Understanding Estate Taxes in Massachusetts
Massachusetts Estate Tax: Unraveling Its Impact and How to Protect Your AssetsEstate taxes in Massachusetts often catch people off guard, as they assume the high federal tax exemption (over $11 million) shields them.
However, the Massachusetts estate tax has a much lower exemption threshold, impacting many middle-class families. Assets, including life insurance and residential real estate, count toward this threshold, making it crucial to understand the implications. If your estate exceeds $2 million at the time of your passing, even slightly, your heirs could face substantial tax liabilities. Effective estate planning can help shield a significant portion of your assets, potentially reducing or eliminating tax burdens. |
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Deciphering Estate Taxes: The Impact on Massachusetts Residents
Estate taxes, often known as the "Death Tax," apply to estates surpassing a specific value threshold. While federal reforms raised this threshold to over $11 million, Massachusetts residents face different rules. Until 2023, taxes were triggered if your estate exceeds $1 million, impacting a broader range of families, including regular middle-class households.
Even if you're juggling monthly mortgage payments, you may still encounter potential tax obligations. Starting in 2023, the threshold has increased to $2 million. This is less likely to catch modest-income families by surprise, but is still a consideration for any family with real estate, life insurance and non-trivial retirement savings.
In the following sections, we'll delve into what assets are considered part of your taxable estate under the Massachusetts estate tax rules, and how crafting a comprehensive estate plan can provide solutions to mitigate or bypass these tax challenges.
Even if you're juggling monthly mortgage payments, you may still encounter potential tax obligations. Starting in 2023, the threshold has increased to $2 million. This is less likely to catch modest-income families by surprise, but is still a consideration for any family with real estate, life insurance and non-trivial retirement savings.
In the following sections, we'll delve into what assets are considered part of your taxable estate under the Massachusetts estate tax rules, and how crafting a comprehensive estate plan can provide solutions to mitigate or bypass these tax challenges.
Estate Taxes vs. Inheritance Taxes
Understanding the difference between estate taxes and inheritance taxes is crucial. While estate taxes affect the estate itself, inheritance taxes apply to beneficiaries. Massachusetts imposes estate taxes, but there is no Massachusetts inheritance tax. This means if a Massachusetts resident dies, their estate will be taxed, but if a Massachusetts resident inherits from someone, they will not owe an inheritance tax unless they inherit from someone who lived in a state with inheritance tax. Learn more about these distinctions and how they influence your estate plan.
What's Included in Your Taxable Estate?
Assets that automatically pass outside probate, such as your home or life insurance, count toward the $2 million threshold. Even assets like real property under a life estate may still be taxable. Discover why these assets are part of your taxable estate, and learn how quickly you can reach the threshold with practical examples.
Imagine, for example, that you own a house with $400,000 in equity, a $1m life insurance policy, and $400,000 in a 401k or other retirement fund. Just like that you are climbing toward the $2 million threshold for Massachusetts residents.
Imagine, for example, that you own a house with $400,000 in equity, a $1m life insurance policy, and $400,000 in a 401k or other retirement fund. Just like that you are climbing toward the $2 million threshold for Massachusetts residents.
Calculating Your Massachusetts Estate Tax Liability
The Massachusetts estate tax rate is graduated, ranging from 0.8% to 16%. Understanding the impact of your estate's overall value is crucial. Another significant change in 2023 bringing relief the Massachusetts families was changing the calculation. Prior to 2023, even if your estate slightly exceeds $1 million, the entire estate became subject to taxation.
Starting in 2023 (including the estate of anyone who passed in 2023) there is an offsetting credit for that part of your estate that is below $2m. This means, in effect, you are only taxed on the amounts over $2m.
Starting in 2023 (including the estate of anyone who passed in 2023) there is an offsetting credit for that part of your estate that is below $2m. This means, in effect, you are only taxed on the amounts over $2m.
Strategies to Protect Your Heirs from Estate Taxes
While complete tax avoidance may not be feasible for all families, estate planning offers multiple strategies to shield your assets and minimize financial burdens on your heirs. For married Massachusetts residents, trust-based strategies can elevate the tax threshold to $4 million.
Special considerations apply to couples with non-U.S. citizen spouses. Discover the power of irrevocable trusts in removing assets entirely from your estate and explore gifting strategies to gradually reduce your estate's size within annual tax limits.
If your net worth has recently increased, consulting an attorney to update your estate plan is imperative to safeguard your family from potential tax liabilities.
Special considerations apply to couples with non-U.S. citizen spouses. Discover the power of irrevocable trusts in removing assets entirely from your estate and explore gifting strategies to gradually reduce your estate's size within annual tax limits.
If your net worth has recently increased, consulting an attorney to update your estate plan is imperative to safeguard your family from potential tax liabilities.
Meet Our Estate Planning Lawyers
Emily Smith-Lee is the owner and founder of slnlaw. She is a 1996 graduate of Boston College Law School. She was previously a partner at the Boston office of a large international firm, where she worked for thirteen years before starting the firm that became slnlaw in 2009. She has been recognized as Massachusetts Superlawyer each year since 2013, and in 2018 earned recognition as one of Massachusetts Lawyers Weekly's Lawyers of the Year.
Jenna Ordway: Jenna is a 2013 graduate of Quinnipiac Law School, and also earned an LLM in Taxation from Boston University in 2015. She has been affiliated with slnlaw since 2011, first as a law clerk and then as an attorney. Jenna has been recognized since 2019 as a "Rising Star" by Massachusetts Superlawyers. Jenna wrote a book on estate planning: The Road to Peace of Mind: What You Need to Know About Estate Planning. Jenna has helped many individuals and families with planning to protect their legacies and loved ones, and planning for the future and succession of their businesses.
Sharleen Tinnin: Sharleen is a 2010 graduate of Northeastern University School of Law, and earned her LLM in estate planning from Western New England Scool of Law in 2016. She has been with slnlaw since 2023. Prior to joining slnlaw, she worked with King, Tilden, McEttrick & Brink, P.C. on complex civil litigation matters. She previously worked for the United States Department of Justice, and received an "Excellence in Justice" award in 2017. Sharleen has helped many clients with planning for their legacies and their future, and navigating the probate process in Massachusetts after the death of a loved one.
How We Can Help
We are ready to help. We understand this can be a difficult issue to tackle, so we have designed our process to make it as easy as possible for you to get the plan in place that protects you and your family and accomplishes your goals. You can use the button below to schedule a free information call, or simply give us a call at 781-784-2322.
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