Minnesota Estate Taxes: What Non-Residents Need to Know about Owning Property in MN
Minnesota’s estate tax laws can surprise even seasoned investors—especially those who split time between states. Learn how your estate could be affected and what you should know to protect your heirs and legacy.
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This discussion is with Vector’s Managing Director, Sharon Calhoun.
Overview
If you own property in Minnesota but live elsewhere, you could face estate tax liabilities.
Let’s say you live in Florida but own property in the great state of Minnesota—perhaps a summer cabin or second home—understanding Minnesota’s estate tax laws is crucial for your financial planning.
In this week’s Well Balanced podcast episode, Vector’s Managing Director, Sharon Calhoun discusses estate taxes and what out-of-state property owners need to know.
Minnesota is one of only a dozen states that still impose a state-level estate tax, with an exemption of just $3 million (as of 2025). This is significantly lower than the federal exemption of $13.9 million, meaning many families who wouldn’t owe federal estate tax could still face a substantial Minnesota tax bill. Tax rates range from 13% to 16%, and the state’s overall tax burden is among the highest in the nation.
Even if you’re domiciled in a tax-friendly state like Florida, your Minnesota-based assets may be subject to this tax. The calculation is pro-rated: the tax is first determined as if you were a Minnesota resident, then adjusted based on the proportion of your estate located in Minnesota.
Key considerations include the lack of portability for married couples, the inclusion of certain gifts made within three years of death, and the treatment of property held in entities like LLCs.
Estate planning in this environment is complex, but proactive strategies can help minimize surprises for your heirs. If you think these rules may affect you or your family, please reach out to your Vector Wealth Management advisor for personalized guidance.
Chapters
0:00 Introduction
0:25 Who Is Affected?
1:22 Minnesota’s Estate Tax
2:17 Comparing State & Federal
3:16 Out-of-State Owners
4:35 How the Tax Works
6:00 Key Planning Considerations
9:21 Regulatory
Transcript
Are you someone who is a resident, or in other words, domiciled in another state, but you own property here in Minnesota? I typically see this when someone is originally from Minnesota but has retired to a warmer southern state, yet keeps a residence here in Minnesota for the summer months.
If this sounds like you, listen up, because this podcast is for you. If you have not figured it out by now, I am going to be talking about Minnesota Estate Tax. I am Sharon Calhoun, Managing Director at Vector Wealth Management. I was recently in a client meeting where an important topic came up, and I thought I would share it with you. Minnesota stands out as an especially tax-heavy state when it comes to both estate and income taxes.
Minnesota is one of only a dozen U.S. states that still impose a state estate tax on top of the federal estate tax. If you are a Minnesota resident and pass away with an estate over $3 million, your estate will owe Minnesota Estate Tax on the amount above that threshold. The tax rates usually range from about 13% up to about 16%. By comparison,
The federal estate tax exemption is roughly $13.9 million as of 2025, and then imposes about a 40% tax on the excess. Minnesota's exemption is much lower, meaning that many moderately wealthy families get hit by state death taxes that they would not face federally. This is why Minnesota is often cited as having one of the least favorable estate tax laws for high-net-worth individuals.
And of course, beyond estate tax, Minnesota residents also face high income taxes during life. Minnesota state income tax has four brackets, topping out at about 9.85%, one of the highest rates in the nation. By contrast, for example, Florida imposes no state income tax at all. So for a wealthy individual, Minnesota's nearly 10% income tax can cost six or seven figures annually, which is a major incentive to relocate. Minnesota also levies hefty property taxes in certain counties and has a state sales tax, sometimes about 7%. The overall tax burden in Minnesota consistently ranks among the highest.
Now that I have given you some background on Minnesota tax, let’s talk about my scenario. If you are a permanent Florida resident, or a permanent resident of any other state who owns property in Minnesota, your estate could be subject to Minnesota estate tax, even though, for example, Florida does not have a state estate tax.
The tax is going to be calculated on the value of your Minnesota-based assets if your total federal gross estate exceeds Minnesota’s $3 million exclusion amount. In legal and financial context, when I say domicile, that refers to your permanent legal home, while a residence is simply a place where you happen to be living at a particular time.
So when I refer to a resident of Florida, I am referring to Florida as their permanent domicile. Let’s talk about some key Minnesota estate tax rules. First of all, a non-resident estate is required to file a Minnesota estate tax return and may actually owe tax if you own real estate or tangible personal property in Minnesota.
Second, if you have a federal gross estate—which includes assets everywhere, not just in Minnesota—that is larger than Minnesota’s $3 million exclusion amount, you may owe tax. So how is this tax calculated? Let me explain this first, and then I will walk you through an example. The tax is not calculated solely on the value of the Minnesota property.
Rather, the total estate tax liability is determined by a pro-rated formula. There are two steps to this calculation. Step one: the estate tax is calculated as if the decedent were a Minnesota domiciled resident with their entire estate. Step two: a fraction is determined—the numerator is the value of the Minnesota property, and the denominator is the total federal gross estate. Finally, the tax from step one is multiplied by the fraction from step two to find the total Minnesota estate tax due.
Let me now give you an example calculation. Suppose a Florida resident dies with the following assets: a Florida home and other assets valued at $4 million, and a Minnesota cabin valued at $1 million. So you would have a total federal gross estate of $5 million.
You have $4 million in Florida, plus $1 million in Minnesota. Here’s how the Minnesota estate tax would be calculated. You calculate the tax as a resident, so you take a $5 million estate, which is $2 million over the $3 million Minnesota exemption amount. The tax on that amount, using Minnesota’s progressive tax rates, would be calculated.
In my example, that is going to be $299,000. Next, you determine the Minnesota property fraction: the value of the Minnesota cabin, which in my example is $1 million, divided by the total federal gross estate of $5 million, resulting in a fraction of one-fifth, or 20%. So how much tax is now owed to Minnesota?
The tax calculated is, again, as if you were a resident. You take that $299,000 and multiply it by the Minnesota property fraction, which in my example is 20%. That results in a Minnesota estate tax liability of $59,800. That may be a surprise to many of you, but here are a few other important considerations.
There is no portability in Minnesota, so Minnesota does not allow married couples to combine their estate tax exemptions. Unlike the federal estate tax, this makes proper planning critical for couples who own assets above that $3 million threshold.
Another consideration is gifts made before death. Any gifts exceeding the annual federal gift tax exclusion, which is $19,000 for 2025, that are made within three years of death, must also be included in the Minnesota taxable estate.
Lastly, entity ownership: if the Minnesota property, for example, is owned through a pass-through entity like an LLC or an S-corp, the Minnesota Department of Revenue will disregard the entity and treat the decedent as if they personally owned the property.
I know that was a lot of information, so if you think this pertains to you or someone you know who could benefit from our services, please reach out to Vector. We know this is a very complicated topic, but I wanted to make our listeners aware of this today because I think a lot of times this ends up being a surprise—not for you, but usually for your heirs.
Until next time, stay safe and be well.
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Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for any individual. This material is not intended as, nor should it be relied upon for, tax, legal, or accounting advice. Always consult your own tax, legal, and accounting advisors before making decisions or implementing strategies. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance. Investments involve risk and unless otherwise stated, are not guaranteed.
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