Lowering MA estate taxes

MA has an estate tax for wealth over $2 million. Will it affect you?

There is a progression of steps to take. So your family pays less tax.

Logical. Concise. Steps.

Facts:

You own more than $2 million of assets and live in Massachusetts. You know that Massachusetts has an estate tax on residents who die with more than $2 million. (And also taxes non-residents who own real estate in Massachusetts.)

When you're thinking about your money and what will happen to it when you're gone, it can be quite confusing. But there are some important things to consider, especially if you answer 'yes' to these three questions:

Are you married or have a long-term partner?
Do you live in a state like Massachusetts where there are special taxes on your assets when you pass away?
Do your assets exceed $2 million?

If your situation involves a 'yes' to these 3 question - then here's some actions you should consider.

Step One: Setting Up Living Trusts if you're married or have long term partner

First, you can arrange for signing a legal document we call a trust. It's a way to own assets before your death and can help save on estate tax after your passing.

The trust document can include provisions about how the money and property should be used. Both before and after your passing.

For before your passing, you can uses the assets as you see fit. Just like now.

After your passing, the Living Trust may include a provision that can be labelled a 'Family Trust' (FT). This FT is designed to keep your money safe from extra taxes when your partner or spouse passes away later.

Here's how it works:

You sign a living trust document that instructs your successor trustee to put up to $2 million of your wealth in a separate account for your survivor's use.

On the survivors's later death what remains of that $2 million does NOT become part of the survivor's taxable estate. So we may call the Family Trust a 'bypass trust' because it bypasses the estate taxation of both the first and second person.

The family trust frequently provides these or similar provisions:

INCOME: All the money that comes in goes to your partner or spouse.
PRINCIPAL: The savings can be used for things like health, education, or taking care of your family.
ON DEATH OF BENEFICIARY (SPOUSE): If your partner or spouse passes away, the money can go to your children or their descendants. Or anyone else you want to leave it to.

This trust language is flexible and lets the trustee (the person in charge of the trust) give money to the family for important things, like health and education.

You might also wonder if the trustee can be the same person as the beneficiary (the person getting the money). Yes, it's possible, but you need to be clear about it in the trust document.

Also, it's common for the surviving partner or spouse to be both the trustee and the beneficiary. Many people like this because it gives them more control over the money.

Step Two: A Special Trust for Life Insurance if needed

Another smart step is to create a special trust just for your life insurance. This can help lower or avoid estate taxes on the insuranace proceeds.

Most people know that life insurance is not subject to income taxes, generally, on a death. But the proceeds will be part of the survivor's assets and subject to estate tax on the second death.

With a life insurance trust, you change the policy's owner to be the Special trust. Also, you change the policy's death beneficiary to be the same trust.

By doing these two things, the proceeds of the policy will not be part of either your estate nor the estate of the survivor. And this can lower overall family estate taxes.

This Special trust, like other trusts, includes a trustee to manage the policy and make sure the money goes where it's supposed to when you're gone. This is especially helpful if life insurance is a big part of what you're leaving behind.

Step Three: Make smart gifts

The third step is giving gifts, and it comes in many forms. You can give money to loved ones, and in 2024, you can give them up to $18,000 without needing to file a gift tax return. This helps you reduce your taxable estate.

Gifting can be done in different ways, like yearly gifts or special strategies, depending on your situation. It helps lower the amount of money the government takes when you pass away, and it's a way to share your wealth with your family while you're still alive.

Remember, it's essential to get advice from experts, like lawyers and financial advisors, who know about these things. They can help you set up the right trusts, plan your gifts, and make sure you follow the laws.

In the end, planning your finances and estate isn't easy, but it's crucial to make the best choices for your family's future. These steps can help you protect your assets, support your loved ones, and leave a lasting legacy for generations to come.

Why Estate Planning?

Stop feeling the pain of procrastination for years on end. Don’t let the state get more than their share. Avoid costly and stressful probate court. Save others from making the wrong medical wishes for you. Prevent an outdated will from ruining your plans.

And please, don’t leave your family fighting for control.

Let's Talk

Confused about Wills, Trusts, Power of Attorney or Health Care Proxies?
Call me at (781) 863-8606.