Minnesota Inheritance Laws: Insights for Families, Business Owners, and Real Estate Investors
- Michael Urch
- Jun 19
- 12 min read
Updated: 6 days ago
Minnesota imposes its own estate tax on estates valued at $3 million or more, even if no federal estate tax is owed.
Without proper planning, such as setting up trusts or naming beneficiaries, assets may go through the public probate process, and unused estate tax exemptions from a deceased spouse can be lost.
Taking proactive steps like gifting strategies or Roth conversions can help minimize taxes, prevent the forced sale of assets, and ensure a smoother transfer of wealth to heirs.
As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning. Michael prides himself on being a professional advisor who puts planning before products.
___
If you live in Minnesota and are doing your estate planning—or you expect to receive an inheritance—it’s important to understand how the state’s inheritance and estate tax laws work.
As a Minnesota-based wealth advisor, I often walk clients through this process.
So, whether you're a business owner, real estate investor, or are simply trying to pass assets to your children with minimal stress, this post will help. Below, I’ve broken down the key things Minnesota residents need to know when it comes to inheritance planning.
Just keep in mind that this post is no substitute for speaking with a qualified fiduciary financial advisor and estate planning attorney about your particular situation.
Minnesota Inheritance Laws Key Takeaways:
If your estate is valued at $3 million or more, here are some essential points you should understand about Minnesota’s inheritance and estate rules:
Minnesota has its own estate tax that applies to any decedent’s estate exceeding $3 million, even if there’s no federal estate tax owed.
Assets passed to a surviving spouse are typically exempt from estate tax. But without proper planning, the unused exemption from the first spouse’s death is lost.
The probate process is a public and often lengthy legal process where the entire estate may be reviewed by the probate court—unless you’ve taken steps to avoid it.
Property not held in trust or without a named beneficiary (like some life insurance policies) will go through a probate proceeding, potentially delaying distributions to heirs.
If someone dies without a will, they leave behind an intestate estate, and intestate succession laws determine how personal property and real estate are distributed.
Planning ahead allows you to take advantage of available tax advantages, like gifting strategies or Roth conversions, to minimize estate taxes and preserve wealth.
Do you own real estate? Be aware that property taxes and estate taxes may both apply, and failing to plan could result in assets needing to be sold to pay those liabilities.
Table of Contents
Minnesota Estate Tax Kicks In at $3 Million
One of the most important things to understand is that Minnesota has a state-level estate tax, and it kicks in at a relatively low threshold: $3 million.
If you’re a couple, it’s tempting to think you have a $6 million exemption—but Minnesota doesn’t offer portability. That means when one spouse passes, their $3 million exemption doesn’t automatically roll over to the surviving spouse unless you’ve planned for it in advance.
This is where many people unintentionally fall into the estate tax zone. If one spouse dies and everything is left to the other, the surviving spouse is back down to a $3 million exemption. However, using a credit shelter trust (also called a bypass trust) could effectively preserve the first spouse’s exemption.
For anyone with significant real estate, investments, or even life insurance, this threshold can be easy to hit. When you actually look at all your assets, you may discover that you have more than you think.
What Counts Toward Your Estate? (Life Insurance Might Surprise You)
A lot of people don’t realize what actually gets counted toward their estate. It’s not just your home or investment accounts—it also includes:
Real estate (primary residence, rental properties, etc.)
Non-registered investments
Business assets
Life insurance death benefits
Unless your life insurance is held in an irrevocable trust that keeps it outside of your estate, the full death benefit will count toward your estate’s value. So if you have a $3 million policy, that amount is added to your total estate—even if your family is the beneficiary—and could push you over the estate tax threshold in Minnesota.
I work with many young professionals who have $3–4 million in term life insurance. That alone could trigger estate taxes they weren’t expecting.
If your estate is close to or over that $3 million threshold (or will be in the future), it’s time to consider comprehensive estate planning. That often includes working with an estate attorney to explore trusts and other tools that help reduce taxes and streamline the transfer of wealth.
In addition, you should be receiving support from your financial advisor, who can act as the quarterback, help guide the process, and put you in touch with the right professionals.
Probate in Minnesota Is Public and Can Be Avoided
Another key consideration is whether your assets will go through probate.
I get a lot of questions about this: Will my estate go through probate? What does that mean?
Probate is the legal process the state uses to settle a deceased person’s estate, and it comes with some drawbacks:
It’s public—anyone can look up how much real estate you owned when you died
It’s slow—it can take months or even years to finalize
It can be expensive, depending on your situation
Fortunately, there are ways to avoid probate:
Beneficiary designations on financial accounts (or Transfer-on-Death designations)
Transfer-on-Death deeds for real estate
Revocable living trusts to hold real estate and investments
When you look at the different parts of your estate, ask yourself: Are any of these going to go through probate? For most families, the answer is yes—unless they’ve taken steps to avoid it.
