Tax Law Update – Estate Tax Relief! Massachusetts Increases The Estate Tax Exemption

On October 4, 2023, Governor Maura Healey signed a new Massachusetts tax law that makes significant changes to the Commonwealth’s tax laws, including the estate tax laws. The new law changes the Massachusetts estate tax in the following ways:

  • It increases the Massachusetts estate tax exemption to $2 million (from its current level of $1 million).
  • It eliminates the cliff effect of the Massachusetts estate tax so that only assets in excess of the $2 million exemption will be subject to estate taxes, rather than the entire estate.
  • It alters the manner of calculating estate taxes for estates with real property located outside of Massachusetts so that the property is subject to some estate tax. This change appears to override prior caselaw.

These changes will be retroactive to January 1, 2023. This means that estates of individuals dying on or after January 1, 2023 with assets of less than $2 million will not be taxed. Estate taxes will only be imposed on estates valued at $2 million or more, and only on the assets in excess of $2 million.

This is a good, and long awaited, change for Massachusetts taxpayers. The Massachusetts estate tax has been one of the most onerous in the nation, and was in need of a change like this.

Most clients will not need to update their estate plans as a result of the new law. The reason is that estate plan documents are typically drafted in a flexible manner, to accommodate changes of this nature. Therefore, the change is not a reason to be anxious or to rush to make updates to an estate plan.

Married couples with assets in excess of $2 million should establish an estate plan with Revocable Trusts that provide for the funding of a credit shelter trust upon the first spouse’s death. Those who have already done so should be sure to fund both spouses’ Revocable Trusts up to $2 million or more, if possible.

The new tax law also makes changes to the Commonwealth’s income tax laws which you may wish to discuss with your accountant.