The New Federal Estate Tax Law: Why Minnesota Farmers Still Need to Plan Ahead

What does passage into law of the One Big Beautiful Bill Act mean for Minnesota farmers?

• The new federal law sets a $15 million estate tax exemption ($30 million for married couples).
• Minnesota’s exemption remains just $3 million per person, with no portability and no inflation adjustment.
• Minnesota farmers with land and equipment worth over $3 million are likely subject to state estate taxes.
• Credit shelter trusts and Minnesota’s farmland deduction (up to $2 million) can help reduce or eliminate estate tax exposure.
• Without planning, families may lose exemptions and face unnecessary taxes.

Does the New Federal Law Eliminate Estate Taxes?

On July 4, 2025, the president signed the One Big Beautiful Bill Act, making permanent the highest federal estate tax exemption ever: $15 million per individual, or $30 million for married couples using portability.

This is a huge relief compared to what was scheduled. Without this law, the exemption would have dropped to around $7 million per person in 2026, potentially triggering massive estate tax bills at the federal level.

But here’s the truth: Minnesota sets its own estate tax rules—and they are far less generous.

What Is Minnesota’s Estate Tax Exemption?

Unlike the federal government, Minnesota has not raised its exemption in years.

• Minnesota exemption: $3 million per person
• No portability: If the first spouse doesn’t use it, the exemption is lost forever
• No inflation adjustment: The $3 million cap isn’t rising any time soon

This means that many Minnesota farmers with even modest-sized operations are well above the state exemption limit.

How Do Minnesota Farmers Get Caught?

Let’s look at a real-world example:

• 800 acres of farmland @ $10,000/acre = $8 million
• Grain inventory = $1 million
• Equipment & machinery = $1 million

Total estate value: $10 million

• Federal estate taxes? None (under the new $15 million exemption).
• Minnesota estate taxes? Yes—on everything over $3 million.

Without planning, families often lose the first spouse’s exemption due to the marital deduction, doubling their tax exposure later.

What Planning Strategies Protect Minnesota Farmers?

The good news is that Minnesota law gives farmers options—if they plan ahead.

1. Credit Shelter Trust
   • Preserves the first spouse’s $3 million exemption.
   • Keeps assets outside the surviving spouse’s taxable estate.
2. Minnesota Farmland Deduction
   • Up to $2 million deduction for qualifying farmland.
   • Requirements:
     • Must have owned property for at least 3 years
     • Must be classified as agricultural homestead
     • Must stay in farming use for 3 years after death

Together, these strategies can shield up to $5 million per death ($3M exemption + $2M farmland deduction). With proper planning, that protection can be doubled for a married couple.

Why Complacency Is Dangerous

Many farmers hear about the federal exemption and assume they’re in the clear. Unfortunately, Minnesota’s rules tell a very different story.

• If your estate is worth more than $3 million, you’re exposed.
• If you own a family farm, land values alone likely push you over the threshold.
• Without a credit shelter trust, you may lose exemptions forever.

Bottom Line for Minnesota Farmers

The One Big Beautiful Bill Act ensures stability at the federal level, but Minnesota families must look closer to home.

✅ Federal exemption: $15 million (or $30 million for couples)
✅ Minnesota exemption: $3 million, no portability, no inflation adjustment
✅ Farmland deduction: Up to $2 million if you qualify
✅ Best defense: A tailored estate plan with trusts and farmland protections

Final Word

Don’t let the federal law lull you into a false sense of security. If you’re a Minnesota farmer, your estate almost certainly exceeds $3 million. With the right plan, you can protect your farm, preserve family wealth, and ensure a smooth succession to the next generation—without losing money unnecessarily to state estate taxes.

To learn more about farm succession and estate planning, keep an eye on our Events page located at: https://www.wagnerlegalmn.com/events/ and visit Farm Lawyer.

If you’re ready to start being proactive about your estate plan, contact us to get started.

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