Estate Tax Planning
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Estate Tax Planning in Massachusetts

We Help You Minimize Federal and MA Estate Taxes

Historically speaking, estate tax is an excise tax levied on the transfer of a person’s assets after death. In actuality, it is neither a death tax nor an inheritance tax, but more accurately a transfer tax. There are three distinct aspects to federal wealth transfer taxes that comprise what is called the Unified Transfer Tax:

  1. Estate Taxes
  2. Gift Taxes
  3. Generation-Skipping Transfer Taxes.

The Law Office of Michael D. DellaMonaca provides prudent legal planning to avoid or minimize these taxes as an important aspect of comprehensive estate planning. In determining a plan, we need to take into account Federal estate taxes, Federal gift tax, and Massachusetts estate tax (there is no Massachusetts gift tax).

Federal Estate Tax 

Nearly everyone will be exempt from Federal estate tax.  A $5 million exemption, as indexed for inflation, was signed into law on December 17, 2010, under the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 (TRA 2010). By 2017, the federal estate tax exemption had risen to $5.49 million per individual due to the inflation feature (and a $10.98 million for married couples who follow very specific but fairly easy requirements at the death of the first spouse). With the stroke of his pen on December 22, 2017, President Donald Trump increased this exemption to $11,200,000 per individual (and $22,400,000 for married couples). The tax rate for amounts above what can be exempted remains at 40%.

Lifetime Gift Tax Exemption and Annual Gift Tax Exclusion

The TCJA 2017 continues the concept of a unified exemption that ties together the gift tax and the estate tax. This means that, to the extent you utilize your lifetime gift tax exemption while living, your federal estate tax exemption at death will be reduced accordingly. Your unified lifetime gift and estate tax exemption in 2017 was $5.49 million and is now the same as the federal estate tax exemption of $11,200,000 per individual (and $22,400,000 for married couples who make the proper election). Likewise, the top tax rate is 40%. Note: Gifts made within your annual gift exclusion amount do not count against your unified lifetime gift and estate tax exemption.

So, how much is this annual gift exclusion?

The annual gift exclusion has increased to $15,000 due to its inflation adjustment. This is up from $14,000 for 2017. Married couples can combine their annual gift exclusion amounts to make tax-exempt gifts totaling $30,000 to as many individuals as they choose each year, whether both spouses contribute equally, or if the entire gift comes from one spouse. In the latter instance, the couple must file an IRS Form 709 Gift Tax return and elect “gift-splitting” for the tax year in which such gift was made.

Please note the annual gift exclusion is relevant for TAX purposes only. Many people believe that this exclusion also applies to transfers related to Medicaid applications.  IT DOES NOT.  Medicaid transfer restrictions are much more narrow.

Massachusetts Estate Tax

Massachusetts estate tax will be a concern to many more individuals and families than the federal estate tax will.  Unlike the Federal government, which has passed several rounds of estate tax relief over the last 25 years, Massachusetts has had the same system (and the same relatively lower exemptions) since 1998. Essentially, if a  single individual OR married couple has an estate of more than $1 million (unlike the Federal exemption, there is no easy doubling for married couples), there should be a concern about Massachusetts estate tax.  And when measuring when you are over or under the $1 million, the full value of your real estate, IRAs and other investments, and life insurance need to be measured.  Many individuals and couples don’t realize they have a serious Massachusetts estate tax problem until they take the time to take that measurement!

In addition to Massachusetts, a handful of other states have their own independent state estate taxes and still others also levy an inheritance tax. Overall we remain in a state of flux, especially given the status of state budgets expanding as revenues are shrinking in some states.

Given all that needs to be considered, be sure to schedule a consultation with Michael D. DellaMonaca . We may be able to recommend some planning strategies to legally minimize or eliminate future tax exposures.