Transfer-on-Death Deeds Explained
One of the simplest ways to avoid probate for real estate in Minnesota is by using a Transfer-on-Death (TOD) Deed.
This is a legal document you file with the county that names who will receive property, such as your home or cabin, after you pass away. The key benefit is that the property transfers directly to the person you’ve named without going through probate, but you still own it and control it while you're alive.
You can even change your mind later and update or revoke the deed. It’s a great tool for keeping things simple for your family and avoiding unnecessary legal delays after your death.
Note: TOD deeds must be properly recorded with the county before death to be effective. This is a common oversight.
Are There Any Drawbacks to Using a TOD Deed?
While TOD deeds are a great tool for avoiding probate, they’re not perfect for every situation.
One drawback is that they don’t offer any protection during your lifetime if you become incapacitated, unlike a trust, which allows a successor trustee to step in and manage the property.
Also, if the beneficiary dies before you and you don’t update the deed, the property could end up going through probate anyway.
And finally, TOD deeds don’t allow for complex distribution instructions—so if you want the property split among multiple people or held in trust for a minor, a trust may be a better fit. It’s still a useful option, but it’s good to know the limitations.
If You Have IRAs, There’s a Tax Surprise Waiting for You
Even beyond estate tax, there’s another issue I flag for clients: income tax on inherited IRAs.
Post-2020 (after the SECURE Act), any inherited IRA must be fully withdrawn within 10 years. That withdrawal is taxed as ordinary income, not at capital gains rates. And for many of my clients, the majority of their wealth is tied up in IRAs.
That means your beneficiaries could see a significant chunk of the account go to taxes, split between federal and Minnesota income tax.
What Can You Do?
Roth conversions: You could convert some of your traditional IRA to a Roth now. You’ll pay tax today, but any growth is tax-free and is inherited tax-free (at least in terms of income tax).
Life insurance: Some clients choose to purchase a second-to-die life insurance policy to cover the anticipated tax hit.
Unfortunately, putting IRAs into a trust doesn’t solve this issue—it usually triggers immediate taxation. But that doesn’t mean there aren’t options. It just means planning ahead is essential.
Again, it's critical that you work with your financial advisor and estate planning attorney to come up with smart solutions.
Don’t Count on an Inheritance—Plan Without It
If you’re expecting to inherit wealth from a parent or relative, here’s what I tell my clients:
Don’t bank on it. A long-term care situation can deplete an estate quickly. Even if an inheritance seems certain, the timeline and amount may change. It’s better to build a solid financial plan that doesn’t rely on getting an inheritance. That way, when it arrives, it can simply accelerate your goals, rather than being the main plan.
What you do when you have a little is what you’ll do when you have a lot.
If you’re disciplined now, you’re more likely to be wise with an inheritance later.
If you think you might inherit—or you just did—it’s a great time to meet with an advisor. Even if you’re not ready to work together long term, having a valued professional in your corner makes a big difference when the time comes.
Rights of Spouses, Children, and Other Heirs
In Minnesota, a surviving spouse has important inheritance rights—even if the decedent died without a will—often receiving a significant portion of the estate through intestate succession.
Children, including adopted children, also have rights, though stepchildren do not inherit automatically unless they’ve been formally adopted. If you want your estate to go a certain way, it’s critical to have a will and communicate your wishes clearly with your family and legal team.
Role and Responsibilities of an Executor in Minnesota
The executor is the person named in your will to carry out your final wishes and manage your estate.
That includes gathering assets, paying any outstanding debts or taxes, and distributing property to your heirs. It’s a big job with legal responsibilities, which is why I always recommend choosing someone who’s organized, trustworthy, and willing to seek professional guidance if needed.
Planning for Minor Children
If you have young children, one of the most important steps you can take is naming a legal guardian in your will; otherwise, the court decides who will raise them.
You should also consider creating a trust to control when and how money is distributed, so it doesn’t all become available at age 18. I’ve seen how much confidence this planning gives parents, especially when paired with proper life insurance coverage.
How Digital Assets Are Handled in Inheritance
Today, more clients are asking how to handle digital assets—things like online bank accounts, photos in the cloud, or even cryptocurrency.
If these aren’t listed in your estate plan or accessible to your executor, they can be overlooked or lost entirely. I advise clients to keep a secure, up-to-date list of digital accounts and make sure their estate documents give someone the legal authority to access them.
Creating a Valid Will and Understanding Trusts
To create a valid will in Minnesota, you need to be of sound mind, over 18, and sign the document in front of two witnesses.
