Treating You With Respect
And Honesty

When are estate taxes a concern for Minnesota estates?

On Behalf of | Jul 8, 2024 | Probate

The probate process involves securing a deceased individual’s assets and fulfilling their obligations. The personal representative of a Minnesota estate has a long road ahead of them. They have to communicate with multiple different parties including beneficiaries and creditors. They also have to distribute someone’s resources in accordance with the law and the instructions provided in their estate plan.

Certain obligations take precedence over the inheritance of estate beneficiaries. Creditor claims generally require repayment before beneficiaries receive their inheritances. The personal representative also has to handle any remaining tax obligations.

There may be income taxes due from the decedent and from the estate itself in some cases. There could also potentially be estate taxes to pay. When are estate taxes a concern during Minnesota probate proceedings?

Only large estates are subject to taxes

The average estate in Minnesota is not large enough for estate taxes to apply. However, the more property that someone has in their name when they die, the greater the chance that the government may demand a portion of their estate. The federal government collects an estate tax. So does the state of Minnesota. Some estates may have to pay both types of estate taxes.

Many estates could be subject to Minnesota estate taxes but not federal estate taxes. The Minnesota threshold for estate taxes is lower than the federal threshold. In 2024, an estate that is worth $3 million or more may have to pay estate taxes to the Minnesota state government. The tax rate ranges from 13% to 16%.

An estate has to be substantially larger than that to be at risk of federal estate taxes. In 2024, the federal threshold for estate taxes is $13.61 million. The greater the overall value of an estate, the higher the tax rate that applies. Both Minnesota and the federal government employ a progressive tax rate. The highest tax rate in Minnesota for estate taxes is 16%. The highest tax rate the federal government imposes is 40%. People may have to set aside more than half of the estate’s value for tax purposes.

Unfortunately, there is not much that the personal representative of an estate can do to eliminate estate tax obligations. The only way to prevent estate tax liability is through careful estate planning. The testator is potentially able to create plans that reduce their personal holdings and therefore reduce tax responsibilities as well.

Setting aside adequate resources to cover estate taxes is an important part of the Minnesota probate process. Personal representatives who learn about estate obligations are less likely to make mistakes that might lead to personal liability.