Do Minnesotans Move to Escape the Estate Tax?

The weight of the evidence points to a strong yes

Key Points

In 2001, Congress repealed the state death tax credit.  For a long time this credit had effectively paid state death taxes on behalf of estates from the federal treasury, meaning the state tax posed no additional burden to estates.  Without the credit, state death taxes pose a substantial burden, and so most states abandoned them. States that retained their death taxes began to quickly feel competitive pressure to lower or eliminate them. For these states, the most hotly debated question over the tax is whether people move their legal residence to avoid it.  This question is particularly important for Minnesota because the state’s estate tax makes Minnesota an expensive outlier. 

So, do people move to avoid Minnesota’s estate tax?  Unfortunately, there’s no reliable empirical research available to answer the question. Without good empirical research, policy decisions to reform or eliminate the estate tax must be based on other types of evidence. Still, the following evidence does strongly suggest some Minnesotans move to avoid the estate tax.

  • Considering the ease in moving to a second home, it is plain common sense that many Minnesotans take advantage of this opportunity to avoid the state’s estate tax.
  • The existence of an estate planning industry that advises people to move is prima facie evidence that some Minnesotans take the advice and move.
  • In surveys, estate planners report estate taxes strongly influence decisions to move.
  • Anecdotal evidence from estate planners and anyone who knows someone of wealth supports these survey findings.
  • The average value of estates reported on federal returns are now substantially larger in states with no estate tax, consistent with wealthier people moving to states with no estate tax.
  • Immobile farms make up a larger-than-expected portion of wealth reported on Minnesota estate tax returns, consistent with mobile assets moving to avoid the estate tax and leaving behind a larger share of immobile assets.
  • Minnesota tends to lose people to lower tax states and gain people from higher tax states. 
  • Minnesota loses income from taxpayers earning more than $200,000—those most likely to hold estates subject to Minnesota’s estate tax—at one of the worst rates in the country.