What You Need to Know About Massachusetts Estate Tax
Everyone has an estate. It may not look like a sprawling mansion in the countryside, complete with a butler and a carriage driver, but in the eyes of Massachusetts law, if you have any assets to your name (even just a bank account), you have an estate.
It’s highly likely that your estate makes you richer than you think, and here’s why: your estate is more than just your home and your current bank account balance. It includes life insurance, annuities, business interests, retirement accounts and more.
This is why you should consider estate planning: lowering the tax burden on your estate could help your family save tens of thousands in taxes, significantly adding to the inheritance of your loved ones. And whether you realize it or not, your assets likely add up to more than $1 million, which is when Massachusetts estate tax will begin to affect you.
The $1 Million Threshold
If your assets equal more than $1 million, you will owe Massachusetts estate tax when you die. And you won’t just owe taxes on the amount above $1 million – you’ll pay taxes on all of your assets over $40,000.
Massachusetts has graduated tax rates that range from 0.08% to 16%. You’ll pay about $36,500 in taxes on an estate just over $1 million, but you could pay nothing if you were able to keep your total estate at $1 million or less.
Are you close to the taxable threshold?
If you have a $400,000 life insurance policy, stock holdings, an average 401(k) retirement and you own a home, chances are, you’re definitely close. It’s worth it to explore the tax saving benefits you could employ with conscientious estate planning. You may not think of yourself as “rich,” but Massachusetts will take its share upon your death unless you structure your assets in a way to benefit your heirs the most.
Giving Is a Great Solution
What’s a great way to reduce estate tax burden in Massachusetts? Give it away.
If you plan on leaving money to your children after your death, and you know your estate is over the $1 million Massachusetts exemption amount, why not begin to impart financial gifts now? You will get to see the benefits your money can provide to your heirs and you will actively reduce the amount they would have to pay in taxes after your death.
Giving is a sensible way to expedite the inheritance process without having to pay estate taxes, but state and federal laws have been established to put a limit on your ability to exercise this option.
In Massachusetts, any gifts in excess of $14,000 per year per receiver that were gifted after December 31, 1976 will reduce dollar for dollar the amount of assets you can have in your estate before incurring estate tax. You can give away up to $14,000 per year, per receiver without paying a federal gift tax, but if you die within three years of any size gift, even one within the $14,000 limit, it will remain part of your estate for tax purposes.
Married couples can give away $28,000 per year to their heirs. They could conceivably gift $28,000 per year to each of their three children and reduce the value of their gross estate by $252,000 over the course of three years, without having to reduce their allowed exemption amount (the $1 million per person described in the section above.)
What Else Can You Do to Reduce Your Tax Burden?
There are many additional estate planning strategies we recommend at slnlaw. From opening a credit shelter trust to establishing a Family Limited Partnership, you have options and we have explanations.
Find out if you’re close to the $1 million threshold – schedule a free consultation with our estate planning team to figure out what you’ll owe and how to lower (or erase) your projected Massachusetts estate tax bill.