In a move that will be significant to many Massachusetts residents and businesses, Massachusetts Governor Maura Healey signed into law on October 4, 2023 a tax package that will provide benefits of up to $1 billion. The bill includes provisions that will impact both income taxes and estate taxes. This post highlights estate tax implications and benefits. For a deeper understanding of other aspects of this bill, read our posts on its impact on Individual Income Taxes and Corporate Taxes.
Previously, Massachusetts estates that were valued at up to $1 million were exempt from the Massachusetts estate tax. In comparison to other states, this was tied for the lowest exemption threshold for states that impose an estate tax. There are currently many states that do not tax estates at all and those that do typically have exemption thresholds significantly higher than $1 million.
The new tax bill raises the threshold for estates to be taxed from the current $1 million threshold up to $2 million. In addition, the bill changes the current estate tax structure from a cliff test to a true exemption. Under the prior cliff test, if an estate exceeded $1 million the entire estate was taxable. By switching to a $2 million exemption, estates are now only taxed on the value of the estate above the $2 million exemption.
The changes are retroactive and apply to estates of residents who die on or after January 1, 2023, and continue forward for the foreseeable future as the $2 million exemption is not indexed for inflation.
For illustration purposes, below is an example of the impact of the new estate laws:
- Estates of Massachusetts residents with a value of $2 million who died before January 1, 2023, would be subject to a Massachusetts estate tax equaling $103,920.
- Estates of Massachusetts residents with a value of $2 million who die on or after January 1, 2023, would NOT be subject to a Massachusetts estate tax.
Although the threshold has doubled, it is still low in comparison to most other states. This new exemption threshold ranks 3rd lowest in the country above only Oregon and Rhode Island.
DiSanto, Priest & Co. can help you with estate tax planning and navigate the tax opportunities created by the Massachusetts Tax Bill of 2023. Call us at (401) 921-2000 or submit our contact form to get started.