ESTATE TAXES

Depending on the value of your assets at your death, there could be a federal and/or MA estate tax (as well as an estate tax in other states where you own real estate). 

 

The estate tax is based on the total value of all of your assets, regardless of whether you own them individually, jointly, or in a Trust, including net equity in real estate, liquid/cash assets, stocks & bonds, investments, retirement plans (IRA's), life insurance (entire proceeds), business interests.

 

FEDERAL ESTATE TAX:

 

The Federal estate tax threshold is $11.58 million for an individual (combined to $23.16 million for married couples), with a 40% tax on the excess over that amount. This threshold is going back down to $5 million as of January 1, 2026, but will likely be changed before then.

 

MASSACHUSETTS ESTATE TAX:

 

Massachusetts has its own separate estate tax with a threshold of only $1 million.  This is merely a "filing threshold" so if your estate is over $1 million, your ENTIRE estate is taxed (not just the excess over $1 million), at rates of 6-16%.

 

PLANNING:

  1. Married couples with estates greater than $1 million but less than the federal estate tax credit ($23.16 million):  You have the option of setting up 2 Revocable Trusts to reduce the MA estate tax that would be due at the 2nd spouse's death (no tax due at the 1st spouse's death due to the 100% "marital deduction"); maximum savings would be $160k.

  2. Non-married individuals with estates greater than $1 million may want to consider other estate planning techniques, such as Irrevocable Insurance Trusts (to exclude the value of life insurance from the taxable estate), or annual gifting plans to reduce their taxable estates for both federal and Massachusetts estate tax purposes.

  3. Married or non-married individuals with taxable estates may want to consider setting up Irrevocable Life Insurance Trust(s) ("ILIT"s) which allows the entire amount of the policy to be excluded from estate taxes at death. *While life insurance is non-income taxable to the beneficiary, it IS part of the estate tax calculation at death.

 

An ILIT is irrevocable, plus it has lifetime requirements (changing owner and beneficiary of each polity to the ILIT, separate bank account out of which to pay premiums, sending out a notice letter each time you pay a premium). Also, for existing policies, an ILIT only works 3 years after you re-title the policy unless you are getting a new policy and name the ILIT as the initial owner, which avoids the 3-year lookback.

 

GIFT TAX:

 

MA does not have a separate gift tax. However, the MA estate tax is based on the gross federal estate which brings back in gifts that were made during lifetime. There is an annual exclusion (currently $15k/yr, $30k/yr for spouses) per person you give to.  Above that, any gifts in excess would exhaust that portion of your $11.58 federal estate tax credit).

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