Everything You Need to Know About Massachusetts’ Estate Tax

Whenever a Massachusetts resident passes away with over $1 million in assets, the state will impose an estate tax. The estate tax is progressive, and the highest estate tax rate is 16 percent. If you’re a resident of the Bay State and you’re interested in passing on as much of your assets as possible, Surprenant & Beneski, PC can help. We will evaluate your financial situation and develop an effective strategy so your beneficiaries can keep as much money as possible. 

Do You Qualify for the Estate Tax Exemption?

If your estate is valued under $1 million, you will not pay estate taxes in Massachusetts. Unfortunately for estate planners, Massachusetts’ estate tax applies to your whole estate, not just the amount above the estate example. For example, if your estate is worth $1.75 million, the estate tax will apply to the entire $1.75 million, not on just the $750,000 over the exemption amount. 

The Difference Between Estate Tax, Inheritance Tax, and Gift Tax

Massachusetts levies estate taxes against estates valued over $1 million after the owner has died, but before the heirs or beneficiaries receive the money. Keep in mind that there is also a federal estate tax. An inheritance tax is a different tax. The deceased individual’s heirs pay an inheritance tax after they receive their inheritance. 

Massachusetts does not impose an inheritance tax. Your beneficiaries will not need to pay taxes on their inheritance. If you inherit money from a non-Massachusetts resident, you may still need to pay an inheritance tax. Massachusetts doesn’t require people to pay a gift tax either, although the federal government does. 

Married Couples and Estate Tax

Under Massachusetts law, the estate tax is not portable between a married couple. Once both spouses pass away, only one estate tax exemption can be applied to the estate. A married couple in Massachusetts can leave any amount to their spouse without needing to pay estate tax. Doing so only postpones the estate tax, however. 

Creating a Bypass Trust

When the surviving spouse passes away, his or her estate will include all of the remaining assets of both spouses, yet there will only be a single tax exemption amount of $1 million. One way to avoid paying excessive estate taxes is to create a bypass trust. In many cases, an A-B trust strategy will help the married couple avoid estate tax. 

When the first spouse dies, Trust A, the marital trust, receives the marital deduction amount of $1 million. The surviving spouse can use those assets. Trust B, the family trust, will receive the rest of the person’s estate. Assets up to the amount of the federal estate tax exemption amount can be left to any beneficiary, as long as it is not the spouse. 

Any remaining assets in the marital trust will be less than the exemption amount of the surviving spouse. When the surviving spouse passes away, there will be no estate tax to pay. If the amount of assets remaining in the family trust is less than the exemption amount, there will also be no estate tax. 

Contact Our Experienced Estate Planning Lawyers 

Estate planning can seem overwhelming, but the process doesn’t have to be. At Surprenant & Beneski, PC, our experienced lawyers understand how to structure your estate plan to help you legally avoid paying as much taxes as possible. We believe that the more money you can pass on to your beneficiaries, the better. If you’d like to discuss a strategy with us, we can help. Contact Surprenant & Beneski, PC as soon as possible to schedule your initial consultation. 

©Surprenant & Beneski, P.C. 35 Arnold Street, New Bedford, MA 02740, 336 South Street,   Hyannis MA 02601 and 45 Bristol Drive, Easton MA 02375.  This article is for illustration purposes only.  This handout does not constitute legal advice.  There is no attorney/client relationship created with Surprenant & Beneski, P.C. by this article.  DO NOT make decisions based upon information in this handout.  Every family is unique and legal advice can only be given after an individual consultation with an elder law attorney.  Any decisions made without proper legal advice may cause significant legal and financial problems.