How to protect your estate from estate taxes
Massachusetts imposes estate taxes on estates exceeding $1 million in value, which can impact the amount passed to your heirs. Taking proactive steps to minimize or avoid these taxes helps protect your estate and preserve your legacy for future generations.
Understand the state estate tax threshold
Massachusetts estate taxes apply to estates with a taxable value of over $1 million. This threshold includes the total value of your assets, such as real estate, bank accounts, investments, and personal property. Knowing your estate’s value helps you determine if estate taxes will affect you.
Use lifetime gifts
Gifting assets during your lifetime reduces the value of your taxable estate. Massachusetts does not have a gift tax, allowing you to transfer wealth without immediate tax consequences. Spread gifts over several years to stay within the federal annual gift tax exclusion, which is $17,000 per recipient in 2023.
Set up a trust
Certain trusts, such as irrevocable life insurance trusts (ILITs) or credit shelter trusts, allow you to remove assets from your taxable estate while retaining control over how they are distributed. Trusts can help you provide for your loved ones while reducing the estate tax burden.
Consider charitable donations
Donating to charities or setting up a charitable trust can lower your estate’s taxable value. These contributions not only reduce taxes but also allow you to support causes that matter to you.
Plan for spousal transfers
Massachusetts does not tax transfers between spouses, making spousal transfers an effective way to minimize taxes. Use a marital deduction or a bypass trust to shield more of your estate from taxation when the second spouse passes away.
Monitor state and federal law changes
Estate tax laws can change over time, potentially affecting your planning strategies. Keep track of updates to ensure your plan remains effective.
Proactively managing your Massachusetts estate protects it from unnecessary tax burdens. By understanding the different aspects that play into estate taxes, you can maximize the amount passed to your heirs and achieve your estate planning goals.
