The Commonwealth of Massachusetts imposes a hefty estate tax when the total combined value of your property is worth more than $1 million dollars. In determining your gross estate, the Commonwealth values all of your assets including, but not limited to, bank accounts, stocks, bonds, annuities, mutual funds, retirement plans, Individual Retirement Plans (IRAs), life insurance, and real estate. Unlike many other estate taxes, the Massachusetts estate tax applies to the entire estate, not just the dollar amount above the exemption of $1 million. For example, if your estate is worth $1.5 million, the estate tax applies to all $1.5 million, not just the $500,000.00 above the exemption. With the escalation of real estate values in the past decade many retirees have become vulnerable to Massachusetts estate tax. It is important to note that property left to a spouse is exempt from the tax, as long as the spouse is a U.S. citizen, however, in many cases this merely defers the estate tax due until the surviving spouse’s death. Lastly, some individuals are also vulnerable to the federal estate tax, however, the exemption is much higher.
What is the threshold for filing an estate tax return?
According to the IRS, a filing is required if the gross estate of the decedent, increased by the decedent’s adjusted taxable gifts and specific gift tax exemption, is valued at more than the filing threshold for the year of the decedent’s death. The filing threshold is subject to change. Thresholds by year of death are listed below:
- 2023: $12,920,000
- 2022: $12,060,000
- 2021: $11,700,000
- 2020: $11,580,000
Are there ways to avoid estate taxes?
Yes. Estate Planning Attorney Tobin counsels clients to reduce and often eliminate estate taxes through various techniques, including but not limited to:
- Drafting Credit Shelter Trust Provisions; whereby spouses leave some of their property in trust for their children, but give the surviving spouse the right to use it for life. This keeps the second spouse’s taxable estate half the size it would be if the property were left entirely to the spouse.
- Drafting “QTIP” Trust Provisions; whereby couples can postpone estate taxes until the second spouse dies. This allows for additional gifts qualifying for the annual exclusion.
- Drafting Charitable Remainder Annuity Trusts; whereby a tax free gift is made to to a tax-exempt charity and the spouses receiving perpetual income from the transfer.
- Drafting Irrevocable Life Insurance Trusts; whereby the value of life insurance proceeds is removed from the client’s estate.
Contact the Law Offices of Adam J. Tobin for a complimentary consultation to determine your personal current and projected estate tax.