What is an Estate Tax?

According to the Massachusetts Department of Revenue, “the estate tax is a transfer tax on the value of the decedent’s estate before distribution to any beneficiary.” The wealth that passes from one generation to the next must be taxed. Up until recently, the threshold for the past couple of decades has been $1 Million. The recent change to $2 Million can require reformulating a strategy for you and your loved ones. 

The Previous Threshold

The threshold for those who passed away on or after January 1, 2006, was $1 Million. This calculation includes the gross value of the estate plus any adjustable taxable gifts included in the estate.

The personal representative (or those who are in actual or constructive possession of the decedent’s property) must file paperwork within nine months of the decedent’s death of the calculation showing a value exceeding $1 Million. A limited availability of extensions to the nine-month timeline may be available, provided 80% of the taxes have been paid.

If the payment of taxes is late and there is no extension granted, the estate may incur late filing penalties, late payment penalties, and interest. A lien may also be placed on property within the estate, prohibiting selling or transferring the title until it is cleared.

What Property Must Be Included in the Gross Estate Calculation?

Any property in which the decedent had an interest on the date of their death is included.

Property over which the decedent possessed a general power of appointment must also be included.

Joint estates with rights of survivorship must also be included.

Annuities or other relevant financial accounts include stocks, bonds, pensions, etc.

Life insurance proceeds, typically including the value of those payable to beneficiaries

Tangible property such as coin collections, jewelry, silver, boats, automobiles, equipment, furniture and more.

This list isn’t meant to be exhaustive, and there may be other items that should be included in your calculations. Consult your experienced attorney for capable guidance.

Other Pertinent Changes

The existence of a cliff no longer applies. With previous calculations, those with an estate valued at over $1 Million would generally pay taxes on the entire amount. With the removal of the cliff, taxes are typically only paid on the amount exceeding the $2 Million threshold.

Retroactivity is allowed. A refund is generally expected for those who passed away on January 1, 2023, or after and have already filed or paid taxes based on the previous threshold of $1 Million.

Tax Rate for short-term capital gains has also changed. This change can affect your estate calculations, as the new rate is down from 12% to 8.5.

There is no inflation indexing for the $2 Million threshold. While the federal estate level taxes accommodate for inflation by being adjusted annually, the rate for Massachusetts will stay the same unless and until the law is changed again. With the last change happening in 2006, the years passed until the following significant change was nearly two decades. If this trend continues, there could be an upside to the fact that no inflation indexing is accounted for.

It’s important to discuss your estate’s value at length with an experienced attorney to determine how the changes will affect you directly so you can adequately plan for them.

How Are Out-of-State Assets Handled?

If real or tangible property exists outside the state of Massachusetts, a proportionate reduction in the estate tax equal to the value of said property may be applied.

Suppose you have an interest in an LLC in another state and that LLC owns real estate. The value of that property may have to be included in calculations rather than having you own the property personally, which may affect the calculations differently.

As property in other states can significantly affect your Massachusetts taxes, it’s imperative to speak with an experienced estate planning attorney immediately to examine what options may significantly affect calculations for the $2 Million threshold.

Your Capable and Compassionate Ally

With decades of experience in helping clients with their estate planning needs and other areas of law, we are confident that we can assist you in effectively planning for your future. We will review your estate thoroughly, ensure that relative items are included in the calculations, and help your loved ones prepare for the amount of taxes they may be subject to.

There’s nothing worse than working your entire life to provide for loved ones and realizing that taxes will chew up a large portion of that after you are gone.

A wide array of tools can be used to ensure that your tax implications are as minimal as possible, allowing more to be left behind for the intended beneficiaries, thus continuing to provide for those you love for years to come.

The importance of timing must not be overlooked. If you are planning in advance, you have access to several options and can apply a realistic strategy that can also protect your estate from unforeseen complications. If you wait, you may limit your options, making navigating estate planning unnecessarily challenging.

Contact our office today at (781) 531-8673 to learn how we can best serve you and your family. Don’t leave your legacy to just anyone. You can count on our team to apply the diverse skill set that we possess with compassion for our clients and their families that compels us to formulate a winning strategy.

Call for your free initial consultation today.