Woburn Estate Tax Attorney

The estate tax is a tax imposed when someone passes away prior to property being transferred to their heirs. To establish whether you owe an estate tax, the government will look at the fair market value of everything you own at time of death, including cash, securities, real estate, business interests, trusts, annuities, life insurance proceeds, 401(k)s, and other assets. 

As of October 4, 2023, the Massachusetts estate tax exemption increased from $1 million to $2 million for people dying on or after January 1, 2023. That means that typically when a person dies owning $2 million or less in assets, they pay no estate tax. However, if it’s valued over $2 million, the estate is taxed on the amount over the $2 million. The Massachusetts estate tax is a progressive rate of 7.2% to 16%. The top bracket applies to taxable estates of $11 million and over.

There’s also a Federal estate tax. In 2024, the Federal estate tax exemption is imposed only on estates valued over $13.61 million, while married couples can have over $27.22 million. The tax rate for this bracket is 40%.

While the federal estate tax exemption amount increases each year due to inflation, it jumped considerably in 2018, from $5.49 million to $11.8 million. The bad news for heirs of wealthy estates is that the considerable increase from six years ago is only temporary. The base estate tax exemption amount is set to drop back down to $5 million (adjusted for inflation) in 2026.

While most Americans aren’t subject to the federal estate tax, when Massachusetts residents add up all their assets many find that they are over the $2 million threshold due to high real estate values. Life insurance is also included in an estate’s value, even though it pays out to another person. However, because each individual has a $2M Massachusetts estate tax exemption, reducing or eliminating estate tax exposure is entirely possible for individuals and couples with effective estate plans.

A knowledgeable and experienced estate planning attorney can help you to do just that. 

Middlesex County Estate and Tax Planning Attorney

At the Heritage Law Center, our qualified estate planning attorney can help you plan for the future. Matthew Karr, Esq., provides comprehensive estate planning services for those in Middlesex County and all of eastern Massachusetts. He understands the laws surrounding estate planning, taxes, and trusts and can help you create a strategy that works best for you and your loved ones. 

Methods for Minimizing Estate Taxes

There are different ways to minimize your estate tax liabilities.

Credit Shelter Trusts (AB Trusts)

A surviving spouse receives an unlimited marital deduction, so there are typically no estate taxes due when the first spouse passes away. However, taxes are imposed on the total value of assets once the surviving spouse passes. A credit shelter trust or AB trust can shelter assets from taxation when the surviving 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, so they won’t be taxed. This allows sheltering of up to $1M in assets from estate tax.

Tax-Free Annual Gifting 

In 2024, you can give up to $18,000 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 Trust

Another method of minimizing estate tax is a charitable trust, which leverages annual gifts and charitable donations. A charitable remainder trust is one in which you can transfer your property and gift someone income for a period of time before the remainder goes to a charitable organization.  

Qualified Personal Residence Trust 

Since the home is commonly the largest asset in a person’s estate, another method for decreasing (or avoiding) the estate tax is a qualified personal residence trust. As the owner of the home, you can transfer the home title to this trust for your beneficiaries, while you can still reside in the home for a set period of time. The other good news is that whatever the amount of the house’s appreciated value between the transfer of the title to the trust and it passing to your beneficiaries after you pass away isn’t subject to estate taxes. However, if you pass away prior to the end of the specified period of time, the house’s full value (with appreciation) will be part of the net amount of your estate. 

Grantor Retained Annuity Trust (GRAT) / Grantor Retained Unitrust (GRUT)

Other trusts that can help to minimize or avoid the estate tax are a granted retained annuity trust and a grantor retained unitrust. These two trusts allow for the transfer of assets that produce income, such as stocks. These assets will remain in the trusts for a period of time. Over the course of this period the trust either pays you income in a fixed amount each year (GRAT) or a percentage of the value of the trust’s assets, which can differ annually (GRUT). After the period of time is up, the trust’s asset and any of their appreciated value will transfer to the beneficiaries. This is helpful in that after these transfers, the value of your taxable estate will decrease. However, once again, if you should pass away prior to the end of this period of time, a portion or all of your assets will be part of your taxable estate. 

Irrevocable Life Insurance Trust 

Life insurance is a good idea for many reasons, however, the value of the life insurance policy will be included in the taxable value of the estate. Because of this, beneficiaries of the life insurance policy may face a reduction in their proceeds due to estate taxes. The good news is that an irrevocable life insurance trust can own the policy, which will keep the proceeds out of the taxable estate. More good news: the proceeds can be used to pay any estate taxes, often at a discount, in addition to outstanding debts and final expenses. They can also be given to a close surviving relative as a means of financial support.  

Generation-Skipping Trusts (GSTs) 

A generation-skipping trust (GST) does just as it sounds: it allows for your assets to skip a generation, usually passing to grandchildren or great-grandchildren. If you have a correctly designed GST, you can use the current exclusion amount when preparing for future appreciation of the trust’s assets to pass to the beneficiaries.

GSTs may be a good idea for high-net worth individuals if the current exclusion amount is high. 

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. 

Free Estate Planning Reports

You can find more information about estate planning in our free reports: Estate Planning Essentials Report and Massachusetts Estate Planning: Saving on Taxes Report.

Contact Our Massachusetts Estate Tax Attorney

Our knowledgeable estate tax attorney can help you navigate the complexities of Massachusetts estate tax laws with ease. Contact our dedicated team today at the Heritage Law Center. We’ll help you understand how the estate tax will impact your estate and your loved ones’ future.