This article uses 2024 Estate and Gift Tax Limits.

If you are approaching or not too much over the state or federal estate tax limit in total assets, gifting might just be what keeps you within the exemption by the time of your death.

In Massachusetts, an estate totaling over $2 million in total assets is subject to state estate taxation. For married couples, typically no tax is owed at the time of the first spouse to pass away, but planning is very important to avoid taxes at the second death. Estates over this amount will be taxed as much as 16% on the amount over $2 million.

For federal purposes, the current threshold is $13.61 million set to cut in half to approximately $7 million as of 12/31/25 (unless Congress extends this 2017 tax break). The tax is a flat rate of 40% over this amount.

For example, if your home is worth $1 million and you have retirement accounts, savings, investments and perhaps life insurance worth over $1.5 million, then you are over the Massachusetts estate tax threshold and roughly $39,000 would be due following your death (or the second of your deaths if you are married).

If you are an individual with wealth north of $7 million, you have reason to be concerned. If you are married and your wealth exceeds $14 million, then you should be working to reduce your estate to below these numbers where it makes sense to do so to save the 40% tax.

So what can you do to reduce estate tax?  

For one thing, you can incorporate revocable trust planning into your estate. This is often called “A-B” trust planning, whereby you preserve up to $2 million dollars in exemption on top of the $2 million exempt in the estate of the second to die (if married). The Bypass trust is accessible to the surviving spouse but bypasses his or her estate for tax purposes.

You can also consider a life insurance policy so that your beneficiaries can use the payout to pay any estate taxes. Even better, you can keep life insurance proceeds from becoming part of your estate and themselves being taxed by creating an Irrevocable Life Insurance Trust. Borchers Trust Law can assist you with the trust planning aspect of these options.

Still have a tax due? A third option may reduce your taxable estate: The Yearly Gift of up to $18,000 per person. For example, if you have two daughters who are happily married, trying to pay down their mortgages, you can potentially give each family as much as a $72,000.00 gift, without any tax filings necessary. That’s a total of $144,000.00 that is removed from your estate in just one year. If repeated, this approach can add up to a significant total.

A gift of that size in a 16% tax bracket will save at least $23,000 in Massachusetts estate tax and as much as $57,000 in federal estate tax if your estate is large enough to be subjected to the tax. Repeating this gifting year-after-year will compound this savings. And, we say “at least” these amounts because a gift of an appreciating asset today will mean even more savings on the appreciated asset later.

Gifting is not without risk of course. By giving assets to an individual, you are giving up the right to that property. A gift to a married couple, if there is a divorce or separation, will make it hard to consider that money as being only in your child’s control and not marital property. Additionally, if any child or child’s spouse is subject to a lawsuit, creditors could certainly look to attach any of the gifted property.

And what about minor children, or teenagers?

One way to reduce your estate is to contribute to your grandchild’s education by gifting $18,000.00 yearly to a 529 Plan (or up to 5 times that amount in one year if you are superfunding). This is something that the grandchild does not even need to know about. When it comes time to apply to colleges, the grandchild could potentially have much of what it takes to pay for tuition, without any taxes on the college savings held in this way.

What alternative do I have to a 529B Plan or to the direct gifts to children or grandchildren?

Worthy of consideration: a Trust with “Crummey” power provisions. In a Crummey Trust, the donor can gift the $18,000 (or current yearly gift amount) and have it be accessible to the beneficiary for only a limited time. By allowing a window of time whereby the recipient can access the money (the Crummey power), the trust satisfies the IRS rules for a present-day gift. If the recipient didn’t have at least some time period to access the gift, it would not qualify for the yearly exclusion. After the time, say 30 days, the right of access lapses, so there is no risk that the funds will be lost to the child’s divorce, creditor, or their own personal spending. Keep this gifting up for a few years and you will make quite an impact.

What if I am gifting more than $18,000 to my son/child?

Each individual has a lifetime gift tax exemption of $13.61 million presently. That means that you can give much more than $18,000 to your son or daughter, but you will need to file a Gift Tax Return (Form 709, best prepared by your CPA or estate planning attorney) for the year of the gift. If you keep your gifts beneath the exemption amount, you will not need to file anything. It’s always good to keep records, though, of any gifts you make each year.

As you can see, maximizing the gifting opportunities during your lifetime can be a great way to reduce estate tax burdens and also complement your existing estate plan.

Contact us today if you have any questions or need legal advice.

This article is not intended as tax advice and may not be relied upon for your particular situation. Seek competent advice. To the extent this communication is construed as tax advice, you may not rely on it to avoid a tax penalty.