Prior to 2023, the state estate tax in Massachusetts stood at one of the lowest thresholds in the country at $1 million. On October 4, 2023, Governor Maura Healy signed the Act to Improve the Commonwealth’s Competitiveness, Affordability, and Equity Act, which increased that exemption to $2 million, retroactive to January 1, 2023. Before this law change, the Massachusetts estate tax was a driving force for married couples to create an estate plan, most commonly utilizing Revocable Living Trusts to capture the marital exemption to reduce or eliminate their estate tax burden. With the exemption doubling, will Revocable Living Trust planning fall out of practice?
Reevaluation of Existing Plans
For those who have existing estate plans designed under the previous $1 million threshold, it is crucial to reevaluate these plans. The increased exemption amount might render some of the previously necessary tax avoidance strategies redundant. For instance, certain trusts or gifting strategies might need adjustment or may no longer be necessary.
Increased Estate Tax Exemption
With the estate tax exemption in Massachusetts being raised from $1 million to $2 million, we no longer need to file an estate tax return for decedents with estates valued at less than $2 million, including property owned in other states. For estates valued at more than $2 million, this change reduces the state estate tax by almost $100,000. The new law is retroactive, applying to estates of individuals who died on or after January 1, 2023. If an estate tax return for an individual who died this year has already been filed, a refund request should be filed based on the new $2 million exemption.
Inclusion of Out-of-State Property
For Massachusetts residents, the value of real and tangible personal property located outside of Massachusetts will be included in their gross estate to determine if estate tax is due. However, the amount of estate tax due will be proportionally reduced to exclude the value of non-Massachusetts property.
Probate Avoidance
A properly drafted and funded Revocable Living Trust still has the important benefit of avoiding the Probate Court at both the grantor’s incapacity and death. Implementing a Revocable Living Trust and subsequently titling your assets into that trust will allow the grantor’s family to avoid having to petition the Probate Court for a Guardianship or Conservatorship, should the grantor become incapacitated, and will avoid having to file in the Probate Court at the grantor’s death.
Lifetime Gifting Strategies
Although the increased exemption reduces the estate tax burden for many, lifetime gifting can still be a valuable strategy, especially for larger estates. Gifts within the annual exclusion limit can reduce an estate’s taxable value without incurring gift tax.
Asset Protection for Your Heirs
Leaving assets to your children or beneficiaries in trust means that those assets will be protected from creditors. Potential creditors may be a car accident, slipping and falling, business failure, and divorcing spouse, as well as your children’s possible future estate tax obligations or the need to plan for long-term care costs. You have worked hard to leave a legacy for your beneficiaries, why not use a Trust to protect those assets for them and their descendants?
Given the complexity of estate tax laws and the potential for significant tax implications, it is advisable to seek professional legal and financial advice. Contact Legacy Counsellors today at info@legacycounsellors.com or (413) 527-0517.