Does Minnesota Have an Inheritance Tax in 2025?
- Michael Urch
- Sep 22
- 9 min read
Updated: Sep 22
What is the inheritance tax in Minnesota? Minnesota does not have an inheritance tax in 2025. Although the state does not impose a Minnesota inheritance tax, there are still federal taxes and estate taxes to consider.
Moreover, it's important to note that other states do impose inheritance taxes that could apply to you. If you are a Minnesota resident who inherits property located in other states, you may be subject to their inheritance tax laws.
Meanwhile, estate taxes in Minnesota apply to the estate of the deceased person before assets are passed to beneficiaries. Whether there is a capital gains tax on inherited property in Minnesota depends on how the money is inherited.
As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning. If you have questions about your retirement planning or MN inheritance tax, schedule a call with Michael.
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Table of Contents
Inheritance in Minnesota
Does Minnesota have an inheritance tax?
There is no Minnesota inheritance tax. The state does not impose an inheritance tax on beneficiaries, which differs from other states that may impose inheritance taxes on property inherited by residents or non-residents. If you inherit property located in other states that have an inheritance tax, you may still be subject to those states' tax laws.
Will Minnesota have an inheritance tax in the future?
Laws could always be changed, but Minnesota's estate tax laws have remained stable for many years. Minnesota is one of the few states with an estate tax, and 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.
For example, if you are inheriting assets such as a house that was originally purchased for $100,000 and is worth $300,000 at the time of the original owner's death, your cost basis is "stepped up" to $300,000.
If you sell the house immediately for $300,000, there would be no capital gains tax because the sale price matches the stepped-up basis.
However, if the money inherited is held in an irrevocable trust, such as a marital trust, 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.
It’s important to note that not all irrevocable trusts deny a step-up; it depends on whether assets are included in the decedent's estate for tax purposes. For example, QTIP marital trusts do get a step-up at the second spouse's death. Work with an attorney and accountant when setting up trusts to ensure that you get the greatest tax benefit.
Estate Taxes Q&A
What is the difference between estate tax and inheritance tax?
An estate tax is paid by the estate of the deceased person, while an inheritance tax is paid by the heirs of the estate.
Some states impose inheritance taxes. However, there is no federal inheritance tax. There is only a federal estate tax.
Certain individuals, such as spouses, are often exempt from inheritance tax in states that have it. Other beneficiaries may also be exempt depending on state law. But again, there is no inheritance tax in Minnesota.
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 you avoid the Minnesota estate tax?
Minnesota residents have several strategies to reduce or avoid the estate tax.
Trust planning: Irrevocable trusts can remove assets from your taxable estate, while revocable living trusts help manage assets and avoid the probate process. Keep in mind that assets in a revocable trust are still counted for estate tax purposes. Charitable trusts may also reduce the size of your taxable estate. Life insurance trusts are another tool for large estates.
Gifting: You can give up to the annual exclusion amount each year per person without paying gift tax. If you give more, the excess counts against your lifetime exemption, which can still help reduce your taxable estate over time. Work with a fiduciary financial advisor to plan your gifting strategy.
Relocation: Some people move to states without estate taxes. This is often the most straightforward way to avoid the Minnesota estate tax, but it involves a significant lifestyle decision. Before making a big decision like this, seek the guidance of your financial advisor, who can model different scenarios for you so you can see if moving is really worth it.
Note: The annual federal gift tax exclusion is $19,000 per recipient for 2025. The annual gift tax exclusion refers to a specific dollar amount that you can give to someone without reporting it to the IRS. Gifts exceeding the lifetime exemption must be reported. The donor must file Form 709 and, in most cases, the donor (not the recipient) is responsible for any gift tax.
Minnesota has no gift tax, but adds back taxable gifts made within 3 years of death to the MN taxable estate. Referred to as the “3-year rule,” it can pull gifts back into the MN estate calculation. The 3-year rule is designed to prevent deathbed gifting, whose sole purpose is to lower the estate below the $3 million threshold.
Is inheritance of marital property in Minnesota?
Generally, inheritance received by one spouse is considered separate property and is not automatically treated as marital property, even in the case of married couples.
However, if the inheritance is commingled with joint assets or used for the benefit of both spouses, it may lose its separate status and become marital property. Married couples should be aware that keeping inherited assets separate can help ensure they remain exempt from division in the event of a divorce.
In other words, keeping one’s inherited assets separate may be the safest financial decision for the person who receives the inheritance.
How much is inheritance tax in MN?
Minnesota does not have a state inheritance tax, so beneficiaries do not pay a separate tax simply for inheriting assets.
