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Massachusetts Estate Tax 3 Examples of How to Plan

Bridge Team Member

The national debate over the federal estate tax often overshadows the fact that each state can also have estate taxes on the books. Here's the difference:

  • The current federal estate tax is 35% on assets over $5 million.åÊ It is scheduled to increase to 55% on assets over $1 million starting next year.
  • The current Massachusetts state estate tax is 6-16% on ALL assets if total assets are greater than $1 million

You read that right beyond the difference in cap and tax rate, the Massachusetts estate tax is critically different by taxing the ENTIRE amount. Which means there is a big difference between having $999,999 and $1,000,001.

From a practical standpoint, especially this year, estates that do not owe a federal estate tax may very well owe a substantial MA estate tax.

Here are a few typical scenarios:

1.Married couple has an existing "estate tax planning" setup (2-Trust plan), sometimes referred to as "A/B" Trusts, or "Revocable Trusts"

These types of trusts are set up to allow a married couple to double the federal estate tax exemption, passing more on to their heirs at the 2nd spouse's deaths. In many cases, these trusts will no longer accomplish optimal estate tax savings, and may actually cause an increase in the MA estate tax due, depending on the actual provisions in the existing trusts.åÊ Accordingly, these clients may need to amend their trusts in order to maximize estate tax savings.

2.Married couples with estates greater than $1 million but less than the federal estate tax credit ($5 million)

These clients may still want to consider the 2-Trust plan to reduce the MA estate tax that would be due at the 2nd spouse's death.åÊ Depending on the value of your estate and also how much life insurance you have, you might also consider setting up an Irrevocable Life Insurance Trust ("ILIT") to further reduce estate taxes.

3. Non-married individuals with estates greater than $1 million

These individuals may now want to consider other estate planning techniques, such as Irrevocable Insurance Trusts (to exclude the value of life insurance from the taxable estate), or annual gifting plans to reduce their taxable estates for both federal and Massachusetts estate tax purposes.

The overall message is that you need to plan not just for federal estate tax laws, but also consider Massachusetts estate tax laws. It's a complicated landscape, and talking to an experienced estate planning lawyer is critical to understanding how to best protect your assets.

Attorney Robin Gorenberg has over 20 years experience in estate planning and probate matters. She works with all types of clients, from simple to complex, and explains things so that you can understand them. Robin was quoted in the NY Times on how to choose the executor of your estate. She can be reached at robingorenberg@gmail.com or at 617-299-7313

(Photo: Wikipedia)


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