Long Awaited Comprehensive Massachusetts Tax Changes Were Signed into Law

Governor Healey signed into law the long-awaited comprehensive Massachusetts tax relief bill on Wednesday October 4, 2023.  Among its many provisions is the first change to the Massachusetts Estate Tax law in over 20 years.  The law significantly changes the estate tax landscape in Massachusetts and may warrant revisiting your estate plan to adjust accordingly.   A summary of the changes is as follows: 

• A fixed Massachusetts estate tax exemption of $2,000,000 per person (up from a $1,000,000 threshold amount), which applies retroactively to all persons dying on or after January 1, 2023; 
• Eliminates the ‘cliff effect’ of the prior estate tax regime, by applying a credit to estates that are subject to estate tax in the amount of $99,600, effectively eliminating tax on the first $2,000,000 of assets in a decedent's estate; and 
• Changes the treatment of out-of-state real and tangible property owned by Massachusetts residents, now providing a credit against the Massachusetts estate tax for the proportionate tax attributable to the value of out-of-state property, regardless of whether an estate tax is imposed on that property in its home state (previously a credit only applied to the extent the property was actually taxed in the home jurisdiction).   

These changes are substantial improvements to the Massachusetts estate tax statute and provide substantial relief in terms of the state estate tax burden, however, the law does not include other taxpayer-friendly provisions, such as indexing of the estate tax exemption or incorporating provisions permitting the sharing of exemptions between spouses (which is permitted federally using a ‘portability’ election).  For these reasons, planning is still required to maximize use of the new exemption and minimize Massachusetts estate taxes as much as possible, particularly for married couples who, with proper planning, can preserve up to $4,000,000 of assets from tax.   

Further, questions remain as to the applicability of these changes to estates of decedents in 2023 who have already filed estate tax returns, as well as the applicability of the changes to non-resident decedents owning real property in Massachusetts.  

Please feel free to contact us if you would like to discuss how these changes may impact your estate plan.