New Law Changes Massachusetts Estate Tax Exemption Amount

Massachusetts Governor Maura Healey signed a bill on October 4, 2023 amending the state’s estate tax law.

INCREASED MASSACHUSETTS ESTATE TAX EXEMPTION AMOUNT

For individuals dying on or after January 1, 2023, the new law increases the estate tax exemption for a Massachusetts estate from $1 million to $2 million. This change will eliminate the estate tax filing requirement for decedents with taxable estates valued at less than $2 million (including property owned in other states). It will also reduce the state estate tax on estates valued at more than $2 million by almost $100,000.

Unlike the federal estate tax exemption, which is currently $12.92 million (but is slated to decrease by approximately one-half on January 1, 2026 under current law), the Massachusetts exemption is not indexed for inflation and is not portable between spouses—that is, for married couples, the first spouse to die must use the Massachusetts estate tax exemption by passing assets worth $2 million to individuals other than the decedent’s spouse or to certain types of trusts for the benefit of the decedent’s spouse or other individuals, or that spouse’s exemption will be lost.

MASSACHUSETTS RESIDENTS WITH PROPERTY LOCATED OUTSIDE THE STATE

The value of real property and tangible personal property located outside of Massachusetts will be includible in a Massachusetts resident’s gross estate under the new law. However, the amount of any estate tax due to Massachusetts will be reduced in proportion to the value that the non-Massachusetts situs assets bear to the total gross estate.

For example, if the estate tax due on a Massachusetts resident’s gross estate (including non-Massachusetts situs assets) is $100,000 and the non-Massachusetts situs assets make up 20% of the gross estate, the estate tax due will be reduced by 20% to $80,0000.  

RETROACTIVE EFFECT

The new law is retroactive and applies to estates for individuals who died on or after January 1, 2023. As the law was just enacted last week on October 4, 2023, the Massachusetts Department of Revenue has not yet released revised estate tax forms and instructions. If an estate tax return for an individual who died this year has already been filed, a refund request should be filed based on the new $2 million exemption.

For estate tax returns that are due in the coming weeks and months, it may be prudent to file an extension while the Department of Revenue works on issuing revised forms.

CHANGES TO EXISTING ESTATE PLANS

Estate planning documents previously drafted by Morgan Lewis have flexible provisions that will automatically account for the changes made by this new law. However, as discussed above, the Massachusetts exemption is not portable, so it may be necessary for married couples to retitle assets to take full advantage of the increased $2 million exemption amount, with the goal being to title as close to $2 million of assets as possible in each spouse’s name/revocable trust.

If you have any questions regarding the new law and how it may affect your existing estate plan, please contact your estate planning lawyer at Morgan Lewis.