Massachusetts estate tax is different from federal estate tax. Massachusetts estate tax is charged only on estates in Massachusetts and tax money is paid by the estate to the government of Massachusetts. Federal estate tax is charged in all 50 states and tax money is paid by the estate to the Internal Revenue Service.
When you are making your estate plan or after your loved on has passed away and you are going through the probate process, you need to understand the rules for Massachusetts estate tax.
A Worcester estate tax planning lawyer at The Law Offices of James A. Miller, P.C. can provide the assistance you need to understand the rules and to try to do everything that you can to limit the amount of estate tax due or even to avoid any estate tax being charged to your estate. Give us a call to find out more.
What are the Rules for Massachusetts Estate Tax?
The Massachusetts Department of Revenue explains the rules for Massachusetts estate tax so you can be prepared for what to expect when making an estate plan or after your loved one passed away.
According to the Department of Revenue, Massachusetts estate tax “decoupled” from the federal estate tax system for deaths after January 1, 2003. Prior to this time, the federal and Massachusetts estate taxes were related. For all deaths after that date, Massachusetts has imposed its own specific rules for estate tax that are independent of the IRS.
The Massachusetts estate tax rules result in many more estates being subject to estate tax at the state level, even if no federal taxes are due. In determining whether estate tax has to be paid or not, it is necessary to look at excludable or exempt amounts. Both Massachusetts and the federal government allow a certain amount of wealth to be passed tax free onto the next generation with no estate tax being charged on the wealth. This is called the excludable amount.
In Massachusetts, for deaths happening after 2006, the excludable amount is $1,000,000. This means that estates over $1 million will face Massachusetts estate tax. The federal government allows for much higher amounts of wealth to pass on to the next generation tax free.
What are the Rules for Federal Estate Tax?
The IRS has excludable amounts just like Massachusetts does, but those amounts are much higher. The annual exclusion for federal estate tax purposes is $5.45 million as of 2016. At the federal level, a spouse is allowed to leave assets to his or her surviving husband or wife tax free and to pass on the remaining balance of an excludable amount. This means, for example, if a wife dies and leaves her entire estate to her husband, no tax is assessed upon death and she gives her husband her $5.45 million exemption. He can now pass $10.9 million ($5.45 million x 2) on to heirs or beneficiaries without taxes.
There is also the possibility that the federal government will entirely eliminate estate tax, which could mean that no estates have to pay taxes to the IRS after a death. The elimination of estate tax on the federal level has become more likely following the recent presidential election, but it is still unclear what tax reform, if any, could be passed in the next legislative session.
If the federal government does absolve estates of the need to pay estate tax, or if the threshold is raised to allow even larger estates to pass without taxes, Massachusetts will still have its own estate tax rules and estates will continue being taxed in the state if assets exceed $1 million.
Getting Help from A Massachusetts Estate Tax Planning Lawyer
The Law Offices of James A. Miller, P.C. can provide assistance in understanding if your estate will be subject to federal estate tax, Massachusetts estate tax, or both. If you are worried that the value of an inheritance you leave for heirs or beneficiaries is going to be reduced by estate tax, you should find out if there are legal strategies available to you that you can make use of to avoid taxes or reduce the taxable amount of your estate. Our legal team can sometimes help you to entirely avoid estate tax with strategic planning.
To find out more about estate tax and about how to protect your wealth from being lost to the government, give us a call at 866-370-3888 or contact us online . You can also download a free estate planning worksheet to find out more about when and how estate tax can be avoided.
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