Massachusetts Estate Tax

You May Be Richer Than You Think
Many people believe they do not need to worry about estate taxes because the federal tax exemption is so high.  But the Massachusetts estate tax affects many middle class families, because the state tax exemption is much lower than the federal.  The assets that count toward this amount also include things you might not have considered to be part of your taxable estate, like life insurance and your home. Under Massachusetts estate tax laws,  if your estate is worth more than 1 million at your death, even by a little bit, your heirs will owe $36,000 or more in taxes, while if you plan properly to protect more of your assets, they will owe nothing.
​Want to Learn More?

Watch this video to see how quickly most families reach the $1 million estate tax threshold in Massachusetts.
What Are Estate Taxes?
​Estate Taxes (sometimes called the Death Tax) are taxes collected from your estate if your assets or at or over a certain value.  Your heirs do not pay taxes directly on money or assets they inherit from you (inheritance tax), but your estate itself may  have to pay tax before assets are distributed if the value of your estate is over a certain amount.  Federal tax reform laws in 2017 raised the federal estate tax threshold to over $11 million, meaning anyone whose estate is worth less than eleven million dollars in their estate does not have to worry about estate taxes (at least unless or until those laws are changed again).   For Massachusetts residents, however, there will be taxes owed if your estate is worth more than 1 million, even by a little bit.  This means indirectly your heirs do pay taxes, because that money comes out of the estate before it is distributed to them.

It also means that the Massachusetts estate tax is really not just for the rich, and affects many more regular and middle class families than most people realize.  You could be struggling to meet your mortgage payment every month but still in danger of paying estate taxes.  Below is some information about what assets are counted in your taxable estate, and how a comprehensive estate plan can help you avoid or minimize the tax burden.
What Assets Are Counted In Your Taxable Estate?
Sometimes people think that because something will pass automatically (like your home or life insurance proceeds) it will not count for tax purposes.  Not so.  For Massachusetts residents, your taxable estate includes more than the assets that pass through the probate process.  For example, if you are a married couple and own your home jointly with your spouse, title to the property will automatically pass to your surviving spouse whether or not you have a will, and without any need for court involvement.  Similarly, the proceeds of your life insurance policy will immediately go to whoever you have named as a beneficiary (usually for a married couple people name their spouse as primary beneficiary and their children as contingent beneficiaries, though you can name whoever you want).  Many people believe that because they do not have to take care of these things directly in their estate plan, they do not count in determining the value of your taxable estate.  But they do.  Imagine, for example, that you own a house with $250,000 in equity (the value of the property minus what you owe on the mortgage), a $500,000 life insurance policy, and $250,000 in a 401k or other retirement fund.  Just like that you have reached the $1 million threshold for Massachusetts residents.  
​How Much Estate Tax Will Your Estate Have to Pay?
What is the Massachusetts estate tax rate? The amount of estate tax that will be applied depends on the overall value of your estate.  What you need to know is that even if your estate is worth even just barely over $1 million, your entire estate will be subject to the tax, not just the amount over $1 million. Massachusetts has a graduated tax rate starting at 0.8% and capping out at 16%.  Taxes on a $1 million estate applying these graduated rates are approximately $36,000, but there are no taxes on an estate that is $999,999.   This is why it is so important to consult an estate planning lawyer even if you do not feel rich at all to make sure you are maximizing your opportunities to bring your total taxable estate below the $1 million mark.  If you are unsure whether it is worth the time and financial investment to make an estate plan, remember that you can put everything you need in place for a fraction of the $36,000 it will cost your family if your estate tips even a little bit over the Massachusetts estate tax threshold.
What Can You Do About It?
Though you may not be able to avoid the estate tax entirely, there are many ways of estate planning to shelter as much as possible and minimize or eliminate the burden on your heirs.  For Massachusetts residents who are married couples, you can set up trusts to allow you and your spouse to essentially combine your exemptions, making the threshold $2 million instead of $1 million.  There are also irrevocable trusts that you can create to take assets entirely out of your estate for the benefit of your family (though bear in mind that "irrevocable" means you can't later take those assets out of trust, so you need to be sure that makes sense in your financial picture as a whole).  Finally, you can take advantage of gifting strategies- moving assets to your family members over time within the annual limits for what you can give away without paying gift tax- to reduce the value of your overall taxable estate.  You can give away as much as you want, but if you exceed the gift tax free limit, the excess will be considered  taxable gifts, and will not achieve the same tax savings as a gifting strategy over time.  If you want to give away a large amount of money in a single year and avoid these being taxable gifts, remember that the limit applies to each individual recipient.  So, for example, if you have children and grandchildren, you can give a gift to each adult child and a gift into a trust for each grandchild, and apply the gift tax-exempt limit to each one.

If you already have an estate plan in place, but have recently come into an inheritance or other increase in your net worth, you should contact an attorney.  Your original estate plan may have been drafted on the assumption that you were not near the estate tax threshold, and may not appropriately protect your family from taxes.
How Can slnlaw 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. 
Ready to Get Started?
We are ready to help.  We have a simple process for getting you from wherever you are now to executed and final documents.  It starts with an initial consultation, which is absolutely free.  You can use the button below to schedule your consultation, or simply give us a call at  781-784-2322, or fill out our web form.
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​"From my first conversation with Emily, I knew I had picked the right law firm to handle my Estate Plan after having procrastinated for some time before I decided it was time to get my estate in order. Previously, I spoke with a couple other lawyers and I did not feel comfortable with their approach prior to calling Emily. Jenna did an excellent job in assessing what I wanted to accomplish and completed my will, trust and other documents in a very short time. I am so happy I made the right choice in choosing slnlaw as my estate team.."  Evelyn W.

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