The Massachusetts Estate Tax exemption is $1 million. However, even if a decedent's estate is below the $1 million threshold, a Massachusetts estate tax filing may still be required if the decedent made taxable gifts during his or her lifetime.

The executor or administrator must file a Massachusetts Estate Tax Return for any estate in which the decedent's taxable estate, plus taxable gifts during the decedent's lifetime, exceeds the $1 million exempt amount.

Here are two concepts to remember when determining if you need Massachusetts Estate Tax planning.

Remember that Lifetime Gifts Are Added to the Taxable Estate at Death

Adding lifetime gifts to the decedent’s estate has the effect of reducing the filing threshold. Making lifetime gifts from an estate that is likely to be subject to the Massachusetts estate tax will result in some Massachusetts estate tax savings upon the taxpayer’s death. But taxable gifting will not eliminate Massachusetts estate tax liability if gifts + taxable estate is over $1 million.

Gifts are not considered "taxable gifts" if they are eligible for the annual exclusion, which is currently $13,000 per year per donee. Only gift amounts over the $13,000 exclusion are included in the Massachusetts estate tax calculation.

Be Mindful of the Martial Deduction

Massachusetts has an unlimited marital deduction. so any amount that passes to spouse is not subject to estate tax. But married couples must keep their estate plans updated, to make sure that the surviving spouse will not be subject to the Massachusetts estate tax. Estate tax planning formulas that optimize the use of each spouse's federal estate tax exclusion may prevent federal estate tax liability at the death of the first spouse, but set up a situation where a Massachusetts estate tax IS owed. Plans can be updated to:

• use the larger federal applicable exclusion amount (or basis adjustment) at the death of the first spouse, and incur a Massachusetts estate tax that will result in lower total estate tax due on both estates
• use the smaller Massachusetts estate tax exclusion amount at the first death, and risk incurring federal estate tax at the death of the surviving spouse
• use lifetime gifting and the annual exclusion amount to eliminate Massachusetts estate tax liability

To keep flexibility during uncertainty over changing federal estate tax rules, a married couple can consider using:

• a disclaimer trust. When the first spouse dies, everything goes to the surviving spouse, who then has nine months to decide whether to keep the assets or "disclaim" them into a bypass trust.
• a bypass trust equal to the Massachusetts exemption amount, and a special "QTIP gap trust" funded with the difference between the Massachusetts and federal exemptions. When the second spouse dies, any funds left in the gap trust are exempt from federal, but not Massachusetts, estate tax.

If the combined assets of a married couple are greater than the Massachusetts exemption amount, and one spouse dies before estate tax planning steps are taken, the couple may end up wasting a valuable exemption from Massachusetts estate taxes:

Planning techniques can reduce or eliminate liability for the Massachusetts Estate Tax:

• using the marital deduction and a marital deduction trust to take advantage of the exclusion amounts available to both spouses
• making gifts to take advantage of the $13,000 annual gift tax exclusion, and the lifetime gift tax exemption amount
• establishing a Crummey trust or an Irrevocable Life Insurance Trust to take advantage of the $13,000 annual gift tax exclusion.