- • November 20, 2023
The New Massachusetts Estate Tax Exemption
On October 4, 2023, Massachusetts Governor Maura Healey signed into law a tax bill entitled, “An Act Creating Tax Relief for Affordability, Competitiveness, and Equity.” Among its various provisions, the bill doubled the threshold for estate taxation from $1 million to $2 million for individuals dying on or after January 1, 2023.
An estate tax is a tax on the value of an individual’s property at their death. An “estate” includes real estate, bank accounts, investment accounts, retirement accounts, life insurance proceeds, vehicles, and other personal property. Massachusetts is one of only twelve states and Washington, D.C. that imposes an estate tax. Prior to this legislation, Massachusetts estates in excess of $1 million were subject to taxation for the entire taxable value of the estate, starting with the first dollar at a rate of 0.8% and growing to a marginal rate of 16% for estates of over $10,400,000. This structure created what was known as the “cliff effect,” where estates under the $1 million threshold pay no tax, while those over the threshold would pay taxes on the entire value of the estate. The nearby states of Connecticut, Maine, New York, and Vermont all have exemptions or thresholds of $5 million or more.
The new bill doubles the estate taxation threshold by: (1) giving estates a $99,600 credit, which is the amount of estate tax due on a $2 million estate, and (2) eliminating any estate tax due on estates valued at $2,000,000 or less. With these changes, Massachusetts not only increased its estate tax threshold from $1 million to $2 million, but also eliminated the “cliff effect.”
If your estate is under $2 million and not likely to surpass that number, you do not need to worry about Massachusetts estate tax. If your estate is over that amount or likely to grow to surpass that threshold, you might want to consider some tax planning techniques utilizing trusts and other legal strategies to reduce your Massachusetts estate tax burden.