Part of estate planning includes deciding who gets portions of your estate after you die. However, in Massachusetts, any estates valued at $1 million or higher are subject to estate tax.
Money will go to the state before your beneficiaries receive anything, so make sure you prepare ahead of time to minimize estate tax payments.
One way to reduce your taxable estate is to disperse your wealth to various family members using annual exclusion gifts. In 2022, you can give any family member $16,000 each for a total of $12.06 million throughout your life before you have to start paying taxes.
Irrevocable life insurance trust
Death benefits from life insurance are part of your estate. However, if you set up an irrevocable life insurance trust, you can separate that value from your estate. You must live at least three years after you set up the trust. Otherwise, those benefits will still be a part of your estate.
Credit shelter trusts
If you or your spouse dies, the surviving spouse becomes responsible for both of your assets, which could drastically increase the size of your estate. Credit shelter trusts can keep the estate tax exemption during that transfer so that your beneficiaries get the full amount when you and your spouse pass.
Donating to charity reduces your taxable estate and gets you a tax break. Plus, there is no yearly limit on how much you can donate.
Estate tax return
According to Massachusetts law, your personal representative must file an estate tax return within nine months after your death. Otherwise, your estate will incur fees and interest. Save money by designating an executor.
Preparing for estate taxes ahead of time can help you maximize the amount your beneficiaries receive.