Massachusetts residents must consider the state’s estate tax when filing a return and planning for future financial obligations. Massachusetts has its own estate tax, separate from the federal estate tax, which can impact estates valued over a certain threshold.
Understanding and utilizing available exemptions is an important part of minimizing estate tax liability.
Understanding the Massachusetts estate tax threshold
As of 2023, Massachusetts imposes an estate tax on estates valued at over $2 million. If an estate exceeds this threshold, the entire estate becomes subject to taxation, not just the amount above $2 million. The tax rate ranges from 0.8% to 16%, depending on the estate’s total value. This means that even relatively modest estates could face significant tax burdens.
Utilizing the Massachusetts estate tax exemption
To reduce estate tax liability, residents can take advantage of exemptions and planning strategies. The key exemption in Massachusetts is the $2 million threshold, which is possible to manage through effective estate planning.
Gifting as a strategy
One way to reduce the taxable estate is by gifting assets during one’s lifetime. Massachusetts does not impose a gift tax, so residents can give away money or property without reducing their $2 million estate tax exemption. By strategically gifting assets, the overall estate value can remain below the taxable threshold.
Establishing trusts to protect assets
Creating a trust can also help manage estate tax obligations. A common strategy involves setting up a revocable living trust, which allows for the distribution of assets according to specific terms. By transferring assets into a trust, it is possible to reduce the estate’s value, potentially bringing it under the $2 million threshold.
Understanding and using Massachusetts estate tax exemptions can protect more of an estate’s value for beneficiaries. A proactive approach secures your financial legacy while minimizing estate tax burdens.
