Federal Estate Tax Exemption

The federal estate tax exemption is determined by federal law. Each state has its own laws and some states have no estate tax.

The federal estate and gift tax credit (the "unified credit") increased to $5,340,000 in 2014. It will continue to increase each year, based on an inflation index. There are new portability provisions that make it easy for a married couple to pass up to $10,680,000 to their children and other beneficiaries. If the value of the assets included in an individual's taxable estate exceeds the exemption in effect on the date of death, the tax rate imposed on the excess assets is 40 percent.

Each state has its own gift and estate tax laws. Some states such as New Hampshire and Florida have no gift or estate tax at this time. For Massachusetts residents, there is an estate tax for an estate that exceeds $1,000,000. This is a "disappearing exemption." If an estate exceeds $1,000,000, the entire estate is taxed. Massachusetts does not have a gift tax.

Maine, Rhode Island and Vermont have an estate tax and Connecticut has both a gift tax and an estate tax. The estate tax and gift exemptions and estate tax laws of these states change each year.

The laws of the state in which you reside at the time of your death will determine how much money must be paid to that state for estate taxes. If you reside in one state and own real estate in another state, you may have to pay estate taxes in one, or both, states.

Attorney Roberta A. Schreiber has more than 30 years of estate planning experience. She can help you create an estate plan that reduces your estate and gift tax liability and transfers your assets to the next generation in a financially beneficial manner. Contact our North Reading, Massachusetts office today to schedule a consultation. We represent clients throughout the area in Middlesex County, Wilmington, Lynnfield and Wakefield.

Federal Estate Tax Assessments

The federal estate tax is assessed against your entire estate, no matter where your assets are located. The federal estate tax is due in addition to the estate tax that may be due to the state in which you reside at the time of your death and any other state in which you own real estate. If you are a Massachusetts resident who owns real estate in Maine, you may have to pay estate taxes to the Commonwealth of Massachusetts, the state of Maine and the IRS, depending on the size of your taxable estate. The Massachusetts estate tax exemption for a Massachusetts resident who is not survived by a spouse is $1,000,000. If the taxable estate exceeds $1,000,000, the entire estate is subject to Massachusetts estate taxes, with tax rates ranging from 0.8 to 16 percent. The estate tax due from the estate of a Massachusetts resident with assets of $999,999 is zero. An estate of $1,000,001 (just two dollars more) will pay $33,200 in Massachusetts estate taxes.

Massachusetts and Tax Exemptions

Massachusetts does not have a gift tax, so gifting is always a good strategy for a Massachusetts resident. Many people are afraid that gifting will trigger a federal gift tax. This is unlikely. Under current law, the federal tax-exempt gift is $14,000 per person per year. In addition to the tax-exempt gift, an individual can gift up to $5,340,000 during his or her lifetime, and a couple can gift up to $10,680,000 during their lifetimes, without liability for federal gift taxes. These amounts will increase in the future, based on an inflation index. There are new "portability" provisions added to the federal estate tax laws, making it easier for a married couple to make full use of the federal exemption available to each spouse. If the first spouse to die does not make full use of the federal estate tax exemption available to his or her estate, the surviving spouse may apply the unused portion of the first spouse's estate tax exemption to reduce estate taxes, in addition to making full use of his or her exemption.

Example: John had a taxable estate of $3,000,000 and his wife, Grace, had a taxable estate of $7,000,000. John and Grace had simple Wills, leaving all of their assets to each other, and then to their children after both are deceased. When John died in 2011, no federal or Massachusetts estate taxes were due from his estate. The unlimited estate tax marital deduction was applied to reduce John's taxable estate to zero. His estate used none of his federal or Massachusetts estate tax exemption. The unlimited marital deduction exempted his estate from estate taxes. Grace died in July 2014, with a $10,000,000 estate. Grace's estate was able to make use of John's unused federal estate tax exemption of $5,000,000 (the federal estate tax exemption in effect in 2011) and Grace's federal estate tax exemption of $5,340,000 (the federal estate tax exemption in 2014), giving Grace's estate a total federal exemption of $10,340,000. No federal estate taxes are due from Grace's estate — her total federal exemption ($10,340,000) exceeded the value of her taxable estate ($10,000,000). Massachusetts was a different story. Grace's entire estate was subject to Massachusetts estate taxes. Her children had to write a check in the amount of $1,067,600 to the Commonwealth of Massachusetts.

Contact Us for More Information About Massachusetts and Federal Estate Tax Exemptions Essex County, Middlesex County and Norfolk County

For an initial consultation with Attorney Roberta Schreiber about how estate tax exemptions apply to your estate and how you can plan to minimize or eliminate estate taxes, please contact us. Attorney Schreiber has more than 30 years of experience.

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Roberta A. Schreiber, P.C.
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North Reading, MA 01864-2153

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