By Legal Editor Robin Gorenberg, Attorney at Law
When you die, there is a potential Federal and MA estate tax (and potentially an estate tax in other states where you own real estate).
The Federal estate tax threshold for 2024 is $13.61 million for an individual (combined to $27.22 million for married couples), with a 40% tax on the excess over that amount. This threshold is scheduled to go back down to $5 million as of January 1, 2026, but will likely be changed before then.
Massachusetts has its own separate estate tax – the threshold was changed in November 2023 from $1 million to $2 million, effective retroactively for deaths as of January 1, 2023. The new law also removes the “cliff” – under the prior law, if your estate was over $1 million, the tax was on the entire estate, now if the estate is over $2 million, the estate tax is only on the excess over $2 million. The rates on the excess over $2 million are graduated from 7.2% – 16%.
Depending on your situation, the possible impact is:
1. Married couples with estates greater than $2 million but less than the federal estate tax credit ($27.22 million): You have the option of setting up 2 Revocable Trusts to double the MA $2 million credit up to $4 million at the 2nd spouse’s death (no tax due at the 1st spouse’s death due to the 100% “marital deduction”).
2. Non-married individuals with estates greater than $2 million may want to consider other estate planning techniques, such as Irrevocable Insurance Trusts (to exclude the value of life insurance from the taxable estate), or annual gifting plans to reduce their taxable estates for both federal and Massachusetts estate tax purposes.
• ILIT’s (Irrevocable Life Insurance Trusts): Married or non-married individuals with taxable estates and substantial life insurance may want to consider setting up Irrevocable Life Insurance Trust(s) (“ILIT”s) which allows the entire amount of the policy to be excluded from estate taxes at death. *While life insurance is non-income taxable to the beneficiary, it IS part of the estate tax calculation at death.
An ILIT is irrevocable, plus it has lifetime requirements (changing owner and beneficiary of each polity to the ILIT, separate bank account out of which to pay premiums, sending out a notice letter each time you pay a premium). Also, for existing policies, an ILIT only works 3 years after you re-title the policy unless you are getting a new policy and name the ILIT as the initial owner, which avoids the 3-year look-back.
• Gifting: MA does not have a separate gift tax. However, the MA estate tax is based on the gross federal estate which brings back in gifts that were made during lifetime. There is an annual exclusion ($18k/yr, $36k/yr for spouses) per person you give to. Above that, any gifts in excess would exhaust that portion of your $13.61 federal estate tax credit). Gifting within the exclusion annually can gradually reduce your taxable estate, saving MA estate taxes at your death, and gifting more than the exclusion can still save MA estate taxes even though the gifts over the exclusion amount come back into the taxable estate since it lowers the estate tax which would be due.
Robin Gorenberg is an award-winning attorney who specializes in estate planning, probate and estate administration for individuals and law firms. Robin works with clients on both basic and complex estate plans, from Wills to all types of Trusts. Robin also helps clients after a loved one dies, navigating the legal process including probate, trust administration, and estate taxes. Robin’s goal is to communicate in a way that clients can easily understand, and to make them feel comfortable with the process and the ultimate documents. Robin is a graduate of Brandeis University and Boston College Law School and has been practicing estate planning and probate for over 30 years. Robin is a member of the Boston Bar Association (Probate and Tax Sections). She lectures frequently on the topics of estate planning and probate. Learn how Robin can help you or someone you know at www.robingorenberg.com