For the first time in 23 years, estate tax has made headlines in Massachusetts.
On October 4, 2023, Governor Healy signed tax legislation into law that impacts many families. This article provides a brief overview of estate taxes, the old rules and how the new law may affect your family.
How Do Estate Taxes Work?
Estate tax is the tax owed on a person’s assets after they die. The amount of tax that’s paid depends on the value of the total assets. “Assets” include things that the deceased person may never have used — including their life insurance benefits — and assets that are otherwise tax-sheltered — like their retirement accounts.
Both the federal government and the Massachusetts government have estate taxes. The federal estate tax only applies to estates over $12,900,000, so few people need to worry about paying federal estate tax.
Massachusetts estate tax is a different story, however, because it traditionally has taxes all estates that are valued at $1,000,000 or more. Given how much real estate has appreciated in recent years, many homeowners have assets worth more than $1,000,000.
Changes to the Massachusetts Estate Tax in 2023
The new law did two things:
- Increased the estate tax exemption from $1,000,000 to $2,000,000 and
- Eliminated the “cliff” effect that taxed the first million dollars of an estate.
This is good news for taxpayers, because fewer estates will be taxable, and all estates will pay fewer taxes.
The new law is retroactive to January 1, 2023, which means that the estates of all Massachusetts residents who died this year will enjoy the $2,000,000 exemption. The new law also provides a $99,600 credit so that no estate will be taxed on the first two million dollars. This means that married couples will be able to shield $4,000,000 from estate taxes, as the $2,000,000 exemption applies to each person. Click here to read more about the new estate tax rules.
What if Your Loved One Passed This Year and Might Owe Estate Taxes Under the Old Law?
If you are the Personal Representative (also known as an Executor) for a loved one who died in 2023, be sure to consult an estate tax attorney to learn how the new law impacts the estate. In general, estate tax returns are due nine months after death, so few returns have been filed by now. Those estates that have filed returns should be able to amend their returns and receive a refund. Some folks who anticipated filing returns this year may not have to do so now.
What if You Already Set Up Credit Shelter Trusts?
If you already have credit shelter trusts set up to accommodate the Massachusetts estate tax, it’s important to have your attorney review them to determine whether they will shelter the current estate tax amount. Some trusts may shelter a specific dollar amount, and those will need amendment in order to allow for the increased threshold. Many trusts, including those from Bedford Family Lawyer, adjust to whatever threshold is current at the time the grantor passes.
What if You Don't Have an Estate Plan in Place?
Although it’s difficult to face our own mortality, it is important plan for the inevitable. It makes a difficult time a little smoother for loved ones and can save them money by reducing your estate tax liability.
There are basic estate planning strategies that can be utilized to minimize your estate tax if you are married and you have over $2,000,000 in assets. Establishing credit shelter trusts can do that, and they also have other big benefits — like avoiding probate and providing for minor children. Click here to learn more about trusts and what might be useful for your family.
Unmarried folks with over $2,000,000 in assets have fewer options for reducing estate tax liability, but it becomes even more beneficial to have a trust when you’re flying solo financially.
If your total assets are worth less than $2,000,000, and it is unlikely that they will grow to exceed that threshold, then you do not need to do any specific planning to reduce to your estate taxes. It is a good idea to have a will to establish who should receive your property upon your death and who should take care of your minor children. Read more about recommended estate planning documents here.
Schedule a consultation with Rebecca G. Neale to discuss your estate planning needs today.