Inheritance & Succesion Planning

Protect What You Have Built and Plan a Thoughtful Transfer

Inheritance and Succession Planning

Inheritance and succession planning is about deciding who receives your property, who manages it, how a business or farm continues, and how taxes, expenses, delay, and conflict can be managed lawfully.

Tax planning is one part of that work. A strong plan must also address incapacity, beneficiary readiness, creditor concerns, family dynamics, business continuity, liquidity, retirement income, and the practical administration of your estate.

At Lauren Pevehouse Law, we help individuals, families, farmers, and business owners in St. Paul, Minneapolis, Chisago County, Washington County, and surrounding Twin Cities communities coordinate estate and succession plans.

Call 651-800-1030 or email lauren@laurenpevehouselaw.com to schedule an estate-planning consultation.

What Is Inheritance and Succession Planning?

Inheritance planning coordinates how property passes during life and at death. It may address:

  • Real estate and personal property;

  • Bank, brokerage, and retirement accounts;

  • Life insurance and beneficiary designations;

  • Closely held businesses and professional practices;

  • Farms, agricultural land, equipment, and operating entities;

  • Trust property;

  • Charitable gifts;

  • Digital assets and intellectual property; and

  • Debts, taxes, expenses, and liquidity.

Succession planning focuses on continuity and transfer of a business or farm. It asks who will manage, work in, own, or purchase the operation after retirement, disability, incapacity, or death.

A coordinated plan may include wills, revocable or irrevocable trusts, powers of attorney, health-care directives, beneficiary designations, entity documents, buy-sell agreements, employment and compensation arrangements, insurance, gifting, and tax elections.

Minnesota Estate Tax

Minnesota calculates its tax using the Minnesota taxable estate. The calculation begins with the federal taxable estate, whether or not federal estate tax is due, then applies Minnesota additions and subtractions.

For deaths in 2020 and later, Minnesota allows a $3 million subtraction. The state also generally requires an estate-tax return when the federal gross estate plus specified federal adjusted taxable gifts exceeds the applicable Minnesota filing threshold.

Minnesota’s rate schedule for deaths in 2018 and later is:

  • 13% for a Minnesota taxable estate not over $7.1 million;

  • $923,000 plus 13.6% of the excess over $7.1 million, up to $8.1 million;

  • $1,059,000 plus 14.4% of the excess over $8.1 million, up to $9.1 million;

  • $1,203,000 plus 15.2% of the excess over $9.1 million, up to $10.1 million; and

  • $1,355,000 plus 16% of the excess over $10.1 million.

The final tax may also involve a Minnesota situs fraction for an estate with property connected to more than one state. A rough percentage applied only to “the amount over $3 million” may not produce the correct result.

Minnesota Form M706 and the tax are generally due nine months after death. Filing and payment extensions do not always operate identically, so the estate should review both requirements promptly.

Federal Estate Tax

For decedents dying in 2026, the federal basic exclusion amount is $15 million. The federal estate-tax schedule reaches a top marginal rate of 40%.

Most estates will not owe federal estate tax, but federal filing may still matter for:

  • Electing portability for a surviving spouse;

  • Reporting lifetime taxable gifts;

  • Generation-skipping transfer planning;

  • Valuation elections;

  • Basis reporting; or

  • Coordinating federal and Minnesota elections.

A federal Form 706 is generally due nine months after death. A six-month filing extension may be available when requested properly, but an extension to file does not necessarily extend the time to pay.

The Minnesota Estate-Tax Gap

Minnesota’s $3 million amount is substantially lower than the 2026 federal $15 million basic exclusion. A Minnesota estate can therefore have a state filing requirement or state estate-tax exposure even when no federal estate tax is due.

Estate value may include more than cash and investments. Depending on ownership and tax rules, the estate may include:

  • A home, cabin, or rental property;

  • Retirement accounts;

  • Life insurance controlled by or payable to the estate;

  • Business interests;

  • Farm land and operating assets;

  • Jointly owned property;

  • Certain trust interests;

  • Taxable gifts made within three years of death for Minnesota purposes; and

  • Other property included under federal transfer-tax rules.

Regular valuation and beneficiary-designation review can identify exposure before a death or incapacity limits available options.

  • Minnesota Has No Separate Inheritance Tax

    Minnesota imposes an estate tax, not a separate inheritance tax. Estate tax is calculated at the estate level before final distribution. An inheritance tax would generally be imposed on the recipient based on the inheritance received.

