The Massachusetts Estate Tax
Creating a Plan to Eliminate or Minimize the Massachusetts Estate Tax
At the Socius Law Firm, we employ a variety of tools and strategies to minimize or even eliminate the Massachusetts Estate Tax. These include gifting, business valuation discounts, low interest loans, charitable and marital deductions, deferred compensation agreements and more. The comprehensive plan we design for you can also provide the flexibility needed to deal with changes to the tax laws.
Our goal with respect to estate tax planning is to help you leave the largest possible amount of your assets to your children, a charity of your choosing, or any other people or institutions you see fit – as opposed to letting the government or Commonwealth of Massachusetts obtain a substantial portion of all that you have worked so hard to achieve.
The Socius Law Firm helps individuals and families with foundational trust-based estate planning that can minimize – if not 100% eliminate – the Massachusetts Estate Tax.
What is in Your Taxable Estate for Massachusetts Estate Tax Purposes?
Your taxable estate comprises the total value of your assets including your home, other real estate, business interests, your share of joint accounts, retirement accounts, and life insurance policies minus liabilities and deductions such as funeral expenses paid out of the estate, debts owed by you at the time of death, bequests to charities and value of the assets passed on to your U.S. citizen spouse.
Any taxes imposed on the taxable portion of your estate are then paid out of the estate itself before distribution to your beneficiaries.
Massachusetts Estate Tax Planning
If you are a Massachusetts resident that passes with an estate of $2.0 million or more, your estate will owe an estate tax to the Commonwealth of Massachusetts.
Given the high value of real estate in Massachusetts, as well as common life insurance policies and retirement assets, your estate can quickly add up to $2.0 million or more.
For example, a married couple with total assets of $2.0 million may have simple, or “I love you” Wills that leave all assets to the survivor with ultimate distribution to their children. This type of estate plan has the advantage of simplicity; however, it does not take advantage of planning opportunities to minimize or otherwise eliminate the Massachusetts Estate Tax.
With Socius’ foundational trust-based estate planning and other more advanced planning strategies, this same married couple (with a combined estate of $2.0 million), can effectively eliminate all liability for the Massachusetts Estate Tax.
You can learn more about Massachusetts Estate Taxes by visiting the Massachusetts Department of Revenue website.
Federal Estate Tax Planning
In consideration of federal estate taxes, for 2023, an individual is allowed an exemption from the Federal Estate Tax in the amount of $12.92 million and a married couple is allowed an exemption from the Federal Estate in the amount of $25,840,000. This means that each individual can transfer up to $12.92M and a married couple $25,840,000 in assets free of Federal Estate Tax.
The taxable value of the estate is calculated by adding up all the assets owned by the individual and subtracting from that total any of his or her liabilities. Additional deductions can be taken for qualified charitable deductions as well as administrative and legal costs involved in settling the deceased’s estate.
The tax rate for estates exceeding the exemption amount is 40%. The rate is applied to the taxable estate value that is in excess of the exemption amount ($12.92M/$25,840,000).
In addition to the individual exemption, married couples enjoy an unlimited deduction for transfers to one another. While this is great news for many couples who choose to leave their estate to each other, without proper planning, it can result in a forfeiture of some of the individual estate tax exemptions after the passing of the second spouse.
For example, this can occur when a husband leaves $8M of his individually-owned assets to his surviving wife who already has $8M herself, bringing her total net worth to $16M. The bequest to his wife is not subject to estate taxes because it qualifies for the unlimited marital deduction. After some time, the wife also passes away, leaving everything to the children. While her estate can take advantage of her individual exemption of $12.92M, the rest her estate could be subject to Federal Estate Taxes because her husband’s individual exemption was not utilized.
To address this issue, the current Federal Estate Tax law allows for “portability” of individual exemptions between spouses. Stated another way, estate tax portability enables the surviving spouse to utilize the unused portion of the first-to-die spouse’s estate tax exemption. Portability is not automatic and in order to take advantage of it, a Federal Estate Tax return must be filed with the IRS within 9 months of the passing of the first spouse, even if there are no taxes due at the time.
An alternative to relying on portability is to utilize a special planning tool referred to as a credit shelter trust (also referred to as a Bypass Trust or A-B trust). If properly established, such trusts work much in the same way as portability, but do not require filing of a Federal Estate Tax return after the passing of the first spouse.
