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Holliston - Local Town Pages

Your Money, Your Independence Overdue Change Coming To Massachusetts Estate Tax Laws

Glenn Brown

On July 15, the Massachusetts House unanimously passed a $4.2 billion economic development bill that will have significant impacts on residents’ wallets.
Lawmakers put a lot in the bill, including a $500 million tax relief package which raises the child tax credit to $310 per child (and eliminating cap), raises the rental deduction cap to $4,000, and ups the estate tax threshold from $1 million to $2 million. 
Catch that last part?
Let’s review why it’s important.
Estate tax is owed on net value of the estate of a deceased person before distribution to non-spousal heirs. Think real estate, investments, IRAs, small business, life insurance proceeds, personal property etc. minus liabilities. 
For 2022, the federal estate tax exemption is $12.06 million, meaning amounts MORE than $12.06 million are subject to the federal estate tax unless otherwise excluded (i.e. gifting). For most, there’s little concern of having a life’s work of earning, planning and saving being taxed upon death by the federal goverment. 
Not the case with Massachussets.  
To begin, only 12 states in U.S. have estate taxes, with Oregon and Massachusetts currently at the lowest (worst) thresholds of $1 million. Consider neighbor Connecticut is $5.1M.  Where Massachusetts currently takes a dubious lead is once an estate is valued over $1M, the entire amount is subject to a graduated tax rate starting 0.8% up to 16%. For example, at $1,000,001 an estate is writing Massachusetts a ~$36,500 check, at $2M ~$99,600, at $3M ~$182,000 and so on. 
How quickly can one’s net value (assets minus liablities) estate exceed $1 million? Consider the median single-family home sale price in Massachusetts hit $590,000 in May, and it was higher in Middlesex County at $800,000. 
What now? 
Given changes were proposed by Governor Baker with bipartisan support in January and now part of a larger bill, it’s expected to pass before legislation session ends July 31. More details to come, but we know the new Massachusetts estate threshold will start at $2,000,001, with first $2M no longer taxed. 
Things to consider:
Know your net worth. While grandma living in a Massachusetts house with no mortgage and a few CDs finally gets a pass, what if she also has investments held for years or a lakehouse? 
And what of your net worth? Add up 401ks, life insurance and AD&D proceeds, small business equity, savings, real estate minus liabilities. Are you over $2 million or will be in time?
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 process. Also remember, revocable living trusts bypass probate but not estate tax laws. 
Plan to be agile in retirement. Connection to seasons, family and friends can be strong in Massachusetts. However, proper planning can create alternatives for residency in 38 states and no longer deal with state estate tax (or 5% income tax either). 
As a fidcuiary, 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 is a Holliston resident and owner of PlanDynamic, LLC, Glenn 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.