As of October 4, 2023, the Massachusetts estate tax filing exemption will retroactively increase to $2,000,000 for decedents dying on or after January 1, 2023.
This doubles the estate tax exemption from the $1,000,000 exemption established on January 1, 2006, and moves Massachusetts from having the lowest state estate tax exemption in the nation (tied with Oregon) to having the third-lowest state estate tax exemption in the nation.
What does this mean for Massachusetts residents?
The estates of Massachusetts residents dying on or after January 1, 2023, will be required to file a Massachusetts estate tax return only if their “Massachusetts taxable estate” is valued at more than $2,000,000. The Massachusetts taxable estate is defined as:
1. Decedent’s gross estate valued as of date of death;
2. Decedent’s adjusted taxable gifts made after December 31, 1976; and
3. Decedent’s total specific exemption for gifts made after September 8, 1976.
Residents whose Massachusetts taxable estate is greater than $2,000,000 will be subject to Massachusetts estate tax calculated on a graduated scale with the tax rate beginning at 7.2% and capping at 16%. The top bracket applies at taxable estates of $11,000,000 and over.
As an example of the effects of the new legislation, the estate of a resident who died on December 31, 2022, with a $2,000,000 Massachusetts taxable estate, owed a Massachusetts estate tax of $99,600. The estate of a resident who died on January 1, 2023, with a $2,000,000 Massachusetts taxable estate owes no Massachusetts estate tax.
The Massachusetts estate tax owed by the estates of residents who owned real or tangible personal property outside of Massachusetts will be reduced proportionate to the value of the non-Massachusetts assets.
What does this mean for non-residents who own real or tangible personal property in Massachusetts?
Under the new legislation, the estates of non-Massachusetts residents who own real or tangible personal property located in Massachusetts are required to file a Massachusetts estate tax return if their “Massachusetts taxable estate” is valued at more than $2,000,000.
For non-residents, the Massachusetts taxable estate is not limited to the physical assets located in Massachusetts but is defined the same as it is for residents to include all assets, wherever located, plus all adjusted taxable gifts made after December 31, 1976, and any specific exemption for gifts made after September 8, 1976.
Non-residents whose Massachusetts taxable estate is greater than $2,000,000 will be subject to Massachusetts estate tax but proportionate to the value of the physical assets located in Massachusetts.
Does this change affect the estate tax lien placed on Massachusetts real estate?
Massachusetts continues to place an estate tax lien on all real estate located in Massachusetts, whether owned in whole or in part, automatically upon the owner’s death.
If the estate necessitates a Massachusetts estate tax filing, the lien will be released upon filing of a complete Massachusetts estate tax return and payment of estate tax due, if any. The Department of Revenue will issue a Certificate Releasing Massachusetts Estate Tax, Form M-792, for recordation in the relevant Registry of Deeds or Land Court.
If the estate does not require a Massachusetts estate tax filing, the lien is released by the recording of an affidavit of the Personal Representative or, if none, other interested party in the relevant Registry of Deeds or Land Court
How does this change affect your estate plan?
Whether this change affects your estate plan depends upon your assets, your family situation, and your specific estate plan. Some estate plans will be unaffected except for the reduction in estate tax. The change will cause moderate or more substantial adjustments to other plans.
If you have questions, please contact your Nixon Peabody LLP estate planning lawyer to discuss.