Inheritance Tax and Your Massachusetts Estate Plan
The terms "inheritance tax" and "estate tax" are often used interchangeably, but they are very different things. The estate tax is a tax paid by the estate of a deceased person if the taxable assets are worth more than a set threshold amount ($1 million in Massachusetts). Inheritance tax is a state tax paid by a beneficiary on the value of what they received as an inheritance.
Massachusetts has an estate tax, but not an inheritance tax. It is still important for you to understand how inheritance tax works, however, because it still could affect you.
Massachusetts has an estate tax, but not an inheritance tax. It is still important for you to understand how inheritance tax works, however, because it still could affect you.
What States Have Inheritance Taxes?Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania have state laws imposing inheritance taxes. The specifics are based on the laws of those individual states. Specifics include whether there is a threshold amount that triggers the tax. Also certain immediate family members may be exempted from taxation on their inheritance based on state law (i.e., spouses and children).
At the federal level, inheritance is generally not considered taxable income. This means any inheritance tax will only be owed in the state that imposes it, not on your federal taxes. How Do Inheritance Taxes Affect Massachusetts Residents?The inheritance tax is triggered by the state where the deceased person lives, not the state where the beneficiary receives the inheritance. So if you or a loved one lives in Massachusetts at the time of death, you do not need to worry about this issue.
However, if you receive an inheritance from someone who lived in Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, there may be a tax owed to that state on what you received. How Do Inheritance Taxes Affect Your Massachusetts Estate Plan?For the most part, not at all. Even if you have heirs that live in a state with inheritance taxes, they will not have to pay because you live in a state that does not impose them.
Both estate tax and inheritance tax may be relevant, however, to decisions you make later in life. Many people relocate and downsize after their children are grown. Sometimes this involves moving to another state. Here in New England many people choose to relocate to warmer climates. Neither of the most popular relocation states (Florida and Arizona) currently have inheritance taxes. But people make interstate moves for different reasons as well- to be closer to children and grandchildren, for example. If you are considering a move to a state that does have inheritance tax, you should consider consulting with an estate planning lawyer to understand how that would impact your current plan and whether there are updates that you should make. |
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How Can We Help?
Our lead estate planning lawyer, Jenna Ordway, has been helping families prepare their estate plans since 2013. In addition to her law degree, Jenna has a masters degree (LLM) in taxation, and has written a book "The Road to Peace of Mind- What You Need to Know About Estate Planning") to help you better understand the issues and your options as you consider your estate plan.
Our founder and owner, Emily Smith-Lee, has been practicing law for 22 years, and has operated her practice as a local small business for the past ten years. She has been named on the Massachusetts Super Lawyers List every year since 2013, and was named a 2018 Lawyer of the Year by Massachusetts Lawyers Weekly. Emily is committed to the community, and has been a local elected official in Sharon for nine years, eight as a School Committee member and currently as a member of the Board of Selectmen.
Our founder and owner, Emily Smith-Lee, has been practicing law for 22 years, and has operated her practice as a local small business for the past ten years. She has been named on the Massachusetts Super Lawyers List every year since 2013, and was named a 2018 Lawyer of the Year by Massachusetts Lawyers Weekly. Emily is committed to the community, and has been a local elected official in Sharon for nine years, eight as a School Committee member and currently as a member of the Board of Selectmen.
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