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Massachusetts estate taxes: Frequently asked questions

One of your main goals when planning out your estate is to ensure that as much of the estate goes to your heirs as possible. You saved that money for them. You accumulated those assets to make their lives better. You do not want to make a critical mistake near the end of your life that means they don't get it or that they don't see the full value of all of the work you put in over the years.

To help you, here are a few common questions about estate taxes:

1. Do most states have estate taxes?

No. The states are allowed to determine whether they will collect this tax on an individual basis -- that is to say, they're not federally ordered to have a tax or prohibited from having one -- and most states do not. Massachusetts, however, does tax residents when estates exceed a certain level. If you moved here from another state, it is important to note the differences in the law.

2. What is the limit for tax purposes?

Massachusetts does not tax all residents when they pass away. The limit is $1 million. If the total value of your estate meets or exceeds that amount, you have to pay the estate tax. This is why it's important to know how to influence the size of your estate. For instance, in some cases, a trust can legally reduce your estate to get it below the threshold.

3. Do your heirs have to pay the estate tax?

Not exactly. Instead, you have to pay the money to the state. That's the initial step, thus reducing the size of your estate. The remainder is then passed on to your heirs. They don't have to directly pay taxes on what they receive. They just receive less than they would have if there were no taxes in the first place.

4. What is the tax rate?

Massachusetts uses a range of rates for estate taxes. The lowest it can be, as of 2018, is 0.8 percent. The highest is 16 percent. This percentage is then applied not just to the cash and financial assets, but to the complete value of the estate. This means the value of a life insurance policy, for instance, or a home. In addition, it's important to remember that the whole estate gets taxed, rather than just the portion that exceeds the $1 million threshold.

Your planning

As noted, there are ways to protect yourself from estate taxes. It's important to know what they are and what steps you need to take if you want to ensure that your estate really goes to your heirs.

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