The New Massachusetts Estate Tax Law: Key Changes

On October 4, 2023, Governor Maura Healey signed into law a sweeping Massachusetts tax relief bill that included important changes to the Massachusetts Estate Tax. Read more to learn about some of the most important estate tax changes.

The Estate Tax Threshold Has Been Doubled

Previously, Massachusetts imposed an estate tax on all estates in which the gross estate, plus adjusted taxable gifts, exceeded 1 million dollars. The new legislation raises the estate tax threshold to 2 million dollars, which will mean that many residents will be able to increase the size of the inheritances they leave for their loved ones.

No More Cliff Effect

Another key change to the Massachusetts estate tax law includes the elimination of the so-called tax “cliff effect.” Under the old law, if an estate exceeded the Massachusetts estate tax by even so much as a dollar the entire amount of the estate was immediately taxable, meaning that the minimum tax for an estate that barely crossed the old threshold started at just over $36,000 dollars and increased from there. The new law eliminates this cliff by allowing for a tax credit of up to $99,600 which will be applicable to estates that fall between the 1 million and 2 million dollar mark. The practical effect of this change will be that the estate tax for estates that cross the 2 million threshold will rise gradually as opposed to taxpayers being subjected to the immediate imposition of a tax of tens of thousands of dollars once the line is crossed.

The New Law Applies Retroactively To Some

Significantly, the new law is retroactive to the estates of those that died on or after January 1, 2023. Representatives of the Massachusetts Chapter of the National Academy of Elder Law Attorneys who have been in touch with the Department of Revenue report that the Department will provide a refund on any returns already filed that are positively impacted by the new law without the need for any additional action by the estate representative. The Department, however, is noncommittal as to how long it will take for these refunds to be issued.

Still No Portability

Unfortunately, the new Massachusetts law does not allow for the “portability” of the Massachusetts exemption. Portability is a vehicle that can be used for federal estate tax purposes that allows the unused estate tax exemption of a deceased spouse to be added to that of the surviving spouse. Because the Massachusetts law does not allow for porting of the state exemption, it will continue to be important for Massachusetts residents with assets in excess of the 2 million dollar threshold to utilize trust planning to minimize their tax exposure. Note that the Massachusetts changes will have no bearing on an individual’s liability for any estate taxes under federal law.

Will You Need to Make Changes To Your Plan?

For those that have already done their estate planning, it is important that they have their plans reviewed in light of the new changes. For some, no changes will be necessary. For others, particularly those who are married and who set up trusts that provided for trust assets to be placed in one or more tax-sheltering sub trusts upon the death of the first spouse, their plans may need to be amended so that their loved ones are provided for in the most efficient manner.

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