When Do Estate Taxes Apply to Minnesota Estates?

On Behalf of | Jun 10, 2024 | Estate Planning

Most Minnesota estate plans bequeath the bulk of the testator’s “estate” (i.e., all of the property the testator owns at the time of their death) to people and charitable causes whom the testator wishes to support after they die. Unfortunately, some beneficiaries do not receive everything the testator hoped to pass on simply because of probate costs, taxes and other debts that reduce the size of the estate.

Taxes can include the testator’s final income tax payment, but for some large estates, it can also include estate taxes. This begs the question: Just how big does a Minnesota estate have to be before estate taxes are imposed?

Estates must be worth millions to face taxation

Estates are vulnerable to various obligations, including taxes. If someone’s estate contains real property, investment accounts or business holdings, the estate taxes could consume nearly half of what they intend to pass on to their beneficiaries.

As of 2024, only those estates that surpass Minnesota’s $3 million threshold are at risk of paying state estate taxes, for which the tax rate is between 13% and 16%.

If the total value of the estate reaches $13.61 million, federal estate taxes may also apply. The federal estate tax rate ranges from 18% to 40%.

The personal representative of the estate must pay state and federal estate taxes from the estate assets before distributing the residue of the estate to the testator’s chosen beneficiaries.

Great. So, now what?

There are numerous strategies that people can utilize to sidestep or reduce their estate’s tax obligations. The testator could – prior to their death, of course – transfer assets into their spouse’s name. They could similarly make gifts throughout their lifetime, thereby reducing the overall size of their estate (basically giving their would-be beneficiaries an “advance” on their inheritance). Funding trusts is another common estate planning strategy used to avoid or minimize estate tax burdens.

Learning more about how to maximize your legacy can be helpful for people creating their estate plans as well as for the people they hope to one day benefit. If you have questions, give us a call at 651-738-3433.