What is the difference between an estate tax and an inheritance tax, and what does Minnesota have?Back to top
Minnesota has an estate tax. The estate tax is a tax on all of the assets of a decedent before they are distributed to beneficiaries. If the estate meets the filing requirements, the estate pays this tax to the IRS and/or the state in which the decedent lived (prorated to any other states where the decedent had property). Many states have a threshold different from the federal level.
Minnesota does not have an inheritance tax. An inheritance tax is a tax on the beneficiaries of an estate (a tax on what you inherit). If you are a beneficiary, you generally do not have to include inheritance on your income tax return. However, you may have to pay income tax if you inherit an IRA/annuity, etc., which includes the decedent's pre-tax dollars. You should be notified by the estate if this is the case. The income tax is owed to the state in which the beneficiary lives (not the state where the decedent lived).
Additional information is available on our Estate tax page and on the IRS's website (see federal Publications 559 and 950).
Where can I find more information about being a personal representative?Back to top
How do beneficiaries calculate basis on inherited assets?Back to top
Under Minnesota Statutes, Chapter 290, Minnesota individual income tax uses federal taxable income as its starting point. Thus, basis for Minnesota purposes is the same as federal basis unless a Minnesota modification applies. Minnesota modifications are generally found in M.S. 290.01, subdivisions 19(a), 19(b) and 19(f). Unless a Minnesota modification applies, basis for beneficiaries on inherited assets is the same for Minnesota purposes as it is for federal purposes. This is true regardless of whether a Minnesota estate tax return is or is not required.
What is the filing requirement for estate tax in Minnesota?Back to top
If the decedent was a resident of Minnesota at the time of death
, the estate is required to file Form M706 if it meets at least one of the following requirements:
the gross estate exceeds the Minnesota minimum filing requirement on the date of death (see chart), OR
the estate is required to file a federal estate tax return (see chart).If the decedent was a nonresident of Minnesota
, the estate is required to file and pay Minnesota estate tax if the total federal gross estate meets the Minnesota filing requirement, and Minnesota situs property is included in the federal gross estate. PLEASE NOTE:
Minnesota did not adopt the changes in the federal Economic Growth and Tax Relief Reconciliation Act of 2001. Read the instructions for Form M706
for details on how to determine the federal gross estate and how to calculate the Minnesota estate tax. Use the tax tables found in the M706 instructions
and not the tables in the federal instructions.
You may use the estate tax calculator as a tool to verify if you have calculated the Minnesota estate tax correctly for the estate of a decedent.
* Dates of death in 2002: Minnesota filing requirement is determined using only the federal gross value of the estate (line 1 of the federal Form 706). Federal taxable gifts are not included in the calculation.
** Dates of death in 2003 and later: Minnesota filing requirement is met when either the federal gross value of the estate meets the Minnesota filing requirement OR if/when the estate is required to file a federal Form 706.
Are the rules the same for estates above and below the federal filing requirement?Back to top
No. There are some valuation methods and payment options not available to estates with a federal gross value under the federal filing requirement. These estates cannot use Alternate Valuation or Special Use Valuation. They can, however, use the closely held business discount available at the federal level.
The installment payment plan sometimes available for estates containing a family owned business (including farms) is not available to estates with a federal gross value under the federal filing requirement.
See Revenue Notice 06-04 for details.
When is the estate tax return and payment due?Back to top
The regular due date for filing Form M706 and paying the tax due is nine months after the decedent's death. There is an automatic six month extension to file. There is no extension for payment.
There is one exception to the filing deadline:
For decedents whose date of death is after Dec. 31, 2009 and before Dec. 17, 2010, a Minnesota Estate Tax return is due fifteen months after date of death or on September 19, 2011 (or the extended filing date as prescribed by the IRS), whichever is later. This is a filing extension only.
How do I request a filing extension?Back to top
Effective for estates of decedents who have died after December 31, 2008: All estates are granted an automatic six-month extension 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 (regardless of whether or not a federal return is required to be filed, the estate has 15 months from date of death to file the Minnesota M706 or the amount of time granted by Internal Revenue Service (IRS) to file the federal estate tax return, whichever is longer). However, any tax not paid by the regular due date is subject to penalties and interest.
