The Massachusetts Estate Tax schedule differs from the Federal estate tax exclusion amounts. You must carefully consider whether you or your family are subject to estate tax liability.
Massachusetts has an unlimited marital deduction. But married couples must keep their estate plans updated, to make sure that they 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 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 the coming years of 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 amount.
Estates valued at more than the Massachusetts estate tax exclusion will be required to file a state estate tax return, even though no federal return is required. Failure to do so will result in penalties and interest, if an estate tax is due.
Old rules apply to the estates of Massachusetts residents who died in the 1980's and early 1990's. If there is a taxable estate, forms must be filed to release the automatic lien against property of the estate.
