What To Know About The 2023 Massachusetts Tax Relief Plan (Estate Tax Considerations)

According to a report from Forbes Magazine, Massachusetts Governor Maura Healey recently signed a comprehensive tax relief plan into law. The new legislation could have significant implications for certain estates in the Commonwealth. Within this blog post, our Boston estate planning attorneys highlight the most important things that you should understand about the Massachusetts tax relief plan and the implications for estate taxes.

Massachusetts Tax Reform: An Overview of the Impact for Estate Tax Planning 

The comprehensive tax reform law that was recently signed in the Commonwealth has some big implications for estate taxes. Our legal team wants to ensure that people have the knowledge and resources to protect their best interests. Here is a general overview of some of the key ways in which the new law impacts estate tax planning in Massachusetts:

• The Estate Tax Exemption Will Double ($1 Million to $2 Million): The new Massachusetts tax reform has increased the estate tax exemption from $1 million to $2 million. The change significantly reduces the number of estates that are subject to a state-based estate tax in Massachusetts. Estate planning strategies may be adjusted to reflect the new threshold. While most will conclude that they do not need to do sophisticated tax planning, if, for example, a married couple has less than $4 million in assets.  This simple math is incorrect.   There are strategies for married couples to reduce estate taxes upon the second to die, but the strategies must be in place at the time of the first-to-die spouse’s death.   The following example will help illustrate the issue for planning.   If a husband passes having an estate worth $1.9 million, and he leaves everything to his wife, he pays no estate taxes on his death because it is under the $2 million exemption.  If he had a four million dollar estate, he would pay no estate taxes because he can leave an unlimited amount to his spouse without paying any estate taxes.  But, if the wife inherits the husband’s 1.9 million estate, and she too has an estate worth $1.9 million, her estate is not worth $1.9 million but the total assets of $3.8 million and will pay estate taxes.  If proper planning occurred prior to the husband’s death, there would be no estate tax liability.    The increase in the estate tax exemption has not eliminated the need for estate tax planning.  An experienced Massachusetts estate planning lawyer can help you and your family determine the best course of action.
• “Cliff-Effect” Eliminated to Ensure Equity: Under the old system, an estate that surpassed the $1 million threshold by even a small amount subjected the entire estate to taxation. It was known as the “cliff effect” and it was a serious issue. The recent tax law revision has removed this steep tax imposition. By introducing a $99,600 credit, the reform ensures only the value above $2 million is taxed.
• Changes Non-Residents With Property in Massachusetts: Non-resident property owners in Massachusetts face revised estate tax obligations. If their in-state property exceeds $2 million, they must file a Massachusetts estate tax return. The tax imposed will be proportional to other state taxes. In effect, this means that few non-residents will be required to file an estate tax return in Massachusetts. Still, non-residents who have significant real property within the Commonwealth should be aware of the estate tax rules.
• Law Applies Retroactively (January 1st, 2023): Finally, it is important to emphasize that the tax reform law is retroactive. It applies as of January 1st. 2023. In other words, the estates of individuals who passed away from this date onwards are covered by the new law. In some limited cases, an estate may even be entitled to an estate tax refund from the Commonwealth if an overpayment was made based on the old rules. 

Contact Our Boston Estate Tax Planning Attorney Today

At Fisher Law LLC, our Boston estate planning lawyers have the skills, experience, and knowledge to assist clients with complex estate tax matters. Call us now or contact us online for a confidential initial consultation. Our firm helps clients navigate complex estate tax planning matters in Boston. Suffolk County, and throughout the Commonwealth of Massachusetts.

Source:

forbes.com/sites/matthewerskine/2023/10/04/unveiling-tax-relief-for-massachusetts-how-it-affects-existing-estate-plans/?sh=9ef06922d587