    A beneficiary may still face other taxes. For example, inherited retirement-account distributions may be taxable income, estate or trust income may pass through to beneficiaries, and later sales may create capital gain. “No inheritance tax” does not mean every inheritance is free from all tax.

  • Minnesota Has No Standalone Gift Tax, but It Has a Three-Year Addback

    Minnesota does not impose a separate gift tax. However, Minnesota generally adds to the taxable estate the value of taxable gifts made within three years before death, excluding value already included in the federal estate.

    The term “taxable gifts” incorporates federal gift-tax concepts. This means the Minnesota addback should not be summarized as every transfer made within three years. The characterization and value of the gift must be analyzed under applicable federal rules and Minnesota’s statute.

    The practical effect is that last-minute taxable gifting may not reduce Minnesota estate-tax exposure. Gifts made more than three years before death may avoid this particular addback, but other tax and legal consequences remain.

  • The 2026 Annual Gift-Tax Exclusion

    For 2026, the federal annual gift-tax exclusion is $19,000 per recipient. A donor may make annual-exclusion gifts to multiple recipients, subject to the federal rules.

    The annual exclusion:

    • Is a federal gift-tax rule;

    • Does not mean every $19,000 transfer is appropriate;

    • Does not by itself create a Minnesota estate-tax deduction;

    • Does not replace gift-tax return analysis for larger or split gifts;

    • Does not eliminate Minnesota’s three-year addback for transfers that are taxable gifts; and

    • Does not resolve income-tax basis, Medicaid, creditor, control, or family-equity concerns.

    Married donors may have additional planning opportunities, including gift splitting, but federal filing requirements and ownership must be reviewed.

Gifting and Income-Tax Basis

Reducing estate size is not always the same as reducing the family’s total tax burden.

A person who receives property by lifetime gift generally takes the donor’s basis, subject to federal rules. Property acquired from a decedent often receives a basis adjustment tied to date-of-death value. Giving a highly appreciated asset during life may reduce future estate appreciation but create greater capital gain when the recipient sells it.

Before making a substantial gift, compare:

  • Potential Minnesota and federal estate tax;

  • Capital-gains tax from carryover basis;

  • Expected future appreciation;

  • The donor’s need for income and control;

  • Property-tax and homestead consequences;

  • Creditor, divorce, and beneficiary risks;

  • Business or farm eligibility requirements; and

  • The possibility that tax laws or asset values will change.

Planning Strategies That May Reduce or Manage Tax Exposure

  • Marital and Credit-Shelter Planning

    Transfers qualifying for the marital deduction may defer estate tax until the surviving spouse’s death. Because Minnesota does not offer federal-style portability, a plan may use a credit-shelter, family, disclaimer, or Minnesota-only qualified terminable interest property strategy to preserve or manage state tax benefits.

    Trust planning can affect control, basis, income, access, creditor protection, and the surviving spouse’s flexibility. Formula clauses should be reviewed as exemptions and asset values change.

  • Federal Portability

    Federal portability may allow a surviving spouse to use a deceased spouse’s unused federal exclusion. It is not automatic. The deceased spouse’s estate generally must file a timely and complete Form 706 and elect portability.

    Portability does not preserve Minnesota’s $3 million subtraction, does not transfer generation-skipping exemption, and does not replace trust planning in every estate.

  • Lifetime Gifting

    Lifetime gifts may remove future appreciation and, when made outside Minnesota’s three-year addback period, may reduce the Minnesota taxable estate. Gifts should be coordinated with basis, cash flow, control, beneficiary maturity, federal gift-tax reporting, and asset-protection concerns.

  • Irrevocable Trusts

    Some irrevocable trusts can remove property or future appreciation from the taxable estate when drafted, funded, and administered correctly. Merely labeling a trust “irrevocable” does not achieve estate-tax exclusion. Retained powers, beneficial interests, timing, valuation, and administration matter.

  • Charitable Planning

    Qualified charitable transfers may produce estate-tax deductions and support organizations important to the donor. Options may include direct bequests, beneficiary designations, donor-advised funds, charitable trusts, or other arrangements. Income-tax and estate-tax treatment should be coordinated.

  • Liquidity and Insurance Planning

    Life insurance or other liquidity can help pay taxes, equalize inheritances, fund a buy-sell agreement, or prevent a forced sale. Ownership and beneficiary designations affect whether insurance proceeds are included in the taxable estate.

