Estate Tax Update
FEDERAL ESTATE TAX:
The Federal Estate Tax law was changed in late December, 2010. The federal estate tax credit is now $5 million, with a 35% tax on the excess. The new law will also allow “portability” between spouses, which means that a married couple essentially has a $10 million federal estate tax credit. This increase is only in effect for 2011 and 2012, scheduled to go back down to a $1 million credit (55% on the excess) in 2013, but will likely be revised before then.
MASSACHUSETTS ESTATE TAX:
Even though the federal estate tax credit is very high now, resulting in most estates being non-taxable for federal purposes, Massachusetts residents still have to worry about the state estate tax, since the Massachusetts estate tax threshold is still only $1 million (not set to change). The $1 million is just a “threshold”, meaning that if your estate exceeds $1 million, the entire estate is taxed in MA, up to 16%. For example, for a $2 million estate (including real estate, liquid assets, retirement plans AND the full value of life insurance), the MA estate tax would be over $100,000.
There are several estate planning techniques and documents that allow you to substantially reduce (and possibly eliminate) the MA estate tax that would be due at death. It is very important for Massachusetts residents, married or single, to learn about Trusts and other techniques to reduce the Massachusetts estate tax and pass more on to their intended beneficiaries.