Estate Taxes

The Massachusetts estate tax is a transfer tax on the value of a decedent's estate before distribution to any beneficiary of the estate. It applies to decedents who are:

1. 1. Residents of Massachusetts at the time of their death, and
   2. Non-residents with real estate or tangible personal property located in Massachusetts.

The rate of the tax is graduated, meaning that the percentage increases as the value of a decedent's estate increases.

The Commonwealth of Massachusetts elected to not incorporate any of the changes that Congress made to the Internal Revenue Code’s Federal estate tax provisions since 2000. The Massachusetts estate tax exclusion amount is still only $1,000,000. For most residents of Eastern Massachusetts, simply owning your own home means that it is highly likely that your Estate will have pay a Massachusetts estate tax to the Commonwealth before any of the Estate’s assets can be distributed to the individual’s heirs.

Up through 2022, Massachusetts levied a progressive estate tax on estates that were worth more than $1 million. The progressive estate tax rate started at 0% and topped out at 16% for estates valued over $10 million. Unlike many other states, the Massachusetts estate tax applies to the entire estate, not just to the amount above the exclusion amount.

If the value of a decedent's estate did not exceed $1 million, no estate tax was owed.  However, if the value of the decedent's estate exceeded $1 million, the entire value of the estate was subject to tax.  Accordingly, the $1 million limit was really a filing threshold rather than an exclusion.  To preserve the exclusion, a married couple with proper estate planning could protect $1 million from Massachusetts estate tax upon the first death between the spouses, but if the surviving spouse had an estate valued at more than $1 million, every dollar would be taxed.  For taxpayers with larger estates, trust planning was essential to protect $1 million from estate tax for each spouse.  Note that portability, which exists under federal estate tax rules, was not applicable to the Massachusetts estate tax.

Substantial changes to Massachusetts income tax became law under legislation titled An Act to Improve the Commonwealth's Competitiveness, Affordability, and Equity (Act), which went into effect on October 4, 2023 but was retroactive to January 1, 2023.  One provision of this Act increases the exclusion amount on a Massachusetts estate from $1 million to $2 million and treats the new exclusion amount as a true exclusion, as it now applies regardless of whether the decedent's estate exceeds $2 million.  Estates that exceed $2 million will be subject to the Massachusetts estate tax on the excess at a rate starting at 7.2% and increasing with the size of the estate, up to 16%. For a married couple, trust planning is still required to maximize the use of the exclusion for each spouse.

Under the Act, if a resident dies owning real estate or tangible personal property outside of the Commonwealth, any estate tax owed will be reduced proportionately by the value of such property. On the other hand, non-residents owning real estate or tangible personal property within the Commonwealth will still pay tax to the Commonwealth in an amount proportionate to the value of such property if the non-resident has a Massachusetts taxable estate exceeding $2 million. For non-residents, the Massachusetts taxable estate includes all property, regardless of where it is located. Therefore, Massachusetts continues its punitive computation for non-residents by treating the entire estate of the non-resident as if it were taxable by Massachusetts and then applying a fraction of real estate and tangibles in the Commonwealth over total assets to the tax so computed, thereby significantly limiting the benefit to them of the new $2 million exemption. Note that some taxpayers transfer real estate to limited liability companies (LLCs) to convert real estate that is taxable by the Commonwealth to intangible property that is not taxable by the Commonwealth, but it is not certain that doing so without a legitimate business purpose will be respected by the Massachusetts Dept. of Revenue.

Significance of the Act

Under the previous Massachusetts estate tax, an unmarried decedent with an estate of $2 million would have paid $99,600 to the Commonwealth.  Under the Act, that same decedent will not pay any tax.

More significant is the benefit to married couples with proper estate planning.  Under the previous Massachusetts estate tax, a married couple with an estate of $4 million who planned appropriately for the tax would pay $182,000 upon the death of the surviving spouse.  Under the Act, that same couple will not pay any tax.

To minimize or eliminate Massachusetts estate taxes, Massachusetts residents should, while they’re still living, take proactive steps to periodically transfer some of their wealth to their heirs. Such steps are discussed further in the Shifting Income, Gifts and Gift Taxes, §529 Education Savings Plans and Tax-Advantaged Charitable Contributions pages of this website.