Estate Tax Planning

mansfield ma estate planningMost Massachusetts residents are in the state Estate Tax (“death tax”) bracket without knowing it.  While the Federal Estate Tax threshold is currently over $11.5 million for individuals and $23 million for couples (as of 2020), Massachusetts has a $1 million threshold (as of 2020) – by far the lowest in the country.  In calculating a person’s “taxable estate,” the government counts all accounts, home equity, and even the death proceeds of your life insurance policies (despite your having no access to any of this money while you are alive).  Even those of us who do not consider ourselves “wealthy” will often exceed the Massachusetts death tax threshold through life insurance alone.  If a person dies with under $1 million in his or her taxable estate, then there is no Estate Tax.  If a person dies with a penny over $1 million in the taxable estate, then Massachusetts takes about $39,000.  That amount escalates the higher you are above $1 million.  For example, a person whose taxable estate reaches $2 million would be subject to a $100,000 death tax.  Rhode Island’s Estate Tax threshold is $1.55 million as of 2020 and indexed for inflation.

There are multiple estate planning techniques which can reduce, and often eliminate, the Estate Taxes.  The primary technique includes creation of Trusts.  By creating and funding Trusts, one can permanently shelter certain assets from any Estate Taxes.  However, not all assets are appropriate for Trust ownership.  Asset transfers, including into Trusts, can have serious income tax, capital gains tax, and gift tax implications which will outweigh any death tax savings.  Thus, Estate Tax planning must be done with tremendous care.  When creating a tax savings plan for my clients, I consider all taxes so that we minimize overall tax exposure to the extent possible.

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