Where can I find Form M706?Back to top
You can download Form M706 and instructions from our website.
If you also need federal forms, you can find federal estate tax information, including links to federal Form 706 and instructions, on the IRS website.
What are my payment options?Back to top
Estate tax 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.
If you pay by check, make your 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.
Can the estate pay Minnesota tax in installments?Back to top
The estate may pay the Minnesota estate tax in installments if all of the following conditions are met:
- The IRS, under Internal Revenue Code (IRC)sections 6161 or 6166, has granted the estate an extension of time to pay the federal estate tax,
- The Minnesota estate tax is $5,000 or more,
- The executor sends a letter to the department, no later than nine months after the decedent's date of death of the decedent, indicating the estate will pay the Minnesota tax in installments and the dates the payments will be made. (The dates must be the same as the dates on which the federal estate tax installments will be made.)
- The installments— not including interest owed — are made in equal amounts.
Even if you pay the tax in installments, you must pay interest on any tax that remains unpaid after the regular due date. To determine the amount of interest to include with each installment, follow the steps in the M706 instructions
What penalties apply if I can't pay the total Minnesota estate tax on time?Back to top
Late payment. If you're not paying estate tax in installments, a 6 percent late payment penalty will be assessed on any tax not paid by the regular due date. If you file your return after the due date with a balance due, an additional 5 percent penalty will be assessed on the unpaid tax.
To avoid a late payment penalty, you must pay at least 90 percent of the total Minnesota estate tax by the regular due date and file Form M706 and pay the remaining tax due no later than 15 months after the decedent's death (six months after the regular due date).
Federal extension for paying tax. If you received an extension to pay federal estate tax or you have properly elected to pay federal estate tax in installments, you will not be assessed a late payment penalty on any Minnesota tax not paid by the regular due date. Attach to your Minnesota return a copy of the federal approval for extending payment of tax.
Late filing. If you file the return after the regular or extended due date, a 5 percent late filing penalty will be assessed on the unpaid tax.
Criminal penalties also apply if you willfully fail to file a return in order to evade paying the tax, or if you file a fraudulent return in order to evade paying all or part of the tax.
How is interest calculated?Back to top
Interest is calculated as simple interest and accrues on unpaid tax and penalties beginning nine months from the decedent's date of death. Interest will be charged even if the deadline for filing the return has been extended or the tax is being paid under an installment plan.
The rate of interest may change from year to year (see the interest rates for each year since 1991).
What is the estate tax rate?Back to top
The following table is ONLY a guide, showing the top and bottom tax rates by year applicable to Minnesota estate tax. (A similar table used to compute an individual income tax liability is not available.)
To correctly calculate the estate tax, you must complete the federal Form 706 and Minnesota Form M706.
Large estate percentages go higher.
Closing letter, does Minnesota issue one?Back to top
Every estate tax return filed with the Minnesota Department of Revenue is issued a Notification of Closed Estate File. This document is sent to the personal representative or the individual/firm designated as Power of Attorney. If the estate is required to file federal Form 706 with the IRS, the Minnesota Notification of Closed Estate File will not be issued until the department receives a copy of the federal closing letter and/or federal audit report. (If the IRS issues an audit report, you must file an amended Minnesota Form M706 to reflect the federal changes.)
Where do I send a copy of the federal closing letter and/or audit report?Back to top
Mail a copy of the federal closing letter and/or audit report to:
Mail Station 5140
600 North Robert Street
St Paul, MN 55146-1315
Does Minnesota issue Inheritance Tax Waivers/Clearances?Back to top
No. The Minnesota Department of Revenue does not issue "Inheritance Waiver/Clearance" letters. The inheritance tax was repealed effective December 31, 1979.
Does Minnesota require an Inheritance Tax Waiver?Back to top
No. Minnesota does not require a waiver for transfer of stock certificates, insurance policies or retirement plans.