The federal estate tax
The estate tax is imposed on the value of everything you own or control at death: real estate, investments, retirement accounts, business interests, and life insurance you own on your own life. The federal exemption is indexed for inflation each year and, following legislation enacted in 2025, is set at $15 million per person for 2026. Amounts above the exemption are taxed at 40%.
Property passing to a surviving spouse who is a U.S. citizen is deducted in full, and a surviving spouse can elect to "port" the deceased spouse's unused exemption by filing a timely federal estate tax return, even when no tax is due.
The Minnesota estate tax
Minnesota is one of roughly a dozen states with its own estate tax. The Minnesota exemption is $3 million per person, is not indexed for inflation, and is not portable between spouses. Rates run from 13% to 16% on the amount above the exemption. Because the state threshold is so much lower than the federal one, many Minnesota families who owe nothing federally still face a state estate tax bill, particularly those with a paid-off home, a cabin, and retirement savings.
The gift tax
The federal gift tax applies to transfers during life and shares a single lifetime exemption with the estate tax. Most gifts never touch it because of the annual exclusion, which is $19,000 per recipient in 2026 ($38,000 for a married couple giving together). Direct payments of tuition or medical expenses to the provider are excluded without limit. Gifts above the annual exclusion require a gift tax return (Form 709) but rarely result in tax; they simply reduce the exemption available at death. Minnesota has no gift tax, subject to the three-year add-back described above.
The generation-skipping transfer tax
The generation-skipping transfer tax (GST tax) is a separate flat tax at the top estate tax rate on transfers to grandchildren or more remote descendants, or to trusts for their benefit, designed to keep families from skipping a generation of estate tax. Each person has a GST exemption equal to the federal estate tax exemption. Properly allocating that exemption to a long-term trust lets it pass through multiple generations free of transfer tax.
Planning strategies
- Credit shelter trusts for married couples, which preserve the first spouse's Minnesota exemption since the state does not allow portability.
- Annual exclusion gifting to children and grandchildren, outright or through custodial accounts, 529 plans, or trusts.
- Irrevocable life insurance trusts to keep death benefits out of both estates.
- Charitable planning, including donor-advised funds and charitable remainder trusts.
- Qualified personal residence trusts and valuation-discount planning for cabins, farms, and closely held businesses.
Thresholds change with legislation and inflation adjustments. We review the current figures with every client and revisit plans when the law moves.
Common questions
Will my family owe estate tax?
At the federal level, only if your estate exceeds the current exemption. At the Minnesota level, the $3 million threshold is reached by many ordinary households once home equity, retirement accounts, and life insurance are added together. A simple asset review answers the question.
Do beneficiaries pay tax on what they inherit?
There is no inheritance tax in Minnesota or federally; the estate pays any estate tax. Beneficiaries do pay income tax on withdrawals from inherited retirement accounts.
Do I have to file a return for gifts to my children?
Only if a gift to one person in a single year exceeds the annual exclusion amount. Filing preserves the record; tax is almost never due.
What is the difference between estate tax and probate?
Probate is the court process for transferring property; estate tax is a tax on the value transferred. An estate can avoid probate entirely and still owe estate tax, or go through probate and owe none.
This page is general information about Minnesota and federal law as it relates to estate, gift & gst taxes. It is not legal advice for your situation. Laws and tax thresholds change; confirm current figures with the office before acting.