Taxation types

Every state has their own tax system, raising revenue for state purposes. States raise revenue by incorporating their own ratio of income tax, property tax, sales and use taxes, estate tax and inheritance tax.

If you are choosing between states you would otherwise like to live in (for employment, retirement, family, or weather purposes), you can leverage your own costs living in a state by looking at how that state raises revenue, to see what kind of tax impact living there would have on you year after year.

For example, in Texas the average 2017 property tax bill was $4,660, but they have no state income tax. That makes Texas a relatively expensive state to live in in retirement, but a relatively inexpensive state to live in while working.

Estate and inheritance taxes

But then at death, your assets may be taxed as well. The below Tax Foundation map is a great resource to know whether your state assesses a tax on an estate, or an inheritance.

Estate taxes are taxes owed if the dead person is a resident of that state. Inheritance taxes are owed if the beneficiary/inheritor is a resident of that state. So if the deceased was a resident of Minnesota, and the inheritor is a resident of Nebraska, the inheritance amount would be taxed both way. Where as if the deceased was a resident of Nebraska and the inheritor is a resident of Minnesota, the inheritance would not be taxed at all.

Inheritance taxes usually begin at dollar 0, there is no excluded amount. Where as estate taxes do tend to have an exemption amount, a dollar threshold that has to be passed before any percentage taxes are owed.

Of course, no matter your state of residence there is a federal estate tax. The federal estate tax exemption amount for 2024 is just over $13.6M.

What are the Minnesota specifics?

For a deceased resident, their executor will need to make sure estate tax form M706 (instructions, form) is filed. In Minnesota, the 2023 exemption amount for individuals is $3M. After that exemption amount, tax rates are 13-16% of the estate value. Deceased non-residents who held Minnesota property will also need their executor to file and pay estate taxes too. There are different thresholds if the deceased had a small business or farm property.

When filing form M706, additional documents will need to be attached. Unlike your standard income taxes’ W2’s, for an estate return you will need to include (but are not limited to):

• a copy of the federal tax return document 706 and schedules,
• copies of documents that list assets and prices/balances,
• and a copy of the death certificate.

Future changes

If you are looking at potential future estate taxes, it can be useful to look at historical values. Here are the Minnesota and federal filing requirement minimums for 2007-2021. The federal amounts are currently approximately double what they had been pre-Tax Cuts and Jobs Act, which are currently scheduled to sunset after 2025. Minnesota exemption amounts aren’t impacted by the TCJA.