Minnesota Qualified Small-Business and Farm Property

  • Minnesota allows an additional subtraction for qualifying small-business and farm property. For deaths in 2020 and later, the subtraction is the lesser of:

    • The value of qualified small-business and qualified farm property; or

    • $5 million minus the $3 million Minnesota exclusion amount.

    The maximum additional subtraction is therefore $2 million, and the potential total subtraction can reach $5 million only when sufficient property satisfies every statutory requirement.

    This is not a universal $5 million exemption for a business or farm owner.

  • Qualified Small-Business Property

    Requirements include, among others:

    • Inclusion in the federal adjusted taxable estate;

    • A qualifying trade or business interest;

    • No public trading during the applicable period;

    • An active rather than passive business;

    • Material participation by the decedent or spouse before death;

    • Gross annual sales of $10 million or less for the last taxable year ending before death;

    • Exclusion of cash, cash equivalents, publicly traded securities, and nonoperating assets;

    • Continuous ownership for the three years ending at death;

    • Continued nonpassive operation and family-member material participation for three years after death; and

    • An estate and qualified-heir election accepting potential recapture tax.

  • Qualified Farm Property

    Requirements include, among others:

    • Inclusion in the federal adjusted taxable estate;

    • Qualifying agricultural land ownership;

    • Compliance with Minnesota corporate-farm rules where applicable;

    • Required agricultural and homestead classifications for the year of death;

    • Continuous ownership for the three years ending at death;

    • Continued class 2a property classification for three years after death; and

    • An estate and qualified-heir election accepting potential recapture tax.

  • Recapture Risk

    A disposition to a nonfamily member or failure to satisfy the post-death operating, participation, or classification requirements during the three-year period may trigger additional Minnesota estate tax. The statute contains limited exceptions.

    Families should review eligibility before death and monitor compliance after death. A succession plan should identify the qualified heir, operating responsibilities, ownership path, classification requirements, and reporting duties.

Business and Farm Succession Planning

Tax savings are not enough if the business cannot operate or the family cannot agree. A succession plan may address:

  • Who manages during temporary incapacity;

  • Who controls voting and nonvoting ownership;

  • Which family members work in the business and how they are paid;

  • How ownership passes to active and inactive heirs;

  • Buy-sell terms and valuation methods;

  • Funding through insurance, reserves, installment payments, or financing;

  • Rights of first refusal and transfer restrictions;

  • Treatment of real estate separately from operating assets;

  • Retirement income for the current owner;

  • Personal guarantees and lender requirements;

  • Tax elections and entity structure;

  • Key employees and management retention;

  • Dispute-resolution and deadlock provisions; and

  • A sale to a partner, employee group, family member, or outside buyer.

Farm plans may also address leases, machinery, livestock, conservation programs, homestead classification, entity ownership, and fair treatment of heirs who do not farm.

Areas We Serve

We proudly help individuals and families in St. Paul, Minneapolis, Woodbury, Maplewood, Stillwater, Chisago County, Washington County, and surrounding Twin Cities communities.

How Lauren Pevehouse Law Can Help

We help clients:

  • Inventory assets and estimate Minnesota and federal estate-tax exposure;

  • Coordinate wills, revocable trusts, irrevocable trusts, powers of attorney, and health-care directives;

  • Review beneficiary designations and ownership arrangements;

  • Plan for federal portability and Minnesota marital-tax elections;

  • Evaluate gifting, basis, and cash-flow tradeoffs;

  • Develop qualified small-business and farm-property plans;

  • Draft or coordinate entity, buy-sell, and succession documents;

  • Plan liquidity for taxes, debt, equalization, or business continuity;

  • Coordinate with accountants, financial advisors, insurance professionals, appraisers, and business counsel; and

  • Review the plan as laws, values, family circumstances, and business goals change.

Talk to a Minnesota Inheritance and Succession Planning Attorney

A thoughtful plan can reduce uncertainty, preserve options, and manage taxes without losing sight of family and business goals. Lauren Pevehouse Law offers clear, transparent estate-planning guidance tailored to Minnesota families, farms, and businesses.

We serve clients in St. Paul, Minneapolis, Woodbury, Maplewood, Stillwater, Chisago County, Washington County, and surrounding Twin Cities communities.

Call 651-800-1030 or email lauren@laurenpevehouselaw.com to schedule a consultation.