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New Massachusetts Estate Tax Exemptions Are Likely to Cause Hardships for the Unprepared

June 21, 2004

The much-heralded revision to the Federal Estate Tax exemptions earned cheers from everyone with an estate under $1 million in 2003. However, the same statute that gradually increases Federal estate tax exemptions to $3.5 million in 2009 also phases out the sharing of Federal estate taxes funds with individual states. Of course, Massachusetts was one of the first states to react with a significant estate tax revision that disassociates Massachusetts from Federal tax rates.

Click here for a table that illustrates Federal and
Massachusetts estate tax exemptions over the next several years.

In a nutshell, under most existing estate plans that take advantage of the Federal exemptions only, the new Massachusetts exemption amounts will likely result in hardship for surviving spouses, as Massachusetts taxes will likely be payable upon the death of their spouse. However, the Massachusetts Department of Revenue issued a directive that provides opportunities for married couples to defer both Massachusetts and Federal taxes until both spouses have passed away, so Massachusetts residents should consider amending their existing estate plans to take advantage of the directive. It is not automatic.

Trusts are typically established as a means to preserve assets and avoid costly estate taxes. Family trusts can be set up for the benefit of the surviving spouse and descendents. Also, a spousal trust can be established solely for the benefit of the surviving spouse, and since it will qualify for the Massachusetts marital deduction, no Massachusetts estate tax will be incurred upon death of the first spouse.

Estate planning issues are often complex. Individuals should rely on the benefit of professional counsel to guide them through the “murky waters.” It is still possible to preserve assets, even under the new Massachusetts estate tax law, but current estate planning documents likely do not reflect the requirements of the revised laws. It is strongly recommended that all Massachusetts residents sit with their attorneys and revise their estate plans as soon as possible.

Quality Senior Guide 2004

Hyman G. Darling, Esquire, is Chairman of Bacon & Wilson’s Estate Planning and Elder Law Department. His expertise includes all areas of estate planning, probate and elder law. He can be reached at 413-781-0560 or [email protected].

by: Hyman G. Darling, Esq.

Quality Senior Guide