When you think about leaving property to your loved ones, you may worry about taxes on their inheritance. It is a common concern, but in reality, most estates never pay federal estate tax, and Minnesota heirs do not face inheritance taxes at all.
The rules vary depending on the type of property, but the truth is simple: taxes are rarely the barrier people imagine.
That does not mean you should skip estate planning. Even when taxes are not an issue, you still benefit from creating a clear, attorney-guided plan that protects your family and organizes your affairs.
Federal Estate Taxes: Who Is Affected?
The federal estate tax only applies to very large estates. In 2025, the exemption is $13.99 million per person. If your estate is worth less than that amount, no federal estate tax is owed.
For married couples, the combined exemption is nearly $28 million because of portability between spouses.
Clearly, just a small fraction of estates in the United States are subject to the federal estate tax, so you can probably breathe a sigh of relief on that level.
Minnesota Estate Tax Rules
Minnesota is one of 12 states with its own estate tax. The exemption is $3 million per person in 2025, significantly lower than the federal figure. If your estate exceeds that amount, the excess may be taxed at rates between 13% and 16%.
Many households in Oakdale have estates below this level, even when including a home, retirement accounts, and life insurance. Still, if you own multiple properties, a farm, or a substantial investment portfolio, the Minnesota estate tax could apply.
Inheritance Taxes
An inheritance tax is different from an estate tax. With an inheritance tax, the person receiving the property pays the tax based on the size of their inheritance and their relationship to you.
Minnesota does not impose an inheritance tax, and there are just five states with this type of tax: New Jersey, Pennsylvania, Maryland, Kentucky, and Nebraska. However, if you are a Minnesotan and you inherit property in one of these states, the tax there would apply.
Income Taxes
Generally speaking, inherited property is not considered to be taxable income. One exception would be distributions of untaxed trust earnings. Retirement accounts are another key exception:
- Traditional IRAs and 401(k)s: When your heirs withdraw money, they pay ordinary income tax on the distributions. The SECURE Act 2.0 requires most non-spouse heirs to withdraw the entire balance within 10 years of your death.
- Roth IRAs: Withdrawals are generally income-tax-free, though most non-spouse heirs still must withdraw the funds within 10 years.
Gift Taxes and Lifetime Transfers
You may have heard of gift taxes and wondered if they apply when you transfer money during your lifetime. Usually, the answer is no because the gift tax is unified with the estate tax. The $13.99 million exclusion applies to large lifetime gifts along with your estate.
Plus, there is a $19,000 per person annual exclusion. You can give this much to unlimited gift recipients each year, free of taxation, without using any portion of your large unified exclusion.
Estate Planning Still Matters
You may be relieved to learn that taxes will probably not be a problem for your heirs. But that does not mean you can ignore estate planning. The true value lies in the clarity and protection planning provides:
- Probate avoidance: A revocable living trust keeps your estate out of Washington County probate court and provides privacy.
- Guardianship for children: Your will lets you nominate who will care for your children if something happens to you.
- Trusts for heirs: Instead of leaving money outright to an 18-year-old, you can structure a trust to provide oversight and staged distributions.
- Incapacity planning: Powers of attorney and health care directives allow trusted individuals to act if you cannot.
- Digital assets: Online accounts, photos, and financial tools need to be part of your plan.
Professional guidance helps you create a plan that works for your life, not just your tax picture.
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There is no charge, and you don’t have to go anywhere to take advantage of the opportunity. To learn more and obtain registration information, visit this page: Oakdale, MN estate planning webinars.
We Are Here to Help!
If you’re ready to work with Oakdale, MN estate planning lawyer to put a plan in place, our doors are open. There is no one-size-fits-all estate plan right for everyone, so personalized attention is key. This is exactly what you will receive when you work with our firm.
To get started, send us a message or give us a call at 651-478-8999. And if you would like to learn more about us before you take that step, check out our client reviews.
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