basic exclusion and a top rate of 40%. Because Minnesota's exclusion is much lower, an estate between $3 million and $15 million may owe Minnesota tax and no federal tax. Our Federal Estate Tax guide covers the federal side in more detail.
| Feature (2026) | Minnesota | Federal |
|---|---|---|
| Exclusion amount | $3,000,000 | $15,000,000 |
| Rates | 13% to 16%, graduated | Top rate of 40% |
| Portability between spouses | Not available | Available if elected |
| Gift treatment | Taxable gifts within 3 years of death added back | Unified gift and estate system |
| Return | Form M706 | Form 706 |
Comparing state rules? See our Illinois Estate Tax guide. Illinois uses a different exclusion and calculation method.
Worked Examples
Minnesota Estate Tax Examples at Different Estate Sizes
These examples are hypothetical and simplified, and they are for illustration only. Each one assumes a single Minnesota resident dying in 2026 with no marital or charitable deduction, no QSBFP deduction, no gifts made within three years of death, and an adjusted taxable estate equal to the amount shown. Real estates involve debts, expenses, deductions, and valuation questions that can change the result substantially.
| Illustrative Estate | Minnesota Taxable Estate | Approx. Minnesota Tax | Approx. Federal Tax |
|---|---|---|---|
| $2,500,000 | $0 | $0 | $0 |
| $4,000,000 | $1,000,000 | About $130,000 | $0 |
| $7,000,000 | $4,000,000 | About $520,000 | $0 |
| $12,000,000 | $9,000,000 | About $1,188,600 | $0 |
How the $12 million example is calculated: 13% on the first $7.1 million ($923,000), plus 13.6% on the next $1 million ($136,000), plus 14.4% on the remaining $900,000 ($129,600). In each example, the federal tax is $0 because the estate is below the 2026 federal exclusion and no prior taxable gifts are assumed.
Married Couple Example
Why No Portability Matters for Minnesota Couples
Take a hypothetical married couple with a combined $8 million estate. Assume no growth, no spending, and that the second spouse dies in 2026 under the current rules. The comparison shows how the first spouse's Minnesota exclusion can be lost when everything passes outright to the survivor.
This is an illustration only. Actual results depend on how assets are titled, how they grow, the trust terms, the rules in effect at each death, and other factors.
Scenario A: Everything Passes Outright to the Spouse
At the first death, the marital deduction generally means no Minnesota tax is due. At the second death, the full $8 million is taxed with only one $3 million exclusion. That leaves a $5 million taxable estate and roughly $650,000 of Minnesota tax.
Scenario B: Credit Shelter Trust Funded at First Death
At the first death, $3 million funds a bypass trust that uses the first spouse's exclusion. At the second death, the survivor's $5 million estate leaves a $2 million taxable estate and roughly $260,000 of Minnesota tax. That is about $390,000 less than Scenario A. The trust approach comes with trade-offs, including less control for the survivor, administration costs, and possible income tax basis effects.
Estate Tax Liquidity
How Life Insurance Is Used to Plan for Minnesota Estate Tax
Minnesota estates often hold farmland, closely held businesses, or real estate that cannot be sold quickly or easily. Life insurance can give heirs cash to pay the tax so they do not have to sell those assets under time pressure. The design matters, though. A policy owned by the insured is generally included in the federal gross estate under IRC Section 2042, and Minnesota starts from that same figure.
Keep Proceeds out of the Taxable Estate With an ILIT
An irrevocable life insurance trust (ILIT) that owns the policy from the start is designed to keep the death benefit out of the insured's estate. In the $12 million example above, a $1.2 million policy owned personally could add roughly $182,400 of Minnesota tax, because the proceeds would be taxed at 15.2% to 16% at the margin. An ILIT is irrevocable, it requires ongoing administration and premium gifting, and it is effective only if it is drafted and run correctly. Read more in our ILIT guide.
Match Survivorship Coverage to the Second Death
For married couples who rely on the marital deduction, Minnesota tax often comes due at the second death. Survivorship (second-to-die) life insurance pays at that point and may cost less than two single-life policies, depending on underwriting. It pays nothing at the first death, though, and premiums, guarantees, and policy performance vary by carrier and design. See Permanent Life Insurance Needs in Estate Planning.
