Professional Perspectives: Your Money, Your Independence

77

Glenn Brown, CFP
Glenn Brown, CFP

Stop Making Sense: Massachusetts Updates Estate Tax Laws

It’s taken 2 years, but Massachusetts lawmakers finally provided legislation for Governor Healey to sign on October 4th impacting the lowest (worst) U.S. estate tax threshold as part of a “$1 billion tax relief package”.

There are several positives in this package. Benefits for expanded childcare credit (over 30% of package), seniors, renters, septic systems, low-income housing, com­muters, and short-term capital gains reduced from 12% to 8.5%.

Recall an estate tax may be owed based on net value of the estate of a deceased person before distribution to non-spousal heirs. To calculate net value, add all assets (real estate, investments, IRAs, small business, life insurance proceeds, personal property etc.) minus liabilities.

Key facts on MA update:

Estate tax exemption rises to $2 million from $1 million, first increase since 2006.

  • Provides a uniform credit of $99,600.
  • Eliminates “the cliff effect” when all assets were taxed if over threshold.
  • Retroactive for estates of decedent’s death on or after January 1, 2023.
  • Filed 2023 estate tax returns or estimates paid are entitled to a refund.

This Must Be The Place (Naive Melody)

Before celebrating a victory for the Common­wealth by echoing legislators that this “doubles the previous threshold”, understand there are only 12 states in the U.S. that still tax estates.

Yes, you can live in 38 other states and pay $0 state estate tax regardless of your wealth.

Furthermore, the federal estate tax exemption is now $12.92 million, over 6X greater than MA. For most, there’s little concern of having a life’s work of earning, planning and saving being taxed upon death by the federal government.

Same As It Ever Was, Same As It Ever Was…

The new $2M threshold moves MA from tied for 49th worst to 48th of U.S. states.

Consider actions of other states since 2018 per taxfoundation.org.

New Jersey and Delaware eliminated their estate tax.

Vermont raised to $5M, Maine $6.4M, New York $6.58M and Connecticut now aligns to federal government’s $12.92M.

Additionally, Illinois ($4M) and Oregon ($1M) legislators have proposals to increase to the fed­eral government’s $12.92M or higher.

Take Me To The River (or another state)?

How quickly can one’s estate exceed $2 mil­lion in MA?

Consider the median single-family home sale price in Middlesex County is $845,000. Add savings, 401(k), 403(b), any insurance proceeds, value of a small business, maybe a generations Maine lake house… it can add up.

Connect with an estate planning attorney. New laws and life events are opportune times to connect as well as provide an updated net worth and review your process. Remember, revocable living trusts bypass probate, not estate tax laws.

Know your net worth. Run updated estate tax estimates after $99,600 credit applied. MA is still a graduated tax rate starting 0.8% up to 16%. For example, $3M is now ~$82,400 in MA estate taxes, $5M is ~$292,000 taxes, and $10M is ~$968,000 taxes.

Plan to be agile in retirement. Connection to seasons, family and friends can be strong. However, proper planning can create alternatives for residency in 38 states to no longer deal with state estate tax. Plus, potentially improve up 5% MA state income tax (make that 9% if earning over $1M).

At $10M net value, does one put $1M towards a new or 2nd home in another state, declare residency so heirs receive this value? Or stay in Massachusetts to pay ~$1M in estate tax?

As a fiduciary, it’s a responsibility to educate on the possibilities for those interested.

The opinions voiced in this material are for general information only and are not intended to provide spe­cific advice or recommendations for any individual.

Glenn Brown lives in MetroWest and is owner of PlanDynamic, LLC, www.PlanDynamic.com. He is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.

 

Glenn Brown, CFP

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