The MA Estate Tax

While the Federal estate tax cutoff is now up to $11.4 million ($22.8 million for spouses), with a 40% tax on the excess over that amount, Massachusetts still has its own estate tax, with only a $1 million cutoff point, and up to 16% tax.  And the Massachusetts $1 million level is only a "filing threshold", meaning that estates over $1 million are taxed on the ENTIRE value, at 6-16%.



From a practical standpoint, this means that estates that do not owe a federal estate tax may very well owe a substantial MA estate tax. 


Here are a few typical scenarios:


1.  Married couples who have existing "estate tax planning" setup (2-Trust plan), sometimes referred to as "A/B" Trusts, or "Revocable Trusts":  These types of trusts are set up to allow a married couple to double the federal estate tax exemption, passing more on to their heirs at the 2nd spouse's deaths.  In many cases, these Trusts will no longer accomplish optimal estate tax savings, and may actually cause an increase in the MA estate tax due, depending on the actual provisions in the existing Trusts.  Accordingly, these clients may need to amend their Trusts in order to maximize estate tax savings.


2.  Married couples with estates greater than $1 million but less than the federal estate tax credit ($22.8 million):  These clients may now want to consider the 2-Trust plan to reduce the MA estate tax that would be due at the 2nd spouse's death.  Depending on the value of your estate and also how much life insurance you have, you might also consider setting up an Irrevocable Life Insurance Trust ("ILIT").  See more information on The Irrevocable Insurance Trust.


3.  Non-married individuals with estates great than $1 million may now 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.