Massachusetts Estate Tax: The Simple Guide

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Paul Sundin, CPA

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Our clients in the Bay State have plenty of estate tax questions. Most of these questions relate to business valuations and estate planning strategies. But what about the Massachusetts estate tax?

In this planning guide, we will review and analyze the Massachusetts estate tax and also cover gift tax and inheritance tax issues. We know that estate planning can be complex, so we will try to make it as easy as possible. If you have a large estate (or plan on having a large estate), make sure you pay close attention.

Massachusetts Estate Tax

To start off, very few states impose an estate tax. In fact, only 12 states in the U.S. levy such a tax. To complicate matters, very few taxpayers have an estate tax problem. So there just aren’t a lot of people who have experience with it.

Massachusetts does levy an estate tax. It is assessed on estates valued at more than $1 million. The graduated tax rates are capped at 16%.

Unlike most estate taxes, the Massachusetts tax is applied to the entire estate, not just any amount that exceeds the exemption threshold. This means that if your estate is worth $2.5 million, the tax will apply to the entire $2.5 million, not just the $1.5 million amount that is above the exemption.

The exemption itself is not portable between married spouses. At the death of the second spouses, only one $1 million exemption is allowed.

Federal Estate Tax Exemption

The estate tax is commonly referred to as the death tax. This nickname can scare a lot of people. But in reality, very few taxpayers will ever be forced to pay it.

The calculation isn’t that challenging. However, getting an understanding of all the assets and liabilities and properly valuing them can be complex. This is especially true when it comes to business entities. If the decedent own shares in a partnership or corporation, it can be more daunting.

Once assets are valued, you can reduce it for any debt obligations of the decedent. You may also subtract legal fees along with CPA fees. The net amount is what I would call net assets.

Now that net assets has been determined, just subtract out the lifetime exemption. Multiply the remainder by the 40% tax rate. Even though this tax rate is very high, there are many people in the federal government calling for an increased tax at a minimum rate of about 45%.

Don’t let all this scare you, if you think you’re going to be subject to the estate tax there is plenty of planning you can do in advance. It’s never too late to get started.

Massachusetts Gift Tax & Inheritance Tax Rules

Fortunately, Massachusetts does not levy an inheritance tax. It also does not have a gift tax.

But if you inherit money or assets from someone who lived in another state make sure you verify state law. Some states will levy an inheritance tax, regardless of where the beneficiary or heir lives.

Tax Structure

Massachusetts residents face a multitude of taxes. Here are a few of them:

  • Massachusetts assesses flat income tax of 5.10%.
  • State sales tax is 6.25% and there is no county or local sales tax. 
  • Property taxes average 1.2%.

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