Massachusetts Estate Tax Update

Governor Maura Healey just gave Massachusetts a tax makeover! She signed the tax cut bill that, among other things, increases the threshold for estate taxation from $1 million to $2M, effective for all deaths occuring after January 1, 2023. Those who have already filed and paid estate taxes on the assets of a decedent may be entitled to a refund. And it could be a big one!

In a bid to join the "cool kids club" of states with estate taxes (18 and counting), Massachusetts decided to up its game. Until now, we were like the kid with the dullest crayon in the box, tied with Oregon at a $1 million threshold. But times are changing, and so are our estate taxes! “You’re welcome,” says Healy.

You see, our estate tax system was stuck in a time warp, using a federal tax system from the ancient year 2000. Back then, it was all about sharing credits, and Massachusetts played along, soaking up whatever federal credits were offered. But then the federal government had a change of heart, abandoned the credits, and dropped most of the federal estate taxes. The federal estate tax exemption in 2023 is $12.92 million, to give you some context. Meaning, most estates won’t be subject to a federal estate tax exemption.

But here in Massachusetts, we decided to stick to our ways . . . until now! The new law gives estates a "sponge-worthy" $99,600 credit, the exact tax on a $2 million estate. And guess what? If your estate is under $2 million, no tax for you!

But wait, there's more! While this tax reform eliminates taxes for estates between $1 million and $2 million, it also throws a curveball. Larger estates get about a $100,000 tax break. So there’s somewhat less of a tax bracket progression, especially those with larger estates.

WHAT THIS MEANS FOR YOU?

If your estate is under $2 million, you don’t need to be concerned about the Massachusetts estate tax. If you’re estate is $2 million and you are married, basic estate tax planning structures can still help to reduce or eliminate any estate tax payment.

But if you already have such a plan in place and your estate is under $2 million, should you eliminate the trusts? Not at all. Trusts also provide non-tax benefits, like probate avoidance, incapacity planning provisions, and protection of assets from things like creditors or divorce. Definitely consult with your estate planning attorney before doing anything to your estate plan!

This article is a service of 20WestLegal LLC. We don't just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love. That's why we offer a Planning Session, during which you will get more financially organized than you've ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule an Initial Planning Session and mention this article to find out how to get this $750 session at no charge.