Can Married Couple Shelter $2 Million from Massachusetts Estate Taxes?
Assuming a couple with a Massachusetts joint taxable estate of $5 million, I see how you say to use a trust for the benefit of surviving spouse with $1 million (where surviving spouse is sole trustee) and reduce taxable estate to $4 million. What must be done to reduce taxable estate to $3 million thus using the Massachusetts $1 million exemption for BOTH spouses?
That’s a good question. But, unfortunately, the Massachusetts estate tax does not work like the federal one. The IRS only taxes estates to the extent they exceed the threshold of $11.58 million (in 2020). Nothing under the threshold is taxed. The Massachusetts estate tax threshold works differently—it’s more of a trigger. If an estate meets the $1 million trigger, it’s subject to the estate tax and it’s all taxable. If it’s below $1 million, the estate tax is not triggered and nothing is taxable.
So a couple can shelter up to $1 million of the estate of the first spouse to pass away, protecting it from being taxed in the survivor’s estate by having it go into a so-called “credit shelter” trust for the surviving spouse’s benefit, but they can’t protect the first $1 million of the survivor’s estate from being taxed. The saving grace is that Massachusetts estate tax rates are much lower than federal ones.