Is an Increased Massachusetts Estate Tax Exemption in the Cards?

dollar-660223_640Massachusetts remains in the minority of states that have not increased their estate tax exemption since the federal estate tax exemption was raised in 2001. The Massachusetts estate tax exemption is currently $1,000,000 per person (though it disappears if you die owning more than this amount) while the federal estate tax exemption is now $5,450,000 per person.

Legislation introduced in Massachusetts would increase the Massachusetts estate tax exemption to 50% of the amount of the federal estate tax exemption. The legislation would also eliminate the disappearing nature of the current exemption. The legislation is currently under review in committee. However, the legislation’s future is uncertain given the loss in tax revenues that would result from its enactment.

Despite the potential loss of tax revenues, proponents argue that the legislation is necessary for Massachusetts to remain competitive with other states and their estate tax systems. Florida, for example, does not have an estate tax and many wealthy Massachusetts residents have changed their domiciles to Florida to avoid or minimize their Massachusetts estate tax liability.

Closer to home, New Hampshire’s estate tax was eliminated in 2010. Maine adopted legislation effective in 2016 that increased the Maine estate tax exemption to the amount of the federal estate tax exemption; Rhode Island, Connecticut, and Vermont in recent years have passed legislation increasing their state estate tax exemptions to$1,500,000, $2,000,000, and $2,750,000, respectively. Finally, in 2014, New York passed legislation that would raise its state estate tax exemption to the level of the federal estate tax exemption gradually over four years.

Massachusetts now has the lowest state estate tax exemption of any New England state. Nationally, more than 30 states no longer impose state estate taxes and of the remaining states, the majority have estate tax exemptions that either track the federal estate tax exemption or at least equal or exceed $2,000,000, twice the level of the Massachusetts exemption.

The current Massachusetts estate tax exemption causes an increasingly large number of residents who are not required to pay federal estate taxes to nevertheless pay Massachusetts estate tax upon death. The ball is now in the legislature’s court to determine if this result remains a sound and competitive tax policy.


About Andy O'Donnell

Andy is a partner of the firm, practicing in the areas of tax law and estate and business planning. He is the former chair of the Trusts and Estates Group, and he currently serves as a member of the Management Committee.
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