Massachusetts has unique estate tax rules compared to other states, which can significantly impact residents and their beneficiaries. Understanding these differences is crucial when planning an estate to minimize tax liabilities.
Massachusetts estate tax threshold
Massachusetts imposes an estate tax on estates valued at over $1 million. This is much lower than the federal threshold of $12.92 million, and lower than many other states, where exemptions can range from $2 million to $11 million. As a result, more estates are subject to taxation in Massachusetts than in most other states.
No portability of exemptions
Unlike the federal system, Massachusetts does not allow “portability” of estate tax exemptions between spouses. In states that allow portability, a surviving spouse can combine the unused portion of a deceased spouse’s exemption, reducing their tax burden. In Massachusetts, each spouse has a $1 million exemption, but it cannot be transferred.
Marginal tax rate system
Massachusetts uses a marginal tax rate system, where estates are taxed on the entire value once they exceed the $1 million threshold. This contrasts with states like New York, which only tax the amount exceeding the threshold.
Strategies to reduce the tax burden
Due to these differences, many Massachusetts residents implement strategies such as gifting assets during their lifetime, setting up trusts, or moving assets out of state to reduce estate tax liabilities. Consulting an estate planning attorney can help ensure a tax-efficient plan.
Understanding how Massachusetts differs from other states in estate tax laws can lead to more effective estate planning, potentially saving significant amounts for heirs and beneficiaries.
