As you may know, estates in Massachusetts may be subject to an estate tax. The tax rate varies, starting at 0.8% and topping out at 16% for estates worth more than $1 million—even if the value is just a dollar or so over $1 million.
In contrast, the federal government only taxes the amount over the threshold, but it does so at a much higher rate (40%). Your estate’s worth and tax liability is calculated by valuing your homes, property, bank accounts and retirement accounts.
Obviously, when you’ve worked hard your whole life, you’d prefer to keep your money in the family or directed toward your beneficiaries. Many people consult estate planning attorneys to maximize the money their beneficiaries will inherit. This can be accomplished by several methods.
One way to avoid the Massachusetts estate tax is to give gifts during your lifetime. Everyone can give up to $15,000 per year without needing to report the gift to the IRS. However, once you pass that threshold, you’re required to report it. This ultimately will reduce your estate tax, but can be a bit complicated. You should consider whether you’ll still have enough funds to support yourself and any lifetime medical care needs, as well as any capital gains tax that the recipient might incur—this could significantly reduce the monetary value of your transfer or gift.
A better way may be to establish a credit shelter trust for your spouse. The surviving spouse has access to and can benefit from the funds when they’re needed, but it won’t be included in your taxable estate when they die.
Marital assets are never subject to an estate tax: they pass to the surviving spouse automatically. However, when the surviving spouse eventually dies, all of their marital assets will be subject to an estate tax. Spouses often split their estate evenly and hold it in trust for the surviving spouse. After both spouses have died, the estate will avoid paying taxes on the entirety of the estate.
There are significant benefits to this plan. It protects the estate if the surviving spouse gets remarried, especially if there are financial exploitation concerns. It also preserves the funds for an incapacitated spouse and provides creditor protection and management tools, in the event that one spouse finds it difficult to manage their finances.
Some people may find that needing to hire an estate planning attorney and change the structure or beneficiaries of their assets is a drawback. Depending on the size of your estate and your goals for your beneficiaries, you may choose to do nothing at all.
Preserve your hard-earned wealth for your beneficiaries and ensure your legacy continues when you consult with a skilled estate planning and tax attorney.
To determine if your estate could benefit from these tools and more, the estate planners at Baker Law Group would be pleased to work with you. We are familiar with the ins and outs of the Massachusetts estate tax laws, and can help you to make the best choices for your estate.
We offer a complimentary initial consultation.