Avoiding Massachusetts Estate Tax

The Massachusetts Estate Tax is based on a Federal estate tax formula that was in effect in the year 2000. The personal representative must file a Massachusetts Estate Tax Return (Form M-706) if the decedent's estate, plus taxable gifts made during the decedent's lifetime, total more than $2 million.
So, even if a decedent's estate is below the $2 million threshold, a Massachusetts estate tax filing may still be required if the decedent made taxable gifts during his or her lifetime.

 

Martial Deduction
Massachusetts has an unlimited marital deduction. DOR Directive 95-1. Any amount that passes to spouse is not subject to estate tax. But married couples must keep their estate plans updated, to make sure that the surviving spouse will not be subject to the Massachusetts estate tax.

To keep flexibility , a married couple can consider:

• a disclaimer trust. When the first spouse dies, everything goes to the surviving spouse, who then has nine months to decide whether to keep the assets or "disclaim" them into a bypass trust.
• a bypass trust equal to the Massachusetts exemption amount, and a special "QTIP gap trust" funded with the difference between the Massachusetts and federal exemptions. When the second spouse dies, any funds left in the gap trust are exempt from federal, but not Massachusetts, estate tax.
  

 
If the combined assets of a married couple are greater than the Massachusetts exemption amount, and one spouse dies before estate tax planning is completed, the couple may end up wasting money on Massachusetts estate taxes.

Don't forget to include IRA and Tax Deferred Accounts in the Estate value calculation.

 

Summary: Planning Techniques Reduce or Eliminate Massachusetts Estate Tax:

• Use the marital deduction and a marital deduction trust to take advantage of the exclusion amounts available to both spouses
• Make lifetime gifts to take advantage of the annual gift tax exclusion, and the lifetime gift tax exemption amount
• Establish a Crummey trust or an Irrevocable Life Insurance Trust to take advantage of the $17,000 annual gift tax exclusion.