Questions Our Clients Often Ask
At the Socius Law Firm, we believe estate planning is a process where you design a blueprint that:
- allows you to control your property when you are alive and well
- enables you to control how your & your loved ones are cared for in the event of incapacity
- allows you to control how your assets are managed, used and passed in the event of your death
- enables you to save every last tax dollar, professional and court cost.
While this is typically accomplished through a set of estate planning documents, it is crucial to keep in mind that estate planning is not only about the documents themselves. It is about making a series of informed decisions and taking a series of thoughtful actions, all of which are designed to ensure that in the event of your incapacity or death, things will transition in the way you would have hoped, with the least disruption possible and with minimal or no intrusion by the court.
Learn more about the Socius Law Firm's unique 6-Step Estate Planning Process.
Both a Will and a Trust are useful estate planning documents, but understanding their differences will help you decide which is right for your particular estate planning objectives and personal circumstances.
Find out why a Will alone may not be the best choice for you and your family by viewing our side-by-side comparison chart.
As the foundation of the modern estate plan, a Revocable Trust helps you control how your assets are managed and used while you are alive and well, if you become incapacitated, and after you die.
A Living Trust enables the coordinated distribution of all of your assets, while maintaining the greatest degree of asset control and flexibility - both during your lifetime and after death.
There are many important benefits of Trusts beyond federal and MA estate tax considerations such as:
- Avoiding probate and ensuring a smooth transition
- Protecting assets
- Planning for incapacity or disability (without Court oversight)
- Controlling distributions to beneficiaries (give what you have…to whom you want, the way you want, when you want)
- Maintaining 100% privacy
We offer four levels of comprehensive estate planning - each highly customized to meet your unique family situation. Plan fees are dependent upon your personal values, goals and objectives.
From starter plans primarily for families with young children and little in the way of financial wealth, to more robust plans for well-established families who want to avoid probate, provide asset protection and eliminate or minimize estate taxes, we offer estate planning levels to meet your needs and objectives. Estate planning fees generally range from $1,200.00 up to $8,500.00 on the high end for an extensive estate plan. We also offer several advanced estate planning options for those who need even more planning.
At the Socius Law Firm, we have established a unique estate planning process where we listen and learn about you, your family and personal circumstances, thoroughly explain the estate planning options available to you and custom design, implement and maintain a comprehensive estate plan that reflects your specific concerns, fears, goals and objectives. Our process is designed to ensure your confidence at each step along the way, from the initial planning meeting through the delivery and implementation of your completed plan and beyond. The ultimate outcome of our estate planning process is to give you peace of mind.
We all like to put off important tasks and wait until the very last minute, this includes estate planning. There is always “something” that would be more fun to spend time doing or money on. However, honestly there are few things that are more important and none that are a better investment for yourself and your family. Take the first step….
Probate is a process whereby the Probate Court supervises the transfer of assets from a person who has passed away to the new lawful owners.
Probate is generally a long, frustrating and expensive process. Much of our practice is devoted to using trusts and other planning tools to help our clients avoid probate altogether. However, for families who did not do probate avoidance planning, we are frequently hired to guide them through the probate process.
If you become mentally incapacitated, you won’t be able to manage your own financial affairs. Many are under the mistaken impression that their spouse or adult children can automatically take over for them in case they become incapacitated. The truth is that for others to be able to manage your finances, they must petition the Probate Court to declare you legally incompetent.
This process can be lengthy, costly and stressful. Even if the court appoints the person you would have chosen, they may have to come back to the Probate Court every year and show how they are spending and investing the money.
If you want your family to be able to immediately take over for you without Probate Court interference, you must designate a person or persons that you trust with the use of a Durable Power of Attorney.
A Health Care Proxy allows you to appoint someone you trust - for example, a family member or close friend to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself. Without a Health Care Proxy, your loved ones would have to petition the Probate Court for authority to make medical decisions on your behalf.
In addition to a Health Care Proxy, you should also have a Living Will which informs others of your preferred medical treatments such as the use of extraordinary measures should you become permanently unconscious or terminally ill.
At the Socius Law Firm, we have developed an expertise in planning for the well-being and care of children should the unthinkable happen. We call this advanced legal planning — Kids’ Safeguard Planning.
Kids’ Safeguard Planning is based on the premise that a Will alone is simply not enough to protect minor children should both parents die or become incapacitated.
If you are a parent of minor children, your estate plan needs to include Kids’ Safeguard Planning to ensure your children will always be taken care of by the people you want, in the way you want, and never put in a situation you wouldn’t like.