The Million Dollar Estate Tax Tip For Married Couples in Massachusetts

Massachusetts has one of the worst estate taxes in the country, but there are ways to plan for it. 

As of this writing, each person has a $1 million estate tax exemption, however, that exemption is not portable among spouses so if you don’t use it you lose it. This means that when the surviving spouse dies, he or she will not be able to use their predeceased spouse's exemption amount even though most (if not all) of the predeceased spouse’s estate will likely be in the hands of the surviving spouse.

The other catch is that if you go above the $1 million threshold then the entire amount (not just the amount over $1 million) can be subject to Massachusetts estate tax. A third trap is that even if you live in another state (like New Hampshire or Florida), but own real estate in Massachusetts, then it’s possible to pay an estate tax on the portion of assets in Massachusetts if your total estate is worth more than $1 million regardless of whether the Massachusetts property itself is worth less than $1 million. 

Put differently, if your spouse leaves you all of his or her money and that causes you to have more than $1 million in your estate at death, then you may have to pay a Massachusetts estate tax on all of it. You will not be able to apply your spouse’s exemption to your exemption amount so you lose the benefit of those potential estate tax savings.

So what can I do about it?

The most common solution to this problem among married couples is to set up a family trust (also known as a credit shelter trust). This allows you to preserve the first spouse to die’s $1 million exemption amount, but allows you to still have access to that money. 

How does a credit shelter trust typically work?

You (the surviving spouse) would be named as trustee of the trust and be given permission to distribute assets for your own health, education, maintenance, and support. Your children would be named as secondary beneficiaries so you could also distribute money directly to them if you’d like.

By using this structure, any money or assets properly placed in the credit shelter trust would avoid estate taxes at your death regardless of how much the assets have appreciated by that time. Meanwhile you would also have your own $1 million exemption amount to apply against your own estate.

In effect, this strategy could save up to $2 million from being subject to Massachusetts estate tax.

Want to learn more about how a trust could save your family thousands? Give me a call at 781 202 6368 or email at jlento@perennialtrust.com to schedule your free personal consultation.

I’m always happy to help.

Joseph M Lento, J.D.

Your local estate planning attorney 

Perennial Estate Planning

477 Main Street

Stoneham, MA 02180