There are a lot of nuances to consider when creating an estate plan. For residents in the Greater Boston area, it’s important to note that Massachusetts is one of 12 states (plus the District of Columbia) that collects a state estate tax. Read below for some helpful information on whether your estate is subject to this tax.
An estate tax is a snapshot of the value of all of the assets a deceased person owned on their date of death (the “gross estate”). This includes not only assets held in the deceased person’s individual name, but also assets that the deceased person owned jointly with others, certain assets held in trust, and life insurance and other assets with designated beneficiaries (such as retirement accounts). Importantly, the gross estate is not the same as the probate estate. Just because an asset avoids the probate process does not mean that it also avoids the estate tax.
Working with an advisor in the estate planning process can help you understand the potential impact of federal and state estate taxes, while offering helpful advice and strategies.
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Your estate is subject to the Massachusetts estate tax if you have a gross estate worth more than $2 Million and you either (1) are a resident of Massachusetts or (2) own real estate or tangible personal property located in Massachusetts.
If you are a Massachusetts resident, Massachusetts will calculate the estate tax based on the value of the entire gross estate less the value of any real and/or tangible personal property located outside Massachusetts.
If you are a non-resident with real and/or tangible personal property located in Massachusetts, Massachusetts will calculate the estate tax based on the value of your real and/or tangible personal property located in Massachusetts as a percentage of the value of your entire gross estate.
You can estimate your Massachusetts estate tax liability using the chart below:
|
X < Adjusted Gross Estate ≤ Y |
Base Tax |
Plus % of Excess Over X |
|
|
X |
Y |
||
|
$1,940,000 |
$2,040,000 |
$99,600 |
7.2% |
|
$2,040,000 |
$2,540,000 |
$106,800 |
8.0% |
|
$2,540,000 |
$3,040,000 |
$146,800 |
8.8% |
|
$3,040,000 |
$3,540,000 |
$190,800 |
9.6% |
|
$3,540,000 |
$4,040,000 |
$238,800 |
10.4% |
|
$4,040,000 |
$5,040,000 |
$290,800 |
11.2% |
|
$5,040,000 |
$6,040,000 |
$402,800 |
12.0% |
|
$6,040,000 |
$7,040,000 |
$522,800 |
12.8% |
|
$7,040,000 |
$8,040,000 |
$650,800 |
13.6% |
|
$8,040,000 |
$9,040,000 |
$786,800 |
14.4% |
|
$9,040,000 |
$10,040,000 |
$930,800 |
15.2% |
|
$10,040,000 |
N/A |
$1,082,800 |
16.0% |
For Massachusetts residents, the adjusted gross estate is the gross estate minus any real and/or tangible personal property located outside of Massachusetts minus $60,000. Once you have calculated the number using the chart above you would then subtract the Massachusetts estate tax credit of $99,600 from that number to come up with the final estimated Massachusetts estate tax.
Highlighted Section Example:
$5.5 Million Gross Estate - $60,000 = $5.44 Million Adjusted Gross Estate (AGE)
$402,800 + ($5.44 Million AGE - $5.04 Million) x 12% = $450,800 Gross MA Estate Tax (GET)
$450,800 GET - $99,600 MA Estate Tax Credit = $351,200 Final MA Estate Tax
For non-residents, the adjusted gross estate is the gross estate minus $60,000. Once you have calculated the number using the chart above you would first divide the value of your Massachusetts real and/or tangible personal property by the value of your gross estate, then multiply that answer by the number you calculated using the chart above, and finally subtract $99,600 from that answer.
Highlighted Section Example:
$5.5 Million Gross Estate - $60,000 = $5.44 Million Adjusted Gross Estate (AGE)
$402,800 + ($5.44 Million AGE - $5.04 Million) x 12% = $450,800
$1.65 Million MA Property ÷ $5.5 Million Gross Estate = 30%
$450,800 x 30% = $135,240 Gross MA Estate Tax (GET)
$135,240 GET - $99,600 MA Estate Tax Credit = $35,640 Final MA Estate Tax
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There are two important concepts married couples need to be aware of regarding the Massachusetts estate tax.
First, when one spouse dies, any property that is left to the surviving spouse is not subject to the Massachusetts estate tax. In other words, you can leave as much as you want to your spouse and they will not pay any Massachusetts estate taxes on it.
Second, the $2 Million exemption is not portable between spouses. In other words, if the first spouse dies and leaves everything to the surviving spouse, the first spouse has forfeited their $2 Million exemption and the surviving spouse can only leave $2 Million to their heirs free of Massachusetts estate taxes.
However, if the married couple does proper planning, they can structure their assets to allow them to take advantage of both of their $2 Million exemptions and ultimately leave $4 Million to their heirs free of Massachusetts estate taxes.
Thoughtful estate planning is very important, especially for those that wish to leave assets to their beneficiaries or heirs while minimizing the taxes paid on such assets. Please contact your Rockland Trust Investment Management Group (IMG) Financial Consultant or Relationship Manager to discuss ways to minimize the impact of the Massachusetts Estate Tax and how to leverage gifting and other planning strategies.
