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!)