By Brendan T. King
This is the first year that taxpayers will file income taxes under the Tax Cuts and Jobs Act of 2017. When the legislation was announced, it included a change to the Federal estate and gift tax exemption. While the change was a welcome one, it does not alter the estate tax planning landscape in Massachusetts.
The estate tax is a transfer tax that is imposed on a decedent’s “gross” estate at death when the total assets exceed a specified amount. On the Federal level, the Tax Cuts and Jobs Act essentially doubled the gift and estate tax exemption from $5.49 million ($10.98 million for a couple), to $11.2 million for individuals and $22.4 million for married couples, meaning that if your estate is under that, you will avoid the Federal estate tax. Only the amount over that threshold is taxable. The tax cuts are set to expire in 2025.
While the changes over the last decade have steadily decreased the number of families impacted by the Federal estate tax, Massachusetts continues to have its own estate tax laws with a low threshold of $1 million – meaning estates worth more than that amount are subject to the tax. Accordingly, MA residents must still plan proactively to eliminate or reduce the impact of the state estate tax. Not only is the threshold low in Massachusetts, the tax also works differently in that the entire estate – not just the overage beyond $1 million – is taxed. The tax rates are lower than the Federal rates, but because the threshold is so low, many estates are subject to the tax. Married couples who are U.S. citizens may inherit from each other with no estate tax due on the first death, but without proper planning, the entire estate will be taxed on the surviving spouse’s death.
Estate and gift taxes are complicated. Failing to understand the law or to properly plan around estate tax issues can result in unnecessary consequences for your beneficiaries. At Estate Preservation Law Offices, our attorneys are prepared to help you navigate the ever-changing tax landscape.