Massachusetts Governor Maura Healey has signed a landmark tax relief package known as “An Act to improve the Commonwealth’s competitiveness, affordability, and equity.” This comprehensive tax reform legislation brings relief to families, businesses, and individuals across Massachusetts. Notably, the new law introduces significant changes to the state’s estate tax regulations, marking the first such changes in two decades.
One of the most noteworthy aspects of this legislation is the modification of Massachusetts estate taxes, which will have a substantial impact on existing estate plans and tax planning. The previous estate tax laws in the Commonwealth had remained unchanged for 20 years. Key highlights of the estate tax changes include:
- Increased Threshold: Effective January 1, 2023, the estates of decedents passing away on or after this date will be exempt from Massachusetts estate tax if the value of the federal taxable estate does not exceed $2 million. This represents an increase from the previous threshold of $1 million. Importantly, the new law does not index the $2 million exemption for inflation, and it is not “portable” between spouses. This means that a surviving spouse cannot inherit the unused exemption from their deceased spouse.
- Elimination of “Cliff Effect”: The law introduces a uniform tax credit that eliminates the so-called “cliff effect.” Estate tax will now only be levied on the assets exceeding $2 million, signifying a significant shift in how the tax is calculated. Under the prior law, once an estate reached the $1 million threshold, the entire estate was subject to taxation.
- Treatment of Out-of-State Assets: The new legislation alters the calculation of a Massachusetts resident’s estate when they possess real and personal property outside the Commonwealth. It reduces the tax by the proportion of the overall estate represented by non-Massachusetts assets.
It’s important to note that the law is retroactive to January 1, 2023. For Massachusetts estate tax returns already filed in 2023 with taxes paid, it is expected that the Massachusetts Department of Revenue will reevaluate the estate tax and issue refunds to affected estates. Estate owners do not need to file amended returns to benefit from these changes.
The tax relief package, including these estate tax revisions, reflects Massachusetts’ commitment to enhancing the financial well-being of its residents while making the tax system more equitable and competitive. The adjustments in estate tax thresholds and calculations are expected to have a substantial impact on estate planning and taxation in the state.
