CLIENT
ALERT Massachusetts has enacted new estate tax legislation for estates of individuals who die on or after January 1, 2003. Prior to January 1, 2003, exemptions from Federal and Massachusetts estate taxes were the same (currently $1 Million), and Massachusetts only received a portion of the Federal estate tax, the so-called “sponge tax.” Under the new Massachusetts legislation, effective January 1, 2003, Massachusetts has decoupled the Massachusetts estate tax from the Federal estate tax and will no longer track the Federal estate tax exemption. Instead, the Massachusetts exemption will be based on Federal law as it was in effect on December 31, 2000. The table below illustrates the differences between the Federal estate tax exemption and the Massachusetts estate tax exemption. The result of this change in Massachusetts law is that many residents will have to pay Massachusetts estate tax even though they may pay no Federal estate tax because of the larger Federal estate tax exemption. Prior to the recent Massachusetts estate tax changes, because the Massachusetts estate tax tracked the Federal estate tax rules, a typical plan for a married couple would defer all estate taxes until the death of the second spouse to die and it would maximize the use of both spouses’ Federal estate tax exemption. Because of the changes in Massachusetts law, this typical plan may result in Massachusetts estate tax being due upon the death of the first spouse to die. The new Massachusetts estate tax rates range up to 16% depending on the size of the estate. If you are married and a resident of Massachusetts, you must amend your estate plan in order to avoid the payment of Massachusetts estate taxes upon the death of the first spouse to die. Fortunately, this past week the Massachusetts Department of Revenue has issued a proposed directive confirming that the executor of an estate may make special tax elections in order to minimize both the Federal estate tax and the new Massachusetts estate tax at the death of the first spouse. However, your estate plan must be amended to take advantage of these rules. Please contact us to discuss the changes that are appropriate for your particular situation.
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