Purpose

• Create a ten-year phaseout of Minnesota's estate tax. The bill would gradually reduce estate tax rates beginning July 1, 2025, with the goal of eliminating the estate tax by 2034.

What the bill changes and why

• It keeps the basic idea of Minnesota’s estate tax but makes the tax go away over time.
• It changes how much tax is charged by tying Minnesota’s tax to a ratio that compares Minnesota assets to federal assets, using specific gifts and situs rules. This means the tax depends on both Minnesota-only values and federal values, with adjustments for gifts and where assets are located.

How the tax is calculated (key method)

• The tax amount is computed by applying a schedule of rates to the Minnesota taxable estate, then multiplying that resulting amount by a fraction not greater than one. The fraction’s:
  • numerator = value of the Minnesota gross estate plus the value of gifts with Minnesota situs (under section 291.016 subdivision 2 clause 1)
  • denominator = federal gross estate plus the value of gifts (under section 291.016 subdivision 2 clause 3)

Brackets and rates (two sets, with dates)

• For estates of decedents dying in 2017:

  • Brackets start at not over $5,100,000, with increasing rates up to higher brackets.
  • Example style of structure (rates and bases shown in the bill):
  • Not over 5,100,000: 12% (base amount and adjustments listed)
  • Over 5,100,000 but not over 7,100,000: higher rate with a base amount plus a portion of the excess
  • Over 7,100,000 but not over 8,100,000: next rate tier
  • Over 8,100,000 but not over 9,100,000: next rate tier
  • Over 9,100,000 but not over 10,100,000: next rate tier
  • Over 10,100,000: top rate tier
  • The bill provides specific base tax amounts and the percentage of the excess to apply for each bracket (e.g., base amounts around $612,000, $868,000, $1,004,000, $1,148,000, and $1,300,000 with incremental percentages like 12.8%, 13.6%, 14.4%, 15.2%, and 16%).

• For estates of decedents dying in 2018 and thereafter:

  • Brackets begin at not over $7,100,000 and proceed in $1,000,000 increments up to the top bracket.
  • Example structure (rates and bases shown in the bill):
  • Not over 7,100,000: 13% (base amount about $923,000) plus 13.6% of the excess over 7,100,000
  • Not over 8,100,000: 13.6% (base about $1,059,000) plus 14.4% of the excess over 8,100,000
  • Not over 9,100,000: 14.4% (base about $1,203,000) plus 15.2% of the excess over 9,100,000
  • Not over 10,100,000: 15.2% (base about $1,355,000) plus 16% of the excess over 10,100,000
  • Over 10,100,000: 16% (base amount about $1,355,000) plus 16% of the excess over 10,100,000
  • These numbers show a progressive tax that increases with larger estates, with explicit base tax amounts and incremental percentages.

• Phaseout timing:

  • Beginning July 1, 2025, and each July 1 thereafter through June 30, 2034, the commissioner must reduce the rates in the schedule by 1.6 percentage points per year until every rate reaches zero.
  • If a rate would drop below zero, the rate is set to zero, and the corresponding bracket amounts are reduced accordingly so nothing goes negative.

Significant changes to existing law

• Introduces a formal, ten-year plan to phase out Minnesota’s estate tax entirely.
• Maintains a calculation method that uses a ratio of Minnesota assets to federal assets, but with annual rate reductions toward zero.
• Keeps the statutory structure with defined bracket thresholds and base amounts, but ties them to a scheduled, gradual decline instead of remaining fixed.
• Sets a clear schedule for rate reductions to zero by 2034, with adjustments to bracket amounts as rates fall.

Potential impacts (general sense)

• Estate tax liability for Minnesota decedents would decrease each year from 2025 onward, eventually reaching zero by 2034 if the phaseout proceeds as scheduled.
• Taxpayers with estates that span Minnesota and other states or components of the federal estate could see changes in how Minnesota taxes their estate due to the ratio-based calculation.

Relevant Terms estate tax; Minnesota estate tax; Minnesota taxable estate; Minnesota gross estate; federal gross estate; gifts; section 291.016; Minnesota situs; fraction (numerator/denominator) in tax calculation; rates; brackets; not over; July 1, 2025; July 1, 2034; phaseout; 1.6 percentage points; commissioner; percentage of excess; base tax amounts; decedents dying in 2017; decedents dying in 2018 and thereafter.