Massachusetts has a lot to offer. Great beaches. Places to hike and explore. Wonderful museums and cultural events. Some of the best restaurants, and top-notch healthcare also come to mind.
However, as you get closer to Boston, it can be one pricey place to live. Just this morning a friend that lives in northern Maine sent me a link to a house they put an offer on. Listing price is 445k. Five bedrooms, 2 1/2 bath, updated kitchen on 3 acres of land. The same house in my neighborhood would be easily over $2 million. (Without the land!)
Besides high housing costs, Massachusetts has another pricey issue.
You may have heard of Estate Taxes. This is a tax imposed on those that pass away and have an estate over a certain amount.
There can be Federal estate taxes and State estate taxes.
On the Federal side, under current legislation, most don't need to worry about that as it only applies to those with estates over $12.92 million (or $25.84 million if married) BUT, on January 1, 2026, this amount will revert back to the 2017 amount of $5 million, adjusted for inflation unless the law is changed.
What assets are Estate Taxes imposed? Pretty much everything.
- Bank accounts
- Real estate
- Retirement accounts
- Small business interests
- Investment accounts, stocks, and bonds
- Gifts made during your life that exceeded the annual gift tax exclusion
- Life insurance proceeds (If you were the owner of the policy)
- Vehicles and any other tangible assets
Okay, so what if I live in MA?
In Massachusetts, the limit for estates valued at over $1 million are subject to estate taxes. Massachusetts is one of 12 states (and the District of Columbia) with its own estate tax.
Here is the current list of states that impose an estate tax. (Top tax rates and exemption thresholds, tax year 2022)
- Connecticut: 12%, $9,100,000
- District of Columbia: 16%, $4,000,000
- Hawaii: 20%, $5,490,000
- Illinois: 16%, $4,254,800
- Maine: 12%, $6,010,000
- Maryland: 16%, $5,000,000
- Massachusetts: 16%, $1,000,000
- Minnesota: 16%, $3,000,000
- New York: 16%, $6,110,000
- Oregon: 16%, $1,000,000
- Rhode Island: 16%, $1,648,611
- Vermont: 16%, $5,000,000
- Washington: 20%, $2,193,000
As you can see, Massachusetts and Oregon have the lowest thresholds before taxes kick in.
Governor, Maura Healey's recent proposal would raise the threshold at which the MA estate tax kicks in.
Her argument for raising the estate tax threshold is that home values have gone up 118% over the past two decades, and the Healey administration believes that the estate tax needs to catch up in order to keep the state competitive.
People retiring tend to move from MA for various reasons. Being closer to their kids or grandkids, warmer climates, or perhaps tax planning.
By the way. There are strategies to lower ones estate taxes whether on the Federal level or State level. You may have heard of the "Unlimited Marital Deduction" which allows a spouse to leave their assets to the surviving spouse and pay no estate tax at all. This however, can be a huge tax trap as the surviving spouse would then be subject to a potentially even higher tax rate. One that could have been reduced or eliminated with proper planning.
Oh, and one more interesting (and possibly costly quirk). In Massachusetts, the estate tax applies to your entire estate, not just the portion above $1 million. If, for example, the value of your taxable estate is $1.6 million, this tax applies to the whole $1.6 million. Not just the amount over the $1 million exclusion.
If this is a concern, please feel free to reach out to me and we can discuss some options to help reduce or eliminate this tax. There are some relatively simple strategies to help reduce or eliminate this tax.
Love to hear your thoughts on this topic and if you are considering a move to a lower cost state.
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In good health.
All the best.
Rick Fingerman, CFP®, CDFA®, CCPS®
*This blog article is meant to be just a simple primer. I'm happy to speak in more detail one on one.
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.