The New Massachusetts Estate Tax Regime is Here with a $2 million Exemption

The Governor signed the new tax bill today and now estates under $2 million in Massachusetts will no longer incur an estate tax. Previously, estates with more than $1 million were subject to the estate tax and were taxed on amounts over and under the $1 million. Now, there is a credit on the tax for amounts under $2 million and a tax for the amounts over that new threshold.

With the former, lower threshold amount of $1 million, many families in Massachusetts whose deceased loved one owned a home and had a retirement account would end up with an estate tax bill. The estate tax would create a lien against the home. Home values are high in Massachusetts with a Median sales price of $570,000 in August 2023 (per the Warren Group press release dated September 19, 2023). For these families they would often have to sell a home to pay the taxes while other wealthier families would be able to use cash in bank accounts to pay the estate tax and retain the home thereby preserving the asset for the next generation.

This new legislation will help some middle class families pass on wealth to the next generation. With the housing crisis, it is even more helpful if a family can leave a home to the next generation as home prices keep increasing and housing stock is low.

New Adults: welcome to adulting!

Turning 18 and reaching adulthood comes with a lot of freedom. However, it also comes with a lot of responsibility. When you become an adult, you are no longer under the control of your parents. You can make your own choices, and no longer need their legal approval for many things, but that comes with a host of new decisions that you are responsible for.

One of these decisions is whether or not to name a healthcare proxy and/or power of attorney. These documents state that if you find yourself unable to make decisions for yourself, the people that you name will be assigned to make those decisions for you, hopefully in your best interests. It’s scary to think about the possibility of a situation like this, but it’s better to establish these documents in advance, just in case. Healthcare proxies are given the responsibility of deciding, on your behalf, what kind of care you receive if you become incapacitated. If you get in a car accident and end up in a coma, you want to ensure the person making decisions is choosing what’s best for you, not them. Maybe you want to be on life support. Maybe you don’t. Regardless, they need to respect that. If you feel as though your family won’t respect your wishes, you don’t need to name them as your proxy, just another adult who you trust to respect your wishes.

This importance cannot be understated if you are capable of pregnancy. If pregnancy is involved and you are incapacitated, it’s incredibly important for your healthcare proxy to be a person who will advocate for you and make the same choice that you would. That may mean terminating a pregnancy, or it may mean continuing it, but it’s important regardless to choose a person that will advocate for your desires. The same idea applies if you are receiving gender-affirming care. If a family member is going to force their own views and preferences onto your body, you’re under no obligation to name them as your healthcare proxy. This is part of the freedom that comes with legal adulthood.

In addition, if you’re going through the process of choosing a healthcare proxy, it’s not a bad idea to establish a durable power of attorney. Naming a person will give them the ability to make financial decisions for you, in the event that you are incapacitated. Once you are an adult, the things you buy are your own, and they inherently have value. They are part of your “estate.” Maybe you collect figurines or trading cards. Maybe you play music and own instruments. Maybe you own valuable jewelry! It never hurts to have a person named who will make sure that your estate (even if it is just some jewelry and the cash in your bank account) is managed well. Durable powers of attorney are powerful, and they’re well worth the peace of mind.

Without a durable power of attorney or health care proxy in place, someone may have to be appointed by a court to manage your care and finances.  Thus, naming someone of your own choosing not only gives you more control, it also saves on legal fees and, more importantly, stress on your loved ones. 

Planning for a worst-case scenario is scary. Experiencing that worst-case scenario without planning for it is even scarier. Becoming a legal adult comes with many new responsibilities, but, fortunately, it also comes with a great deal of control. Contact us if you would like help setting up these documents.

*Thanks to Jay Clark for drafting the bulk of this post!

