Dramatic Doubling of the MA Estate Tax Exemption

Governor Maura Healey signed into law a wide-ranging tax relief package, marking the culmination of more than a year and a half of deliberations that began under former Governor Charlie Baker and became a central focus of Healey’s campaign. A key question on everyone’s mind is:

What is the impact of this new tax law on Massachusetts estate taxes?

The new law doubles the Massachusetts estate tax exemption threshold from $1 million to $2 million. Massachusetts residents with assets between $0 and $2 million at death will no longer have to be concerned with estate tax. This change represents substantial savings, amounting to approximately $100,000, compared to the previous tax regime in place since 2006 for individuals with assets exceeding the old $1 million exemption threshold.

The impact is very real for the residents of many eastern MA towns, where median real estate values are $1 million or more. It’s like being able to pass down the million-dollar home without tax.

In addition, with trust-based planning, a married couple can now double the exemption by twice as much (yes, I said that right). Your trust can shelter $2 million when the first spouse dies and the survivor gets another $2 million exemption at their death, for a total of $4 million tax-free. Under the former tax, the maximum was $2 million for the couple. Not to belabor the point, but without a tax-shelter trust, the most the couple can save on estate tax is only $2 million.

(Note: The estate tax is not to be confused with the “millionaires tax” – 4% surcharge tax on annual incomes over $1 million. That law is unchanged.)

How does the 2 million estate tax threshold compare?

The Massachusetts estate tax is still onerous compared with some Northeast states:

• Maine, New York, Connecticut, and Maine, for example, have exemptions of $6.4 million, $6.58 million, and $12.92 million respectively.
• New Hampshire has no estate tax.
• New Jersey used to tax estates over $2 million until 2018 when it eliminated the tax, but still has an inheritance tax on estates passing to relatives other than spouses, children, and grandchildren.

The federal estate tax has been a political volleyball for decades. While the base federal exclusion is $5 million, that number is adjusted for inflation to the point where now the exemption would be $6.46 million in 2023, temporarily doubled under a 2017 law, which is set to expire at the end of 2025. Our prediction is that by 2026 the federal exemption will be in the $7 million-range.

Is the new Mass estate tax “portable”?

The federal law and the law of some jurisdictions allow for spousal “portability” (you get to use the unused portion of your deceased spouse’s exemption in the year of their death) and inflation. The updated MA estate tax law does not allow for either portability or inflation. But Massachusetts residents will take what they can get after years of being, as Governor Healey has said, “noncompetitive in this arena.” Furthermore, married couples can often double the exemption to $4 million with proper trust planning.

Thinking of Moving?

Massachusetts legislators must certainly be aware of the effect of a relatively high estate tax on whether wealthier retirees choose to continue to call the Bay State home. By moving north to New Hampshire or south to…almost anywhere…residents may increase the fortune of their children and grandchildren, at death. Despite its reputation however, before you died, you might save on income and real estate in Massachusetts compared to many other states. New Hampshire has no income or estate tax but has among the highest real estate tax rates in the country. (The Granite State does have an interest and dividends tax on its residents, but it is phasing that tax out by 2026.)

What is the effective date and asset coverage?

In addition to raising the exemption, the legislature made the exemption retroactive to January 1, 2023, and codified the exemption of out-of-state tangible assets like real estate, cars, boats, aircraft, and RV’s (which was formerly based on case law only). But, beware, if you call another state home, Massachusetts will still tax the estate of non-residents who have real property and other tangible assets situated in the Bay State at death. Therefore, additional tax planning is recommended for former Massachusetts residents who still have a home here.

Massachusetts’ new tax law brings substantial changes to estate taxes, providing significant tax relief for many residents. However, it also underscores the importance of comprehensive estate planning to maximize the benefits of these changes and navigate the evolving tax landscape effectively. For this reason, getting advice from estate planners, accountants, and tax lawyers who know the field is essential to your financial well-being.

Would you like to speak with a paralegal to see if your estate will be impacted? Schedule a free call with Managing Paralegal, Paula Nolan: