How Minnesota Farmers Can Use the Annual Gift Tax Exclusion in 2025 — And Why It Matters

As we get ready to step into another year in Minnesota, it’s worth revisiting one of the simplest — and most overlooked — strategies available to farm families: the annual gift tax exclusion. Many farmers come into my office convinced they can’t give cash, machinery, land interests, or other farm assets to their children without paying gift tax. Fortunately, that’s usually not true. When used correctly, the annual exclusion can quietly move significant value off your balance sheet while reducing future Minnesota estate tax liability.

Understanding the Annual Gift Tax Exclusion

For 2025, the annual exclusion allows you to give $19,000 per recipient every year without triggering federal gift tax and without using any of your lifetime federal exemption. Your spouse can do the same, and there is no limit to how many people you can gift to. For a married couple, that means $38,000 per child each year. If that child is married, the couple can receive $76,000 annually — entirely tax-free.

This applies to cash, stock, machinery valued under $19,000, gifted-down purchase price adjustments, and ownership units in LLCs, partnerships, or farm entities. For many Minnesota farmers, this is the easiest way to start shifting value to the next generation while also shrinking what may eventually become a taxable estate.

A Powerful Strategy: The December–January Gift “Double Up”

Timing matters. Because the exclusion resets each calendar year, farmers can make a gift on December 31 and another on January 1 — and those qualify as two separate annual exclusions. For parents with two married children, this can mean moving $76,000 on December 31 and another $76,000 on January 1, for a total of $152,000 in 24 hours. Add grandchildren to the mix, and the numbers grow quickly. Ten grandchildren alone create $190,000 in annual tax-free gifting — double that if you use the December–January strategy.

Federal Gift and Estate Tax: Why Most Farmers Don’t Need to Worry

While the federal government does impose a gift tax, most farmers will never come close to owing it. The federal estate and gift tax exemption is unified, meaning you can use it during life or at death. In 2025, that exemption is $13.99 million per person, increasing to $15 million per person on January 1, 2026. For a married couple, that means a combined exemption of $30 million starting in 2026. Annual exclusion gifts do not use any portion of this exemption, which means you can continue gifting $19,000 per recipient each year without reducing your federal cushion.

The Minnesota Estate Tax: Why Annual Gifting Matters Even More

Minnesota is one of the few states with its own estate tax, and the rules are not as generous as the federal system. Minnesota has a $3 million exemption per person, a tax rate that climbs as high as 16%, and a three-year lookback for taxable gifts. However — and this is essential for farm families — Minnesota never pulls annual exclusion gifts back into the estate.

A properly structured $19,000 gift to a child, or a $76,000 gift to a married child from both parents, is permanently removed from the estate. If those assets remain in a parent’s name at death and the estate is taxable, they could be subject to up to 16% Minnesota estate tax. By making annual exclusion gifts early and consistently, farm families can remove value every year without triggering the lookback and without affecting the estate tax exemption.

This is why we encourage clients with possible estate tax exposure to make these gifts early in the year — and not skip a single year.

What Minnesota Farmers Can Gift

Farm families have many options beyond simply writing a check. A piece of machinery valued at $19,000 or less can qualify. Land interests can be transferred through units of an LLC or partnership. Ownership interests in a dairy herd or livestock operation can be moved through entity structures or partial interests. For grandchildren, gift trusts allow substantial gifting while holding the assets until they reach a responsible age, such as 25 or 30.

These tools give farmers the ability to gradually transfer valuable assets without disrupting operations or triggering unintended tax consequences.

Why Annual Gifting Is Essential for Farm Succession Planning

Annual exclusion gifting is one of the most consistent and effective ways to reduce Minnesota estate tax exposure while transferring ownership to the next generation. It helps prevent a large “wall of value” from accumulating in the parents’ estate. It works seamlessly with LLCs, family limited partnerships, and gift trusts. Most importantly, it helps ensure that when the time comes, the family farm does not face a burdensome tax bill that threatens its continuity.

Over time, these annual gifts create meaningful progress — even though they never touch your federal lifetime exemption.

Work With a Farm-Focused Estate Planning Attorney

The annual gift tax exclusion becomes even more powerful when coordinated with a full estate plan — especially when combined with Minnesota’s unique rules and the $2 million Family Farmland Deduction. At Wagner Oehler, Ltd., our attorneys help Minnesota farm families structure strategic gift plans, organize farm entities, protect farmland, navigate Minnesota estate tax, and set up trusts for children and grandchildren. You can work with any attorney on our team.

Ready to Protect Your Farm and Reduce Future 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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