Why Minnesota Farms Still Face Estate Tax Risk in 2026

If you own farmland in Minnesota, you need to understand what changes in 2026 and what doesn’t. The federal estate tax landscape has changed significantly. Minnesota has not. That difference matters more than most farm families realize.

The Federal Estate Tax: Good News for Farmers

In July of 2025, the One Big Beautiful Bill Act (OBBA or OB3) became law. That legislation eliminated the looming “sunset” of the federal estate tax exemption and replaced it with something much more stable.

Starting January 1, 2026:

• The federal estate tax exemption is $15 million per person
• Married couples effectively have $30 million combined
• The exemption is permanent (as permanent as tax law gets)
• It is tied to inflation going forward
• Portability remains available

For most farm families, this is a massive relief.

Before OBBA, we were staring at a potential drop from roughly $14 million down to about $7 million per person. If that had happened, a large number of Minnesota farmers who weren’t exposed to federal estate tax in 2025 would have suddenly been facing substantial tax liability in 2026.

Now, if you and your spouse own a $20 million farm, you are very likely safe from federal estate tax as long as planning is handled correctly.

Portability: Don’t Miss This Step

Even if you are under the $15 million exemption, you must understand portability.

If one spouse dies and leaves everything to the surviving spouse, no federal estate tax is due at that time because of the unlimited marital deduction. But unless a federal estate tax return is filed and portability is elected, the deceased spouse’s unused exemption could be lost.

When portability is properly elected:

• The surviving spouse can “capture” the unused exemption
• That can create a combined $30 million federal exemption

For larger operations, this is critical.

Now the Reality: Minnesota Estate Tax Hasn’t Changed

While the federal exemption jumps to $15 million, Minnesota’s estate tax exemption remains $3 million per person.

It is not:

• Tied to inflation
• Increasing in 2026
• Eligible for portability

That last point is huge.

Minnesota does not allow portability between spouses. If the first spouse dies and you do not use their exemption, it is gone.

That’s why, in Minnesota, we frequently recommend a properly structured credit shelter trust to ensure both spouses’ $3 million exemptions are used.

On the state level, it truly is “use it or lose it.”

The Family Farmland Deduction: A Powerful but Technical Tool

Minnesota farmers do have one important advantage: the Family Farmland Deduction.

This allows up to $2 million of farmland value to be deducted from the taxable estate but only if strict requirements are met:

• Land must be owned for at least 3 years prior to death
• It must be classified as agricultural homestead
• It must pass to qualified heirs
• Heirs must agree not to sell outside the family for 3 years

There are also additional compliance requirements if land is owned in an LLC, including registration with the Minnesota Department of Agriculture.

Don’t leave hundreds of thousands of dollars of tax savings at risk simply because paperwork wasn’t maintained correctly. Make sure your agricultural homestead classification and Minnesota Department of Agriculture registration are current.

Why Most Minnesota Farms Are Still Exposed

Minnesota’s average farm size exceeds 400 acres.

At even $10,000 per acre, that’s $4 million in land value alone before adding:

• Machinery and equipment
• Livestock
• Stored grain
• Retirement accounts
• Life insurance
• Cash and investments

It doesn’t take a “large” farm to exceed Minnesota’s $3 million exemption.

That’s why state-level estate planning is no longer optional. It’s essential.

2026 Farm Estate Planning Recap

Don’t panic about federal estate tax if your combined estate is under $30 million, but do not ignore potential Minnesota estate tax exposure. Make sure portability is properly elected and documented so no exemption is lost.

Take time to evaluate whether a credit shelter trust makes sense for your specific situation, and confirm that your farmland qualifies for the Family Farmland Deduction. It’s also critical to keep all agricultural homestead classifications and LLC registrations current.

While recent federal changes are good news, Minnesota remains a planning state. If your goal is to pass the farm to the next generation in a tax-efficient way, your estate plan must account for both federal and state systems.

Take the Next Step

To learn more about 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 estate plan and want guidance tailored to your family, assets, and goals, contact Wagner Oehler, Ltd. to get started.

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