July, 2023 Massachusetts Estate Tax (and other tax) Legislation Update

The Massachusetts Estate Tax Threshold (at $1 million) is fairly low considering the prices of homes here in Massachusetts is at $553,000 (per The Warren Group report of June 20, 2023). Estates of folks who pass away with more than $1 million in Massachusetts are subject to the estate tax. The Governor has proposed the threshold be raised to $3 million and previous bills have been proposed increasing it to $2 million.

There have been a few bills to change the threshold to a higher amount over the last couple of years which have gained traction. House Bill 3770 has made it pretty far. If signed into law, Bill H.3770 has the capacity to dramatically change Massachusetts estate tax. While it passed both the House and Senate, as of July 4th it still has not been signed into law. Here’s what you need to know:

H.3770’s main focus is changing the estate tax threshold from $1 million to $2 million, as well as eliminating the “cliff effect” on said estate taxes. For a long time, if your estate was worth more than a million dollars, the entire value of said estate would be subject to a much higher tax. For example, if your estate was worth slightly more than one million dollars, you’d pay around $36,000 in taxes. If H.3770 were to go into effect, the cliff would be removed. Only the value of your estate greater than $2 million would be taxed at that significantly higher rate, and the rest would be subject to much lower rates.

H.3770 also plans to reduce tax rates of short term capital gains (over a period of three years, moving them from 12% to 5%), double senior circuit breaker tax credits (from $1,200 to $2,400), raise Massachusetts earned income tax credit to 40%, and increase child and dependent tax credit to 600 by 2025. It also changes income tax refunds in the very specific circumstance when total state tax revenue exceeds an annual cap dictated by salary/wage growth. Previously, taxpayers would receive a return proportional to how much they paid in taxes that year. With H.3770’s changes, these returns would no longer be proportional and would instead be equally distributed to all taxpayers. This does not change overall tax returns, just tax returns that are a result of this specific instance.

So, what does this mean for you? Your estate’s value can now be higher without incurring heavier taxes, if you do qualify for those heavier tax rates, they’ll only apply to the value of your estate that is above $2 million, and you may be eligible for greater tax credit starting this year. On a broader scale, Massachusetts is overdue for this change, joining its northeast neighbors in raising estate tax thresholds to account for significant spikes in real estate value and overall inflation. If passed, H.3770 will grant Massachusetts residents more power over their estate planning and would give greater returns to those in need, even if in subtle ways.

(Jay Clark (local college student) authored much of this post - Thanks Jay!)

Another Green Burial Option

Saw a report on the local news today about a memorial forest in Massachusetts. This will give us another eco-friendly burial option in Western Massachusetts (and their other locations). Better Place Forests will be offering memorial trees for your loved ones ashes as a way to memorialize your loved one while helping conserve the forest and open space.

I love that there is now another way to preserve our open spaces and forests which literally connects people to nature.

https://www.betterplaceforests.com/forest-berkshires/

Social Security has added an Advanced Designation of Rep Payee

SSA Rep Payee Changes - The SSA now allows Social Security recipients to designate someone to manage their benefits if they become incapacitated (or if their current representative payee can no longer serve or is unresponsive). You can designate up to three people in advance to take over the representative payee role in that case.

You can name the advance designee when you first enroll for benefits or at any other time. You can also change the designee at any time. The designation or change can be made through their portal, via regular mail using their form, in person at a field office or by phone. The form and contact info can be found here: https://faq.ssa.gov/en-us/Topic/article/KA-10039

The advance designation does not grant the named party a power of attorney regarding your benefits nor does it appoint them as a successor representative payee automatically, but it does at least give them a person to consider serving as your representative payee instead of leaving it up to chance. The SSA will evaluate the person you’ve named as your advance designee to ensure they are suitable to serve. This is similar to what happens when you name a guardian for a child in your will. The court will still evaluate the person you’ve named to ensure they are an appropriate guardian. If the person you’ve named, for example, is now in jail or has been convicted of a financial crime then that would likely be a case where the SSA would elect not to honor your choice.

https://www.ssa.gov/payee/advance_designation.htm