However, the estate itself may be subject to Minnesota estate tax before assets are distributed to beneficiaries. Additionally, when inheriting assets such as IRAs or other retirement accounts, beneficiaries may owe income tax on distributions from these accounts.
The funds withdrawn from inherited IRAs are generally considered taxable income, and beneficiaries may have to pay income tax on these distributions. The specific income taxes owed can depend on the type of asset and where the beneficiary lives, as state tax laws vary.
For example, Minnesota generally taxes income from retirement accounts, including pensions and IRAs, so inherited retirement account distributions are subject to state income tax. It's important for beneficiaries to understand that inheriting assets may trigger income tax obligations, especially when withdrawing funds from retirement accounts.
Capital gains tax may also apply if inherited assets are later sold, but Minnesota does not have a separate state capital gains tax.
Instead, capital gains are included as part of state income taxes.
Always consult a tax professional to understand your specific obligations when inheriting assets, as tax treatment can vary based on the type of asset and the state in which the beneficiary lives.
Estate Tax Basics for Minnesota Residents
One Big Beautiful Bill Act & Federal Estate Taxes
While you do not have to pay an inheritance tax in Minnesota, you do need to think about estate taxes.
Estate taxes are taxes imposed on the value of a deceased person’s estate before the assets are distributed to beneficiaries. In the United States, both the federal government and certain states, including Minnesota, impose estate taxes on estates that exceed specific exemption thresholds.
Starting on January 1st, 2026, the federal estate and gift tax exemption will permanently increase to $15 million.
On July 4th, President Trump signed the One Big Beautiful Bill Act (OBBBA), which moderately increased the federal gift and estate tax exemptions. Section 70106 of the bill, “increases the base estate tax, gift tax, and generation-skipping transfer tax exemption amount after 2025 to $15 million (from $5 million), adjusted for inflation.”
For a married couple, this effectively protects up to $30 million.
This change does not affect Minnesota's state estate tax, which remains at $3 million. The Minnesota Department of Revenue is reviewing how this impacts state taxes, but no changes to MN rules have been announced as of September 2025.
Minnesota Estate Taxes
The Minnesota estate tax exemption is significantly lower, at $3 million, so many estates that are not subject to federal estate tax may still be subject to Minnesota estate tax.
The Minnesota estate tax is calculated based on the taxable estate, which is the value of the estate after subtracting exemptions and allowable deductions. The Minnesota estate tax rate ranges from 13% to 16%, depending on the size of the estate.
Step-Up in Basis
A key concept in estate taxes is the step-up in basis.
When beneficiaries inherit assets, such as real estate or stocks, the cost basis of those assets is “stepped up” to their fair market value at the date of the deceased person’s death. This means that if the inherited assets are sold immediately, there is typically no capital gains tax owed on any appreciation that occurred during the deceased’s lifetime.
However, if the beneficiary holds onto the asset and it appreciates further before being sold, capital gains taxes will apply to the increase in value after the date of inheritance.
Understanding how capital gains tax and step-up in basis work is essential for effective estate planning and for minimizing taxes on inherited assets.
Proper estate planning is crucial for minimizing estate tax liability and ensuring that your assets are distributed according to your wishes.
Strategies such as gifting assets during your lifetime, establishing trusts, and using life insurance policies to cover potential estate taxes can all help reduce the taxable estate.
Consulting with a qualified financial advisor can help you navigate the complex rules surrounding estate taxes, capital gains taxes, and other tax implications, so you can create a plan that protects your legacy and provides for your loved ones.
Minnesota vs. Federal “Death-Tax” Cheat Sheet (2025)
Topic | Minnesota (2025) | Federal (2025/2026) | Who pays |
Estate tax |
|
| The estate |
Inheritance tax | None | None | N/A |
Are You Doing Your Estate Planning Alone?
Your financial advisory team should be helping you with your estate planning.
If you’re doing this alone, I recommend reaching out to 360 Financial and scheduling a call.
On that initial call, you can share your top concerns and see if we’re the right fit to help you with your next financial chapter. Estate planning is a crucial component of comprehensive wealth management. If your advisor isn’t providing any guidance, it may be time to start the search for a better team.
Look for a fiduciary financial advisor or a holistic wealth management team that operates within a fiduciary environment, so you can be sure they’re always acting in your best interests.
About the Author
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 post is published with information believed to be accurate at the time of publishing. 360 Financial and its affiliates are not liable for any errors or omissions.
This post is intended for general informational purposes only and does not constitute investment, legal, tax, or other professional advice. It should not be relied upon as a substitute for personalized advice, nor should it be considered a solicitation to buy or sell any financial products.
Individual circumstances and current events are critical to sound planning. Anyone wishing to act on the information in this report should consult with their qualified financial, tax, and legal advisors. Past results do not guarantee future outcomes.
