Do You Have a Well-Rounded Estate Plan?
If you start planning your estate and how you would like it passed to your family without considering how Massachusetts’ estate taxes differ from federal taxes, you can see a large portion of your estate going to taxes instead of your family. Massachusetts imposes estate taxes on considerably smaller estates than the normal federal amount. If you are not using solid estate planning strategies, paying those estate taxes can come as a nasty surprise.
Contact The Heritage Law Center to find out your estate planning options and how you can plan beyond your will and protect your assets from excessive taxation. Call 617-765-9307 to schedule a consultation.
How Does Massachusetts’ Estate Taxation Differ from Federal Laws?
Even the most senior Massachusetts residents may not be aware of the significantly different taxation laws of The Bay State. While federal taxation only applies estate taxes to estates exceeding $13 million, Massachusetts’s taxation has a much lower threshold, taxing estates valued over $2 million. Without proper planning, these taxes can wipe out your wealth well before your family ever sees a penny.
Suppose you live in Massachusetts and own real estate, significant investments, or substantial business assets. In that case, you will need comprehensive estate planning to ensure your wealth goes to your heirs instead of the state.
What Role Does Estate Planning Play?
Estate planning is the process of planning for the transfer of your wealth to your heirs while minimizing the impact of probate and taxation. Financial wealth in the form of real estate, investments, and life insurance policies are all taxable and can put your estate well over that $2 million threshold.
Some estate planning strategies you can use to minimize both probate and estate taxes include:
- Establishing one or more Trusts
- Using gift-giving tactics
- Transferring assets to a spouse tax-free
- Use joint ownership tactics with automatic asset transfer without probate
- Use payable-on-death and transfer-on-death accounts that bypass probate
- Use proper business succession planning
The Heritage Law Center can educate you on your options and recommend the best tactics for smoothly transferring your wealth to your heirs.
How Can You Use Trusts to Avoid Excessive Taxation?
Trusts are an invaluable estate planning tool. A Trust is a legal entity to which you transfer assets. Depending on the type of Trust, you may still have access to those assets, but most tax-reducing Trusts completely transfer the ownership of those assets to the Trust itself, removing your ability to access them.
Why would you want to create a Trust that removes assets from your ownership? Because they offer valuable benefits such as lower taxes and even protect assets from creditors and lawsuits. These Trusts are called Irrevocable Trusts. Once funded, an Irrevocable Trust’s terms can not be altered, and the Trust can not be easily revoked.
Revocable Trusts and Irrevocable Trusts allow the assets within them to be distributed without needing to pass through probate.
What Kinds of Trusts Offer Tax Benefits?
There are various Trusts you and your estate planning attorney can use to lessen the impact of taxes on your estate and maximize how much of your wealth goes to your family.
Irrevocable Life Insurance Trusts
An Irrevocable Life Insurance Trust (ILIT) allows you to remove your life insurance policies from your taxable estate.
Charitable Remainder Trusts
This philanthropic Trust allows you to lessen the tax burden on your estate. A Charitable Remainder Trust (CRT) allows you to donate assets to a charity while still receiving income from the Trust for a set term up to the remainder of your life. A CRT reduces estate taxes and may even offer various income tax deductions.
Qualified Personal Residence Trusts
A Qualified Personal Residence Trust (QPRT) allows you to transfer your primary or secondary home into a Trust while retaining the right to live in it for a set term. When that term ends, ownership of the home transfers to your beneficiaries at a reduced gift tax evaluation.
Most Trusts that remove assets from your ownership offer some form of tax benefit or asset protection. While using a Living Trust is a great way to manage your assets and their distribution to your beneficiaries and limit the amount of your estate that must pass through probate, they don’t really offer tax benefits.
How are Massachusetts Legislative Changes Affecting Estate Taxes?
Massachusetts estate tax laws recently changed. The exemption was previously only for estates valued under $1 million. Furthermore, the “cliff effect” has been eliminated. Where estates valued over $1 million saw the entire estate above $1 million would be taxed, they now instead implement more gradual estate taxes.
Tax laws are always changing, and not working with an informed estate planning attorney can have disastrous effects on your estate after you are gone.
Do You Need an Estate Planning Attorney?
Do you really want to gamble with your family’s inheritance? Failing to work with an attorney who understands estate planning, estate taxes, and ways to minimize both probate and estate taxes can see a lot of money being left on the table that your family could have used.
Call 617-765-9307 to speak with an experienced estate planning attorney with The Heritage Law Center. Don’t delay; you never know what the future holds.
