2023 TAX LAW UPDATE - Does the new Massachusetts estate tax impact my trust? Do I need to update it?

Dec 18

For the first time in over two decades, Massachusetts has finally updated its estate tax law so you generally no longer have a taxable estate if you are under the $2 million threshold in assets.

However, many old trusts have been designed specifically for the Massachusetts estate tax when it was stuck at $1 million.

These pre-2023 Massachusetts trusts are sometimes referred to as A-B trusts, family trusts, credit shelter trusts, or bypass trusts (because attorneys like to complicate things and make up a lot of words for the same thing).

The basic idea was that when the first spouse died, a portion of the estate would pass into the credit shelter trust, and the remainder would stay in the surviving spouse’s trust for estate tax purposes.

But now that the tax exemption has gone up to $2 million and now that the estate tax cliff has been removed (so only the amount above the exemption is taxed rather than the whole thing - which is why the tax under the old law was so brutal), you may be better off transferring the assets held in a credit shelter trust back to the surviving spouse to take advantage of the stepped-up cost basis.

So, if you are married, and have an old trust, you should reach out to your estate planning attorney to see if your trust needs to be updated or if you should be shifting appreciated assets out of your credit shelter trust. If you need a second opinion, call me and I’d be happy to help.

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