Did you know that if you die in Massachusetts with one penny over $1 million in assets you can be liable to pay a Massachusetts Estate Tax starting at approximately $38,000? A married couple in Massachusetts can use a Tax Planning Trust to shelter their estates from this Massachusetts tax. This article discusses how you can save on estate taxes as a married couple in Massachusetts.
~ Wendy Guthro, Attorney & Counsellor at Law
"I truly believe that everything that we do and everyone that we meet is put in our path for a purpose. There are no accidents; we're all teachers - if we're willing to pay attention to the lessons we learn, trust our positive instincts and not be afraid to take risks or wait for some miracle to come knocking at our door."
~ Maria Gibbs
Massachusetts Married Couple? Save on Estate Taxes!
A Tax Planning Trust is also referred to as a Credit Shelter, AB Trust, Bypass Trust, or Marital Deduction Planning Trust. No matter what you call this Trust, when it is properly drafted and implemented, it can save your estate big bucks in taxes.
To understand how this Trust works, you first must understand that we have two different ESTATE taxing authorities, the Federal government, and the State government. Each authority has its own taxing thresholds. In addition, each State can establish its own taxing threshold amounts.
Some states, like New Hampshire, have their threshold “coupled” with the Federal rate, so as the Federal rate changes, so do their State Estate tax thresholds. Massachusetts is “decoupled” from the federal rate, unfortunately resulting in a lower taxing threshold forcing more Massachusetts residents to pay an Estate Tax at their death.
The federal estate tax threshold is approximately $12 million per individual in 2022. Compare that with the Massachusetts threshold of $1 million per individual. That means that most people will not pay a Federal Estate Tax because their assets are under $12 million but in Massachusetts, an individual’s estate is subject to the Massachusetts Estate Tax if it’s valued at more than $1 million.
What counts toward that $1 million threshold? Every asset that you own including your real estate, investments, retirement accounts, vehicles, and life insurance policies, to name a few. So, with so many Massachusetts residents susceptible to this tax, let's plan around it with a Tax Planning Trust for married couples.
The good news is that in Massachusetts, each spouse has their own $1 million exemption. But the rub is that each spouse must USE their $1 million exemption so that their surviving spouse doesn’t simply inherit the $1 million directly. We use a Tax Planning Trust for married couples so that upon the death of the first spouse, we fund a separate trust (Family Trust) to hold up to $1 million of the deceased spouse's assets. Another trust (Marital Trust) will hold any monies over $1 million. The surviving spouse will have access to all of the money (Family and Marital Trusts) but with some restrictions so that the taxing authority will recognize that up to $1 million has been pulled out of the surviving spouse's estate and not included in their Massachusetts Estate Tax calculation when they die.
Yes, it's complicated, but not for us. We do this type of Estate Tax Planning every day and help our clients save thousands of dollars in taxes. If you are a married couple residing in Massachusetts with combined assets over $1 million, call our office to put a Tax Planning Trust in place. If you reside in New Hampshire, congratulations, no Tax Trust is needed but consider a traditional Revocable Trust to help you avoid probate. If you are single, residing in Massachusetts, and have assets over $1 million, we can also discuss strategies to reduce or eliminate estate taxes and avoid probate.
Contact us at 781.229.0555 or Office@GuthroLaw.com with further questions. If you wish to start the Estate Planning process, simply click the button below, complete the questionnaire and return it to our office for a free consultation.
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Attorney and Counsellor at Law
Seventeen Treetop Court Burlington, Massachusetts 01803 United States
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