Your ultimate goal in estate planning is to optimize every strategy available to you to preserve assets to pass on to your beneficiaries in Franklin. Planning to avoid probate and settle outstanding liabilities can help in this regard, yet expenses such as estate tax are likely impossible to avoid.
Or so you think. While your estate may be subject to taxes at both the federal and state levels, there are strategies that you can plan for that may help you limit your estate tax liability.
Planning for federal estate taxes
The federal government sets an estate tax exemption that limits the tax liability on many estates. The Internal Revenue Service lists that exemption amount at $11.58 million for 2020. You might be able to protect even more than that by combining your exemption amount with that of your spouse through estate tax portability. By passing your estate to your spouse when you die, you avoid federal taxes (thanks to the unlimited marital deduction) while also preserving your entire estate tax exemption amount. Your spouse can then combine that unused amount with their own by electing estate tax portability in an estate tax return filed within nine months of your death.
Understanding Massachusetts’ estate tax law
Massachusetts also imposes an estate tax on its residents. If the total taxable value of your estate exceeds $1 million, then it is subject to local estate taxes. However, according to the website for the Commonwealth of Massachusetts, your state estate tax liability takes into account the federal estate tax credit for state death taxes. For example, if the value of your estate is between $1.04 million and $1.54 million, you qualify for a tax credit of $38,800. That credit amount increases with the total value of your estate.