Massachusetts recently passed tax relief legislation which was signed into law by Governor Healey on October 4, 2023. The legislation includes ‘goodies’ for many residents of the Commonwealth, including relief from the Massachusetts estate tax.
Until this legislation passed, Massachusetts had a $1 million threshold for taxing estates, the lowest in the country. The new law increases that threshold to $2 million and eliminates the so-called ‘cliff’ that, under the prior law, resulted in estates which exceeded the $1 million threshold paying tax on the full value of the estate, not just the amount over $ 1 million.

1. What is the amount that can pass free of estate tax in Massachusetts after the new
   law? The new law exempts estates valued at $2 million or less from paying estate tax to the Commonwealth.
2. When does the new law go into effect? The new law is effective for estates of decedents dying on or after January 1, 2023.
3. What estates need to file an estate tax return? The new law requires that a Massachusetts estate tax return be filed for estates in which the gross value exceeds $2 million. In determining the gross value of an estate for this purpose, lifetime gifts that exceed the annual gift tax exclusion amount must be added back (see #5 below).
4. If I have an estate plan in place that was created to reduce Massachusetts estate tax, do I need to change my estate plan? Not necessarily, but it is a good idea to review your plan, particularly your Trust funding, with your estate planning attorney to make sure that you are maximizing the savings that could be achieved under the new law.
5. Can I give my assets away to reduce my estate tax? Yes. Massachusetts does not have a gift tax. However, if you make gifts in excess of the federal gift tax annual exclusion amount ($17,000 per person/per calendar year for 2023), you need to include the value of those excess gifts (gifts over $17,000/person/year) in determining the gross value of your estate to determine whether an estate tax return is required to be filed. For example, if your estate is $2.5 million and you give away $600,000 before you pass away reducing your estate to $1.9 million, your Personal Representative is required to file an estate tax return but there will not be any tax due because the net taxable estate is below the $2 million threshold.
6. Does this mean that a married couple with less than $4 million does not need to do any estate tax planning? Married couples whose estate is close to or more than $2 million should still consider creating an estate plan that includes estate tax planning. That is because the Massachusetts $2 million exemption is still a ‘use it or lose it’ gift from the government. For example, if a married couple has a $4 million estate and they own all of their assets jointly or have each other named as beneficiary, there is no estate tax payable when the first spouse dies (this is the case regardless of the value of the estate as assets that pass to a surviving spouse pass free of any estate tax). However, when the surviving spouse dies with a $4 million estate, there will be Massachusetts estate tax of $180,800 due. If they had undertaken estate planning while both were living, they could have reduced the tax to $0 under the new law.
7. If I am the fiduciary of an estate that I know is less than $2 million, do I need to bother to have the assets valued as of the day of death? Absolutely! There may be assets of the estate that you are not aware of or that have more value than you think. In fact, as the fiduciary of the estate you have an obligation to ensure that the assets and their values are accurately determined in order to definitively conclude that an estate tax need not be filed and/or that no estate tax is owedAlso, appreciated assets like real estate, stock and other marketable holdings owned by a person at death, receive a ‘stepped-up’ basis.  This stepped-up basis is the new starting point for determining the gain on the sale of the asset by the estate or by the beneficiary who inherits it.  For depreciable assets such as rental real estate, the stepped-up basis is also a ‘re-set’ for depreciating the asset for income tax purposes.  As such, it is vital that a fiduciary (Personal Representative or Trustee) obtain the fair market value of the assets as of the decedent’s date of death even if there is no estate tax due. 
8. What’s up with the whole ‘cliff’ thing? Under the prior Massachusetts estate tax law, once a taxable estate was above the $1 million threshold, the estate tax was calculated on the total value of the estate, not just the amount over $1 million. For example, if a decedent’s taxable estate was $900,000, the amount of the Massachusetts estate tax was $0. But if the decedent’s taxable estate was $1,100,000, just $100,00 over the threshold, the tax was $38,800 – an effective rate of 38.8% on the amount over $1 million. This was referred to as the ‘cliff’ since once an estate breached that threshold, the entire estate was subject to the Massachusetts estate tax. Under the new estate tax law, if an estate is $2,100,0000, $100,000 over the new $2 million threshold, the estate tax liability will be $7,200 – an effective rate of 7.2% of the amount over $2 million.
9. If I am the Personal Representative of an estate of someone who died after January 1, 2023, and the estate value is more than $1 million, I thought the estate owed Massachusetts estate tax – is this no longer the case? The new law is effective for estates of decedents dying on or after January 1, 2023. If the value of your 2023 decedent’s gross estate (i.e., all assets owned or controlled at the time of death) is under $2 million, you do not have to file a Massachusetts estate tax return and there is no estate tax due. If the gross value of the estate is over $2 million, you are obligated to file a Massachusetts estate tax return but that does not necessarily mean that estate tax will be owed. Once you determine the gross value of the estate, you and/or your estate attorney or other estate tax return preparer will make adjustments and deductions to calculate the taxable estate. If the amount of the taxable estate is under $2 million, then the estate will not owe an estate tax. If it is over $2 million, then the estate will owe Massachusetts estate tax on the amount over $2 million.
10. What if I already paid estate tax for a person who passed away in 2023? If you are the fiduciary of an estate of a person who died on or after January 1, 2023, the Massachusetts estate tax return was due on or after October 1, 2023 (nine months from the date of death). In some cases, an estate tax return may have been filed early, or an estimated estate tax payment may have been made if real estate was being sold by the estate. If this is the case, you would have paid estate tax calculated based on the previous $1 million estate tax threshold. The change in the law increasing the exemption to $2 million will reduce (or perhaps eliminate) the estate tax owed by the estate. If you have paid an estimated estate tax in connection with the sale of real estate, you will need to file a Massachusetts estate tax return confirming the value of the estate assets, and calculating the estate tax based on the new law, to prove to the Department of Revenue that they owe you a refund of part or all of the estimated estate tax paid. If you filed your estate tax return already, we are told that the Department of Revenue will send you a refund of part or all of the tax due automatically, and that you will not need to file an amended estate tax return or a request for an abatement in order to receive a refund of the overpayment.

Updates to the Massachusetts Estate Tax Exemption