What Farmers Need to Know About the Changing Estate Tax Landscape

Estate taxes are a topic most people would rather avoid—but for farmers, understanding how these taxes work is critical to protecting the family farm and ensuring a smooth succession to the next generation.

There are big changes coming at the federal level, and those shifts—combined with existing state-level rules—make now an important time to review your estate plan.

What’s Happening with the Federal Estate Tax?

Currently, the federal estate tax only applies to estates valued over $13.99 million per individual, or $27.98 million for a married couple, thanks to a temporary bonus exemption. However, that exemption is set to sunset on December 31, 2025.

If Congress doesn't act, the exemption will be cut roughly in half, dropping to around $7 million per person. Fortunately, recent legislation aims to avoid that scenario. If passed, the new law will set a permanent exemption amount of $15 million per person starting January 1, 2026. This figure will adjust annually for inflation, offering greater predictability for long-term planning.

The new structure simplifies things by wiping the slate clean. Rather than navigating the complicated interplay between a “bonus exemption” and a “permanent exemption,” taxpayers will be working from a single, unified $15 million exemption moving forward.

What If You Already Used Your Exemption?

If you’ve made large lifetime gifts to lock in the current exemption, those amounts will still count against your future total. For example, if $13 million was gifted in 2024, the remaining exemption after January 1, 2026, would be $2 million (plus future inflation adjustments).

What About the Minnesota Estate Tax?

Farmers in Minnesota face an entirely different set of rules at the state level. Minnesota imposes a state estate tax on estates over $3 million, with no inflation adjustment. However, Minnesota offers an additional $2 million deduction for qualified farms and small businesses. Qualifying for this deduction requires proactive planning and correct structuring—without it, your estate could face a significant tax burden. This YouTube Video explains how you may qualify.

Unlike the federal exemption, Minnesota’s estate tax is not portable between spouses. That means couples need to carefully balance their asset ownership. If one spouse holds all the assets and passes away first, the surviving spouse may not be able to use the deceased spouse’s $3 million exemption. To protect both exemptions, it’s essential to split ownership and use tools like credit shelter trusts.

Also important: while Minnesota does not have a gift tax, it does have a three-year look-back period. Gifts made shortly before death can be pulled back into the taxable estate—so timing and strategy matter.

What This Means for Your Farm Succession Plan

The changes at the federal level offer a bit of breathing room, but they don’t eliminate the need for careful planning—especially in Minnesota. Even small to mid-sized farms may exceed the state’s low exemption threshold. Without the right planning in place, that could translate into estate taxes that chip away at the legacy you’re working to preserve.

Succession planning isn’t just about reducing taxes—it’s about making sure the transition is smooth, intentional, and aligns with your family’s goals.

If you own a farm in Minnesota or another state with its own estate tax, now is the time to revisit your estate plan and make sure it’s structured to take full advantage of current and upcoming tax rules. Solid legal advice, especially from someone experienced in agricultural estates, can make all the difference.

Need help navigating this complex landscape? The right planning today can protect your legacy tomorrow. If you’re ready to start being proactive about farm succession and your estate plan, contact us to get started.

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

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