Estate taxes can impact the wealth you worked hard to accumulate over a lifetime, particularly in states like Massachusetts, where estate tax laws can be stringent. However, by employing thoughtful planning strategies, you can minimize the impact of estate taxes and ensure that more of your assets pass on to your heirs.
There are several approaches to safeguarding your estate in the Bay State.
Understand estate tax thresholds
The first step in effective estate planning is to comprehend the state-specific tax thresholds. Massachusetts imposes estate taxes on estates valued at or above $1 million. However, these figures may change, so it is important to stay in the know about any updates to the law. Knowing the thresholds allows you to structure your estate in a way that optimally utilizes available exemptions.
Leverage marital deductions
Married couples can benefit from the unlimited marital deduction. This provision enables the unlimited transfer of assets between spouses without incurring any estate tax liability. Leveraging this deduction can maximize the preservation of family wealth. By leaving assets to a surviving spouse, you can defer estate taxes until the passing of the second spouse.
Establish irrevocable life insurance trusts
Establishing an Irrevocable Life Insurance Trust allows you to remove your life insurance policy from your taxable estate. By designating the ILIT as the policy owner, the death benefit can undergo distribution to beneficiaries outside of the taxable estate, providing a tax-efficient means of passing on wealth.
Per CNBC, only about 1% and 2% of Americans owe estate taxes when they die. However, navigating estate taxes requires a proactive approach. By understanding estate taxes, you can pave the way for a smoother transfer of assets to your loved ones while minimizing the impact of them.