A will alone may still send your estate through probate, which is why many clients also choose to set up a trust to help assets pass more smoothly and privately. While I’m not an attorney, I regularly collaborate with estate lawyers to ensure your financial plan aligns with your legal documents.
Tax Implications of Inheriting Property in Minnesota
Minnesota has its own estate tax, which currently applies to estates over $3 million, and that can catch some families off guard.
Inherited IRAs are also taxed as ordinary income, and if you’re inheriting a large account, those taxes can add up fast. I help clients forecast these tax burdens in advance so they can plan ways to reduce the impact or set aside funds for what’s coming.
Business Succession Planning and Inheritance
If you own a business in Minnesota, your estate plan should include a clear succession strategy—otherwise, the company could stall or even collapse after your death.
Without a plan, intestate estate laws may kick in, and control could end up in the hands of someone who isn't prepared to run the business. I work with business owners to coordinate with legal and tax professionals to keep transitions smooth and tax-efficient.
Capital Gains and the Step-Up in Basis
When you inherit property like real estate or stocks, the IRS gives you a step-up in basis, meaning the asset’s value resets to its fair market value on the date of death.
This step-up often eliminates capital gains tax if the asset is sold shortly after inheritance. It’s a powerful tax benefit, especially for real estate investors—but only if the property is inherited properly and not gifted during life.
Essential Estate Planning Documents for Minnesota Residents
These are the key legal documents Minnesotans should have in place:
Will: Outlines how your assets will be distributed and names a guardian for minor children.
Revocable Living Trust: Helps avoid probate and manage assets during your lifetime and after death.
Durable Power of Attorney: Authorizes someone to handle your financial affairs if you become incapacitated.
Health Care Directive (Advance Directive): Specifies your medical wishes and names someone to make health care decisions on your behalf.
HIPAA Authorization: Allows your chosen individuals to access your medical records if needed.
Beneficiary Designations: Ensure retirement accounts, life insurance policies, and other financial assets go directly to intended recipients.
Transfer-on-Death Deeds: Allows Minnesota real estate to pass directly to a named beneficiary without going through probate.
Common Questions about Minnesota Inheritance Laws
How is property transferred after death without a will in Minnesota?
Minnesota’s intestate succession laws determine who inherits, usually starting with the surviving spouse and children, and the estate goes through probate.
Do you have to pay taxes on an inheritance from a trust in Minnesota?
There’s no inheritance tax, but trust distributions—especially from IRAs or income assets—may be subject to income tax.
Do you need a lawyer to make a legally valid will in Minnesota?
A lawyer isn’t required, but the will must be signed by a competent adult in front of two witnesses to be valid.
Can a life estate override the instructions in a will in Minnesota?
Yes, a life estate deed takes priority and allows the life tenant to use the property regardless of what the will says.
What assets are exempt from probate in Minnesota?
Assets with beneficiaries, joint ownership, TOD deeds, or held in trust generally bypass probate.
How much does an estate have to be worth to go to probate in Minnesota?
Estates over $75,000 usually require probate; smaller estates may qualify for a simplified process.
What are the rights of a beneficiary in Minnesota?
Beneficiaries can receive assets, be informed, request documents, and challenge mismanagement if needed.
What is Minnesota’s elective share, and how does it protect a surviving spouse?
Minnesota law gives a surviving spouse the right to claim an elective share of the estate—up to one-third of the augmented estate—even if they are left out of the will. This helps ensure that a spouse cannot be fully disinherited.
How does Minnesota handle access to digital assets after death?
Minnesota has adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which gives executors and trustees limited legal authority to access a deceased person’s digital accounts.
Final Thoughts
Minnesota inheritance laws can catch people off guard, especially when they involve estate tax, probate, or the tax implications of retirement accounts.
If you’re a business owner, real estate investor, or a family looking to leave a meaningful legacy, don’t wait until you’re “old enough” to start planning. Estate planning is just smart financial planning.
And if you’re receiving an inheritance, how you manage it can change the trajectory of your life, for better or worse. Let’s make sure it’s for the better.
Resources:
Minnesota Department of Revenue - Estate Tax Overview This page provides detailed information on Minnesota’s estate tax, including the $3 million exemption, filing requirements (Form M706), and the lack of portability for spousal exemptions.
Minnesota Judicial Branch - Probate, Wills, and Estates This resource explains Minnesota’s probate process, intestate succession, and mechanisms to avoid probate (e.g., TOD deeds, trusts).
Other Articles and Guides
About 360 Financial
360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
Headquartered in Minnesota, we serve investors across the US with online and in-person wealth management and financial planning services.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
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.
