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What you need to know about Massachusetts estate tax

When you plan your estate, you want your loved ones to receive the maximum amount of property and assets you intended for them. Because of this, the prospect of your estate paying considerable estate taxes after your death can be frustrating.

Massachusetts is one of few states that collects state estate taxes. This can prompt both those planning their estates and personal representatives of estates to seek help in efficiently navigating the complex tax system.

Who does the state estate tax apply to?

Massachusetts residents with an estate totaling over $1 million after their death can expect their heirs to pay state estate taxes. The total value of your estate includes everything, including your retirement accounts, life insurance policies, investment accounts, house or other property and more.

Even estates with just $1 over the $1 million mark must file a tax return. Additionally, those who have property in Massachusetts but reside elsewhere, known as nonresidents, must pay state estate taxes if their estate meets the threshold. Estate tax brackets vary based on the estate's value, ranging from 0.8% to 16% for estates worth over $10 million.

For federal taxes, only those with estates worth more than $11.4 million in 2019 must file a federal estate tax return.

Tax minimization strategies for those with estates over $1 million

Avoiding the state estate tax can be challenging without incurring potentially unintended financial consequences. However, there are ways to reduce the amount your estate could owe. Such options could include thoughtfully gifting assets to heirs while being mindful of annual limits, creating a strategic charitable giving plan, transferring a sizable life insurance policy to an irrevocable trust and more.

What to do as the personal representative of an estate

As the executor of an estate, you will be tasked with calculating the full value of the estate and determining whether to file a Massachusetts estate tax return. You must complete this before distributing property to heirs or risk facing penalties yourself. Additionally, Massachusetts law requires you to both file a tax return and pay any taxes due by nine months after the death of the individual.

Whether you wish to plan your estate or seek advice as the personal representative of an estate, estate taxes can be complex to sort through on your own. Consider working with tax and legal professionals to properly plan for estate taxes.

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