Why Minnesota Farm Families Can’t Rely on a $6 Million Estate Tax Exemption

In Minnesota, the estate tax exemption for 2025 is $3 million per person. That means when someone passes away, the value of their estate—land, equipment, savings, crops, and more—is calculated. If the total exceeds $3 million, estate taxes may apply. But here’s where many families get caught off guard: married couples do not automatically get to combine their exemptions into a $6 million shield.

This is a critical detail for Minnesota farm families. If you assume that your estate will be protected just because it’s under $6 million combined, you could be setting your family up for an unexpected tax bill.

Understanding the Unlimited Marital Deduction

When one spouse passes away, anything left to the surviving spouse is protected by what’s called the unlimited marital deduction. That means no estate tax is due at that point—whether the estate is worth $3 million or $30 million. But here’s the problem: assets that pass directly to the surviving spouse do not use up the deceased spouse’s $3 million exemption. And in Minnesota, you can’t carry over an unused exemption.

So, if you leave everything to your spouse, the deceased spouse’s exemption is lost. At the surviving spouse’s death, only their $3 million exemption is available—unless you planned ahead.

How to Capture Both Spouses’ Exemptions

With thoughtful planning, it’s possible to protect more than just $3 million. The key is to use the first spouse’s exemption when they pass by setting up a trust that keeps those assets out of the surviving spouse’s taxable estate.

Here’s how it works:

• When the first spouse dies, up to $3 million of their assets are placed into a trust (often called a credit shelter or bypass trust).
• The surviving spouse can still access income and, if necessary, principal—but they don’t own the assets.
• Because those assets never pass directly to the surviving spouse, the deceased spouse’s exemption is fully used.

And when the surviving spouse later passes, their own $3 million exemption can be used as well.

Layer in the Family Farmland Deduction

Minnesota also offers a valuable tool called the Family Farm Deduction, which can protect up to an additional $2 million of qualified farmland. With the right planning, this means a couple could potentially shield up to $10 million from estate taxes—rather than just $3 million.

But this level of protection doesn’t happen automatically. It requires intentional planning before either spouse passes away.

If you want to explore how these strategies can help your family and your farm, visit www.farmlawyer.com for more resources and guidance.

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

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

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