Estate Taxes

Federal and MA Estate Tax Planning

 

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 $5.49 million, with a 40% tax on the excess over that amount.  Spouses can double that to $10.98 million through what's known as "portability", which requires the filing of a Federal estate tax return at the death of the 1st spouse (even if the estate is non-taxable).

 

MASSACHUSETTS ESTATE TAX:
 
Massachusetts has its own estate tax (see The MA Estate Tax) with a threshold of only $1 million.  If your estate is over the $1 million threshold, your ENTIRE estate is taxed (not just the excess over $1 million), at rates of 6-16%.


Planning Opporunities


Non-Married Individuals:  If you have substantial life insurance, you can set up an Irrevocable Life Insurance Trust to exclude life insurance from estate taxes (see The Irrevocable Insurance Trust), as well as making annual gifts up to $14,000 per year/per "donee" to reduce your taxable estate.

 

Married Couples:  Married couples typically set up 2 Revocable Trusts, which allow them to remove $1 million from their combined Massachusetts taxable estates, passing more on to their intended beneficiaries upon the 2nd spouse's death, as follows. Also, even though the 2 Trusts are no longer necessary for FEDERAL estate tax savings, they remove all appreciation during the surviving spouse's lifetime from federal estate taxes at his/her later death.  If there is substantial life insurance AND non-insurance assets, they may also set up Irrevocable Insurance Trusts.