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  • Writer's pictureKathy L. McNair, Esq.

Is Massachusetts Estate Tax Planning Right for You? A Comprehensive Guide

As of January 1, 2023, Massachusetts residents with an estate value exceeding $2 million (increased from $1 million) will be subject to estate taxes. This tax, due nine months after death, is a one-time payment based on the total value of your assets. There are ways to minimize or even avoid this tax, especially for married couples.


What's Included in Your Estate's Value?

The total value of your estate includes your real estate, financial and retirement accounts, investment portfolios, stocks, bonds, bank accounts, annuities, life insurance, cars, jewelry, artwork, and any other possessions. Debts and liabilities are deducted from this total. For example, if you have a mortgage, the amount owed is subtracted. The death benefit of your life insurance policy is also included. Out-of-state real estate is factored into the estate's value, albeit with a slightly reduced tax.


Minimizing Taxes with Credit Shelter Trusts

Credit Shelter Trusts can help married couples maximize the Massachusetts exemption on the first $2 million. To do this, the assets of both spouses must be divided equally, with each trust holding at least $2 million of non-retirement assets. This can be achieved by changing the asset's name into the trust while alive or naming the trust as the beneficiary.


When the first spouse dies, their trust becomes irrevocable. Any assets owned by the trust up to $2 million will go into the credit shelter trust, with any excess assets going to the surviving spouse or into a marital trust.


Pros and Cons of Credit Shelter Trusts

Creating credit shelter trusts can save significantly on estate taxes. For instance, a properly funded $4 million estate could save approximately $190,000 and potentially pay $0 in Massachusetts estate taxes. However, there are drawbacks to consider:

  • Both spouses must be US Citizens.

  • The clients need to change the title on assets and equalize their estates.

  • The process may require significant changes to your finances.

  • If the majority of assets are in retirement accounts, it may not be worth doing.

  • Legal fees for establishing this type of trust are higher.

  • It becomes challenging to also do Medicaid planning. 

  • The surviving spouse will need to file income tax returns each year for the Credit Shelter Trust. There is a hassle factor.


Other Ways to Avoid Massachusetts Estate Taxes

There are several other strategies to avoid Massachusetts Estate Taxes:

  • Move out of Massachusetts, and become a resident of another state. For example, New Hampshire and Florida do not have estate taxes. There are only 12 states in the US that have an estate tax.

  • Make gifts to reduce your estate below $2 million.

  • Leave assets to charity at the end of your life.

  • If you are married, leave everything to the second spouse upon the first spouse's death, but when the second spouse dies, their estate will be subject to estate tax, and the first spouse will have lost their opportunity to leave $2 million without paying estate taxes.


Is It Worth It?

The decision to engage in estate tax planning is highly personal and depends on your individual circumstances. For a married couple with assets just slightly over $2 million, it may not be worth doing. Medicaid Planning may be more important in this situation.  However, for a married couple with a $5 million estate, the potential tax savings could be significant.

If you live in the Greater Boston, Massachusetts area, we are estate planning and elder law attorneys who are ready to help you. To learn more, please call us at 617-489-5900 or use this link to schedule a free consultation:

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