UPDATE: New Massachusetts Estate Tax Exemption Could Mean Big Savings for Your Family!

By: Attorney Daniel M. Surprenant, CELA, Managing Partner

Surprenant & Beneski, P.C.

Good news!  We are pleased to report that on October 4, 2023, Governor Healy signed House Bill 4104 effectively increasing the Massachusetts estate tax exemption from $1 million to $2 million.  That is great news for many people and a real planning opportunity for others still!  As always, Surprenant & Beneski, PC has been watching for and attending education regarding the specifics of the law change, and what it means for our clients.  

Previously, the Massachusetts exemption had been $1 million.  That meant that for estates which were $1 over the million, the resulting MA estate tax $33,000 as the tax was applied to every dollar of the estate.  This was called “the cliff” as the tax would have been $0 for if the estate were under $1 million. 

Now, the cliff has been eliminated.  Now, a credit of $99,600 is applied to any tax, so the result is there is no tax for estates under $2 million.  If the estate is over $2 million, the Massachusetts estate tax is applied at various, increasing rates starting at about 8% (at $2.04 million) up to 16% (starting at $10.04 million). 

The new law is also effective retroactively to any deaths occurring on or after 1-1-23.  For most estates in 2023, no estate tax return had yet been filed.  For those who have already filed their estate tax return and paid a tax, there will be a refund.  We are being told that the refund will be automatic, and no tax filing will be necessary to effectuate the refund.  Please check in with your accountant for specifics.   This is all great news for estates that are between $1 million and $2 million, which would have paid estate tax under the previous law. 

PLANNING OPPORTUNITIES:  The new law presents a great planning opportunity for estates which are greater than $2 million.  Many clients find themselves in this category, as ALL of your assets are part of your taxable estate, including your home, IRA, 401K, annuities, life insurance, vehicles, etc, etc.  With today’s home values, many clients are finding they are now at or on their way to having an estate worth over $2 million.

The new increased exemption allows for more significant tax savings.  For example:  Let’s say your estate is $4 million (or will be when the second spouse passes).  Without panning, the family will use their now $2 million MA exemption and the estate (typically their children) will pay roughly $200,000 in MA estate tax.  However, with a properly drafted revocable, amendable trust, done before the first spouse passes, the couple can use BOTH of their $2 million exemptions, reducing the estate tax to $0 and saving the family the roughly $200,000 in tax.  This is huge and can be done without giving assets away during life.  For larger estates, there may be additional estate tax strategies to save additional tax.

It is also important to note that the new law did not adopt “portability” as we had hoped and as the federal law allows.  Portability refers to the surviving spouse’s ability to elect on a tax return the ability to use any unused exemption of the surviving spouse.  The Massachusetts legislature did not allow portability for MA estate tax.  As a result, some good estate planning, typically trust planning, is necessary to utilize both spouses’ $2 million exemptions.  As the MA exemption is now larger than it ever has been, it is an enormous opportunity for couples with estates over the exemption ($2 million) to save estate tax.  If you have questions or would like to schedule a consultation with one of our attorneys, please call our office.

This is a great time to have your estate plan reviewed!  If you have an old trust which is tied to the old exemption, or no trust, you could be missing out on substantial tax savings.  We are happy to review your plan to advise you on any planning opportunities.

Lastly, the increased MA estate tax exemption may now mean that you should adjust your plan to avoid unnecessary capital gains tax.  The trust commonly used to save estate tax is a “bypass trust.”  If the assets in a bypass trust incurred capital gains (grew) after the death or the first spouse, then when the children receive the asset, the children will pay capital gains tax on that gain. However, if the new, increased MA estate tax exemption makes it unnecessary to have assets in the bypass trust, we may want to remove those assets from the bypass trust to avoid this unnecessary capital gains tax.  This is complex analysis that we can walk you through, including the steps necessary to remove assets from your bypass trust. 

Don’t leave tax on the table.  Call today to schedule a consultation to see if the new Massachusetts estate tax exemption presents opportunities for you to save tax for your family! 

We look forward to working with you to minimizing estate and capital gains taxes and to achieve your other estate planning goals. 

©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