Minnesota Estate Tax (2025): Threshold, Rates, M706 & Farm-Family Strategies

Updated Sept. 10, 2025

Minnesota’s estate tax can feel confusing, especially if you’ve heard conflicting terms like “inheritance tax.” This plain-English guide explains how the Minnesota estate tax works in 2025—who it affects, how the $3,000,000 threshold is calculated, what the rates look like, when to file Form M706, and how the farm/small-business deduction (up to $2,000,000) and the 3-year gift rule can change the outcome. Whether you own farmland, a family business, or a mix of property, you’ll learn the basics, see simple examples, and get practical steps to plan ahead so your heirs can keep what matters most.

Quick summary (read this first)

• What it is: A tax the estate may owe after someone dies—not a tax each heir pays.

• Who it affects: Estates worth $3,000,000 or more in 2025 (after allowed deductions).

• What to file: Minnesota Form M706 (often accompanied by a “pro forma” federal Form 706 to perform the calculations).

• Rates: Graduated ~13%–16% on the part over $3M.

• Special help for farms/small businesses: Up to $2,000,000 extra deduction if strict rules are met (often called the farm or small-business deduction).

Estate tax vs. inheritance tax (quick distinction)

• Estate tax (Minnesota): Paid by the estate before assets go to heirs.

• Inheritance tax: Paid by beneficiaries; Minnesota doesn’t have this.

Do we have to file? The $3,000,000 threshold

If the Minnesota taxable estate is $3,000,000 or more, the personal representative generally files Form M706 and may owe Minnesota estate tax. “Taxable estate” means what’s left after allowed deductions (debts, funeral/administration costs, qualifying charitable gifts, etc.).

What counts toward the $3M?

• Minnesota residents: Typically, worldwide assets (real estate, bank/brokerage accounts, life insurance payable to the estate, business interests, equipment, etc.).

• Nonresidents: Generally, Minnesota-situs property (e.g., land and certain tangible property located in MN).

• Gifts in the last 3 years: Certain gifts made within 3 years of death are added back for Minnesota’s calculation (the “3-year gift rule”).

How much is the tax?

Minnesota uses a graduated rate on the portion above $3,000,000. The exact number depends on your deductions and any special elections, but the effective rates typically fall in the low-to-mid teens.

Simple illustration: If a Minnesota taxable estate totals $3.7M, roughly $700k is over the threshold. After the worksheet math and credits, the Minnesota estate tax will be some fraction of that $700k, using the state’s brackets.

Big deal for farm & small-business families: the extra $2M deduction

Minnesota offers up to $2,000,000 of additional deduction for qualified farm property or qualified small-business property that passes to qualifying heirs and stays in qualified use for a required period (commonly 3 years). A few plain-English notes:

• It’s not automatic. You must document eligibility (ownership, use, operations, payroll for businesses, etc.).

• Use matters after death. If heirs sell or stop qualified use too soon, recapture can apply (some tax comes back).

• Coordinate with federal choices. If you plan to use §2032A special-use valuation for farmland on the federal side, align appraisals and elections so the state and federal strategies work together.

• Combined cap: As a general rule, many families can shield up to $5,000,000 total when the $3M exclusion and the $2M deduction are both fully available and properly documented.

What to do when someone passes (step-by-step)

1. Get organized: Death certificate; letters of authority; last returns; account statements; deeds; titles; business agreements; insurance info.

2. Appraise the right things: Real estate, equipment, and closely held business interests typically require credible valuations.

3. Meet deadlines: M706 is generally due 9 months after death. You can often extend time to file, but tax (if any) is still due by the original deadline.

4. File correctly: Prepare M706 (and a pro forma federal 706 if needed). Attach supporting schedules and any farm/small-business deduction forms.

5. Pay and confirm: Pay any tax due; keep closing letters/receipts and all appraisal backup.

Common, real-life scenarios (and what they mean)

• Over $3M with no special deductions: Likely M706 required and tax due.

• Farm family near $5M: With the $2M farm deduction and clean documentation, it may be possible to reduce or eliminate tax if all requirements are met and the property stays in qualified use.

• Gifts within 3 years: Those gifts can push you back over the threshold for Minnesota purposes. Don’t assume lifetime gifting erased the problem.

Planning ahead (so tax day doesn’t force a sale)

• Title & entities: Use LLCs for operations/liability; use revocable trusts for probate avoidance and control. Make sure deeds, membership interests, and beneficiary designations match the plan.

• Married couples: Minnesota’s $3M exclusion is not portable between spouses. Credit-shelter (bypass) trust planning can help preserve both spouses’ exclusions.

• Liquidity: Consider life insurance or a reserve so heirs aren’t pressured to sell land or equipment to pay tax.

• Buy-sell agreements: For closely-held businesses, lock in valuation and funding methods ahead of time.

• Keep records current: Appraisals, participation logs, entity minutes, and lease/CRP/NRD paperwork make deductions defensible.

Frequently asked questions

What is the Minnesota estate tax threshold in 2025? $3,000,000. If the taxable estate meets or exceeds that amount, the personal representative generally files Form M706.

Does Minnesota have an inheritance tax? No—only an estate tax. The estate pays, not the heirs.

Do gifts get me under $3M?

Not always. Gifts within 3 years of death may be added back for Minnesota’s calculation.

Can farm families go above $3M without tax?

Possibly. With the farm/small-business deduction (up to $2M), qualifying estates can reduce or eliminate Minnesota estate tax—if strict eligibility and post-death use rules are met.

Do I need a federal return if I’m only over Minnesota’s limit?

Often, you’ll prepare a pro forma federal 706 to support Minnesota’s numbers, even if the federal threshold isn’t met.

Is the $3M exclusion portable between spouses?

No. Consider credit-shelter trust planning.

I live outside Minnesota, but own land there—do I owe?

Possibly. Nonresidents can owe Minnesota estate tax on Minnesota-situs property if the overall estate triggers filing.

When is M706 due? Can I extend?

Generally, 9 months after death. You can often extend filing, but payment is still due by the original deadline.

Bottom line / Next step

Minnesota’s estate tax comes down to a $3M threshold, graduated rates, and powerful—but picky—farm/small-business deductions. If you’re near or above the line (or own property in Minnesota), we’ll map your exposure, align deeds, trusts, and LLCs, and plan for liquidity so your family can keep the land and your wishes intact. Book a session to get precise numbers and a step-by-step plan.