Massachusetts imposes an estate tax on all estates with assets of more than $1 million. The Massachusetts Department of Revenue says that you have to file an estate tax return and pay estate tax if the gross estate exceeds $1 million, including adjusted taxable gifts.
If you want to get around paying estate tax to the state of Massachusetts, you’ll have to get your estate below this threshold. A Massachusetts estate planning attorney can explain your options in answer to the question of “how can I avoid the Massachusetts estate tax?”
How to Reduce or Avoid Massachusetts Estate Tax
You might not feel comfortable having $1 million or less in countable estate assets for your retirement. Many people worry about outliving their money, and that’s a valid concern. If you understand the Massachusetts estate tax rules, however, you can at least reduce the amount of your estate taxes and possibly avoid them altogether.
Here are some ways to reduce or avoid the Massachusetts estate tax:
Credit Shelter Trusts
A surviving spouse receives an unlimited marital deduction, so there are no estate taxes on jointly-held assets when the first spouse passes away. But without proper planning, the second spouse to pass, now holding the combined assets of both spouses, can incur a large tax bill. A credit shelter trust (a.k.a a by-pass trust or A/B trust), can utilize the estate tax exemption of the first spouse to pass and protect the heirs of the surviving spouse when that spouse dies. The surviving spouse can access trust assets to meet their needs throughout their lifetime, but the assets in the trust won’t be a part of the surviving spouse’s estate upon death. An added benefit of a credit shelter trust for older adults is that these legal devices provide some protections from scammers who try to exploit seniors. For more information about credit shelter trusts, get our free report Massachusetts Estate Planning: Saving on Taxes Report.
Spend your money
You worked hard for your money, and you might want to start spending some of it on things you have denied yourself in the past. Be aware, however, that if you use the money to buy assets that will be a part of your estate, those items will count toward the $1 million exclusion. Also, the spend-down strategy is a calculated gamble. You don’t know how long you’ll live or how much money you’ll need for living expenses, medical bills, and inflation. You should hold on to enough money to meet your needs.
Gifting during your lifetime
You can give up to $15,000 a year to anyone you choose without having to report the gift or incur taxes on it. Gifting is a popular means of giving money to your heirs to reduce the size of your estate and reduce or avoid estate taxes. Be careful about giving stock or real estate away during your lifetime because those transfers can trigger capital gains taxes.
Charitable giving
When you give a charitable donation, either money or property, your taxable estate is reduced by that amount. There’s no annual limit to the amount you can give to charity, and the donation can be used as a taxable deduction.
Some people use a combination of these options, as well as other estate planning tools, to craft the best estate plan for their situation and limit the amount of estate taxes they incur. Tax laws are complicated and change periodically. You might have to consider both federal and state estate tax regulations when deciding the optimal plan for your circumstances. This article is for informational purposes only and does not constitute tax advice. You should consult a tax advisor as a part of your estate planning process.
As a skilled Massachusetts estate planning attorney, Matthew Karr, Esq., can help you tailor an estate plan to reduce or avoid Massachusetts estate tax. Contact us today at info@maheritagelawcenter.com or 617.299.6976 for a free initial consultation.
