What Factors to Consider to Minimize Estate Taxes

3 generational family taking a photo behind their house

You’ve worked hard for your money, and you likely want to leave as many assets as you can to your loved ones. If your estate is over $1 million, your beneficiaries will be required to pay estate taxes. Minimizing your estate tax burden is an important goal of estate planning in Massachusetts. There are multiple factors to minimize estate taxes lawfully. 

To effectively minimize your estate tax burden, you should implement your strategy sooner rather than later. There are often government “look back” periods that can interfere with your strategy. Look back periods are a common misconception as different rules apply to “gifting” as it relates to taxes versus how it applies to medicaid eligibility. Contact Surprenant & Beneski, PC, so we can learn more about your circumstances and asset distribution wishes and discuss the possibility of creating an estate plan that best affects your wishes while avoiding unexpected consequences. 

Is the Value of Your Estate Over the Threshold?

In addition to helping our clients identify their distribution goals, we help them minimize their estate tax burden, so more assets are available to their beneficiaries. Estate planners can use certain living trusts, a gifting strategy during their lifetime, or even a more complex legal tool called a “family limited partnership.”

Massachusetts imposes an estate tax on all estates with over $1 million. Estate taxes are determined based on the value of the deceased individual’s estate regardless of who receives the assets. The Massachusetts Department of Revenue will require your beneficiaries to file an estate tax return and pay estate tax when a person’s gross estate exceeds $1 million, including adjusted taxable gifts. 

Your estate must be below this threshold to avoid estate taxes. When you work with Surprenant & Beneski, PC, we will help you accurately determine your taxable estate’s value so we can develop an effective strategy to reduce or eliminate your estate tax burden.

Are You Interested in Making Gifts to Loved Ones During Your Lifetime?

Many families decide to make gifts to their loved ones during their lifetime to reduce their estate tax burden. You can give up to $15,000 per year to anyone you choose without having to report the gift to the tax authorities or incur taxes on the amount. The individual receiving the gift won’t have to pay taxes on the gift. 

However, you should be careful about gifting real estate or stock away during your lifetime. These gifts could trigger additional capital gains taxes. Before you begin your gifting strategy, we recommend discussing your plans with an experienced attorney.

Do You Own Your Home?

For many estate planners, their home is their most valuable asset. You may be able to transfer your home into a qualified personal residence trust ( PRT). When you transfer your home into the trust, you will remove a portion of its value from your taxable estate. You can still live in your home for a certain number of years. 

Your home will be transferred to your beneficiary at the end of that term. Once that term is over, you can arrange to stay in your home and pay rent at a fair market value. A QPRT will help you avoid estate taxes only if you outlive the specified term of years. If you don’t survive the QPRT term, your home’s value will be included in your estate. 

Spending Down Your Estate

You’ve spent decades working hard for your money. Perhaps you’d like to spend some of your well-earned money on things you’ve long wanted to enjoy. Maybe you’d like to take some vacations you’ve been putting off. However, spending money on assets that will become part of your estate will count toward the $1 million exclusion. It can be risky to spend down your assets because you don’t know how long you’ll live or how much money you’ll need for medical bills, inflation, or living expenses. 

Do You Support Non-Profit, Charitable Organizations?

When you give to a non-profit organization, you will reduce your taxable estate value by that amount by giving either money or property. There is no limit to the amount of money or property you can give to charity. The donation can be used as a taxable deduction. 

Many people use a combination of multiple options and other estate planning tools to create the best estate planning strategy possible. Tax laws change periodically and are complicated. When deciding the optimal plan for your circumstances, you should consider state and federal estate tax regulations.

Contact an Experienced Estate Planning Attorney in Southeastern Massachusetts 

There are many factors to consider when minimizing estate taxes in Massachusetts. Discussing your estate planning goals with an experienced attorney can help you process and weigh the different factors in reducing your estate taxes. We will give your case the time and attention necessary to help you craft a comprehensive estate plan to reduce your estate tax burden. Contact Surprenant & Beneski, PC, today to schedule your initial consultation and learn more about our estate planning services.