Watch the Three-Year Rule on Policy Transfers
Under IRC Section 2035, if the insured transfers an existing policy or gives up incidents of ownership within three years of death, the proceeds are generally pulled back into the gross estate. Bona fide sales for full consideration are excluded from this rule, but sales can raise other tax issues. Having the ILIT apply for and own a new policy from the start avoids the transfer, but it requires the insured to qualify through underwriting.
Review Existing Term Coverage Before It Expires
Clients with health changes may be able to convert existing term coverage to permanent coverage without new medical underwriting, if the policy's conversion terms allow it. Conversion options, deadlines, and the products available vary by contract. See Term Life Insurance Conversion and our policy review guide.
Common Mistakes
Minnesota Estate Tax Planning Checklist
Planning teams often check these points when a client has Minnesota exposure:
How BUI Supports Advisors
Case Design and Advanced Planning for Minnesota Estate Tax Cases
BUI (Brokerage Unlimited, Inc.) is a brokerage general agency (BGA) based in St. Louis, Missouri. We work with financial professionals on life insurance for estate tax liquidity. Advanced planning support is led by Brian Seigel, J.D., AEP®, Director, Advanced Planning.
Our team can help advisors model estate tax exposure, compare survivorship and single-life designs across carriers, coordinate ILIT ownership with the client's attorney, and support the application through underwriting. BUI does not provide tax or legal advice. Final plan documents should be prepared by the client's own attorney and tax advisor. For a sense of the analysis we provide, see this sample estate tax analysis.
RIAs can also read about our insurance planning partnership for RIAs.
What Advisors Can Bring to a Case Review
- 1Estimated estate size and how major assets are titled
- 2Residency, plus any Minnesota property owned by non-residents
- 3Existing policies, owners, and beneficiaries
- 4Current trust documents and gifts made in the last three years
- 5Health information for both spouses, for underwriting
FAQ
Minnesota Estate Tax: Frequently Asked Questions
What Is the Minnesota Estate Tax Exemption for 2026?
For people who die in 2026, the Minnesota estate tax exclusion is $3,000,000, according to the Minnesota Department of Revenue's 2026 M706 instructions. The filing threshold is the same amount, measured as the federal gross estate plus adjusted taxable gifts made within three years of death.
What Are the Minnesota Estate Tax Rates?
For 2026, Minnesota's graduated rates run from 13% to 16% of the taxable estate after the exclusion. The 13% rate covers the first $7.1 million, and the 16% rate applies above $10.1 million.
Does Minnesota Allow Portability Between Spouses?
No. The Minnesota Department of Revenue states that portability is not available under Minnesota law. A deceased spouse's unused Minnesota exclusion does not pass to the survivor, so couples often look at trust-based planning instead. That planning involves its own trade-offs.
Do Non-Residents Pay Minnesota Estate Tax?
They can. A non-resident estate generally has to file if it includes Minnesota real or tangible personal property and the filing threshold is met. The tax is calculated on the Minnesota portion of the estate.
Is Life Insurance Subject to Minnesota Estate Tax?
It can be. Proceeds from a policy the insured owns, or over which the insured holds incidents of ownership, are generally included in the federal gross estate, and Minnesota starts from that figure. An ILIT that owns the policy from the start is designed to keep proceeds out of the estate, subject to proper drafting and the three-year rule.
Can an Estate Owe Minnesota Estate Tax but No Federal Estate Tax?
Yes. The 2026 federal exclusion is $15 million and Minnesota's is $3 million, so an estate between those amounts may owe Minnesota tax with no federal tax, depending on deductions and prior gifts.
Sources
- Minnesota Department of Revenue, 2026 Form M706 Instructions (updated September 11, 2026; accessed October 7, 2026)
- Minnesota Department of Revenue, Qualified Small Business and Farm Property Deduction (accessed October 7, 2026)
- Minnesota Department of Revenue, 2026 Schedule M706Q (accessed October 7, 2026)
- Minnesota Department of Revenue, Estate Tax Portability (accessed October 7, 2026)
- IRS, What's New: Estate and Gift Tax (reviewed July 23, 2026; accessed October 7, 2026)
- IRS, Instructions for Form 706 (accessed October 7, 2026)
- 26 U.S.C. Section 2035 (accessed October 7, 2026)
Next Step
Have a Client With Minnesota Estate Tax Exposure?
Talk with BUI about case design, carrier comparisons, and coordinating life insurance with your client's estate plan. Coverage depends on underwriting, and the right design depends on each client's situation.
BUI (Brokerage Unlimited, Inc.), St. Louis, MO