In a landmark move this week, Massachusetts ushered in the first substantial estate tax law changes in 20 years. “An Act to improve the Commonwealth’s competitiveness, affordability, and equity” signed by the Governor, increased the threshold for Massachusetts residents subject to the estate tax from $1,000,000 to $2,000,000.
Crucially, this alteration means that individuals passing away as residents of Massachusetts will only be subject to the estate tax if their individual assets exceed the elevated $2,000,000 threshold. The tax will no longer apply to the entirety of the estate but solely to the amount exceeding $2,000,000.
Applying this new threshold extends to anyone who passed as a Massachusetts resident as of January 1, 2023. For those involved in the estate of an individual who passed in the current year and has already paid the estate tax, it is advisable to consult with their tax preparer to explore the possibility of a refund. Similarly, individuals filing a Massachusetts Estate Tax Return should check in with their tax preparer to ensure compliance with the revised regulations.
This change presents a ‘use it or lose it’ opportunity for couples regarding trust planning. One spouse’s exemption cannot be transferred or “ported” to the surviving spouse. The $2,000,000 threshold is not indexed for inflation, suggesting it will remain fixed at this amount until additional legislation is introduced.
While this news brings positive implications on a state level, a federal perspective introduces a cautionary note. The current $12,000,000+ federal threshold is poised to revert to its former $5,000,000 (indexed for inflation) in 2026 without further Congressional action. This federal rate carries a 40% tax on amounts exceeding the threshold, marking the highest tax rate in the country.
