January 11, 2024

Does Minnesota Have an Inheritance Tax?

Whether there is a capital gains tax on inherited property in Minnesota depends on how the money is inherited.

By Michael Urch, CFP® Senior Wealth Manager

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning.

INHERITANCE IN MINNESOTA

Does Minnesota have an inheritance tax?

No, at this time, Minnesota doesn’t have an inheritance tax.

Could that change? Will Minnesota have an inheritance tax in the future?

Laws could always be changed, but MN is one of the few states with an estate tax. It would be surprising to have both an estate tax and an inheritance tax.

Is there a capital gains tax on inherited property in Minnesota?

Whether there is a capital gains tax on inherited property in Minnesota depends on how the money is inherited.

If the money inherited is part of someone’s estate, it usually receives a step-up in basis. This means there would be no capital gains realized if the property were sold on the date of death. 

However, if the money inherited is in some kind of irrevocable trust, such as a marital trust, then it may not be eligible for a step up in cost basis. In this case, there would be capital gains on the inherited property – but not until it is sold.

ESTATE TAX

What is the difference between estate tax and inheritance tax?

Different entities are taxed by an estate tax versus an inheritance tax. An estate tax is paid by the estate of the deceased. An inheritance tax is paid by the heirs of the estate.

Does Minnesota have an estate tax?

Yes. $3,000,000 of your estate is excluded from estate tax.

However, money above and beyond $3,000,000 is taxed at between 13% and 16%.

Unlike the Federal estate exclusion, the MN estate exclusion is not portable. If one spouse does not use up their $3,000,000 exclusion, the surviving spouse doesn’t get to use it – it is just $3,000,000/individual.

How can one avoid Minnesota estate tax?

With trust planning, MN residents can reduce the size of their estate either by placing it in trusts outside of their estate while living.

This can be with irrevocable trusts or potentially charitable trusts. Life insurance can also be used as a tool when estate planning for large estates.

You can also just move to a state without estate taxes, which is a more straightforward strategy that I see often.

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If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms with over 30 years of experience. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

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About the Author

Michael Urch

Michael Urch

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning. He prides himself on being a professional advisor who puts planning before products. This is one of the reasons he was attracted to 360 Financial’s client-focused culture. Michael likes to start with each client’s “why.” By understanding what’s truly important to them, the “what” of investment and planning strategies can be custom-designed to support their long-term ambitions.

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This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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