If you live in Minnesota, then you live in one of a handful of states that still collect a local death tax. The estates of Minnesota residents, as well as the estates of nonresidents who own real estate and/or tangible personal property and/or business interests located in Minnesota, are subject to a local death tax under the following guidelines.
NOTE: State and local laws change frequently and the following information may not reflect recent changes. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.
When is an estate subject to the Minnesota estate tax?
If the decedent was a resident of Minnesota at the time of death, the estate may be subject to the Minnesota estate tax if the federal gross estate exceeds $1,000,000 on the date of death or if the estate is required to file a federal estate tax return, IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.
For nonresidents of Minnesota, an estate may be subject to the Minnesota estate tax if it includes Minnesota sitused property and the federal gross estate exceeds $1,000,000 on the date of death or if the estate is required to file a federal estate tax return. Note that new legislation passed in late May 2013 and expected to be signed into law by Governor Mark Dayton will subject Minnesota property owned by an S corporation, partnership, LLC or a trust of which a nonresident is a shareholder, partner, member or beneficiary to the Minnesota estate tax.
What Minnesota estate tax forms must be filed?
The estate representative of an estate that is subject to the Minnesota estate tax must complete and file the Minnesota Estate Tax Return, Form M706.
Note that as indicated above, a Minnesota Estate Tax Return may be required to be filed even if a federal estate tax return, IRS Form 706, is not required to be filed. Thus, the estate representative must first complete IRS Form 706 for the year of death before completing Form M706.
Are transfers to a surviving spouse taxable?
Outright transfers to a surviving spouse are not taxable.
For married couples who have used AB Trust planning to reduce their federal estate tax bill, a Minnesota death tax may be due on the B Trust after the first spouse's death due to the gap of $4,250,000 between the Minnesota exemption of $1,000,000 and the 2013 federal exemption of $5,250,000. While some states allow a married decedent's estate to make an election to treat a trust of which the surviving spouse is the sole beneficiary as "qualified terminable interest property" ("QTIP" for short) for purposes of calculating the local estate tax, Minnesota law does not allow for this. Thus, married Minnesota residents cannot incorporate ABC Trust planning into their estate plans.
When are the Minneosta estate tax return and tax payment due?
The Minnesota Estate Tax Return, M706, must be filed, and any estate tax due must be paid, within 9 months after the decedent's date of death.
All estates are granted an automatic six-month extension of time to file Form M706. This means that a written request is not required to be submitted to the Minnesota Estate Tax Unit to request an extension to file. But regardless of whether or not IRS Form 706 is required to be filed, each estate has either 15 months from the decedent's date of death in which to file M706, or the maximum amount of time granted by the IRS in which to file IRS Form 706, whichever is longer.
There is no extension of time to pay the Minnesota estate tax allowed. Thus, any tax not paid by the regular due date will be subject to penalties and interest.
Where are the Minnesota estate tax return filed and tax payment made?
You can use one of the mailing labels provided in the instructions for Form M706 to mail your return and all required attachments to the Minnesota Department of Revenue.
If you choose not to use the label, mail your forms to:
Minnesota Estate Tax
Mail Station 1315
St. Paul, MN 55146-1315
Minnesota estate taxes can be paid electronically online or by check.
To pay electronically, login to e-services. Enter the decedent's Social Security number and follow the prompts for individuals to make an estate tax return or an extension payment. You will receive a confirmation number when your transaction is complete.
For payment by check, make the check payable to "Minnesota Revenue" and mail the check with the appropriate payment voucher. For a tax return payment (taxes due with Form M706), complete and attach the voucher Form PV47. For an extension payment, complete and attach voucher Form PV86. Follow the instructions on the voucher.
How is the Minnesota estate tax calculated?
Minnesota did not adopt the changes in the federal Economic Growth and Tax Relief Reconciliation Act of 2001. Thus, you must read the instructions for Form M706 for details on how to determine the federal gross estate and how to calculate the Minnesota estate tax. In addition, you must use the tax tables found in the Form M706 instructions and not the tables in the IRS Form 706 instructions in order to calculate the Minnesota estate tax due.
Also note that you can use the Minnesota Estate Tax Calculators for the applicable year of death provided on the Department of Revenue's website in order to verify that you have properly calculated the Minnesota estate tax due.
What is the Minnesota estate tax rate?
In general, a Minnesota estate will be subject to a tax of approximately 10%. However, the only way to calculate the exact amount of tax due is to complete the applicable IRS Form 706 and Minnesota Form M706.
Where can I find additional information about Minnesota estate taxes?
For more information about Minnesota estate taxes, refer to the Minnesota Department of Revenue's Estate Tax Frequently Asked Questions.
You may also call the Estate Tax Unit at 651-556-3075 between 8:00 a.m.- 4:30 p.m. Monday through Friday, or email the unit by following this link and clicking on "email" on the right hand side of the page: Estate Tax.
Does Minnesota collect an inheritance tax?
Does Minnesota collect a local inheritance tax, which is a tax assessed against the share received by each individual beneficiary of an estate as opposed to an estate tax, which is assessed against the entire estate? The answer to this question is No, Minnesota does not collect a local inheritance tax.