Question:

My entire estate is worth about $6 million. I am now single and a legal resident of Florida. I still own a home in Massachusetts (worth $300,000). I stay at the Massachusetts home for about five months of the year. I understand that owning this house in Massachusetts will cause me to be liable for a portion of the Massachusetts estate tax. I have not filed a Massachusetts state income tax return for several years now. All of my assets are in trust (except the cars), including the Massachusetts home. Nothing will go through probate (except the autos). So, who is going to tell the state of Massachusetts that I died and owe the tax? My trustee, my Florida accountant, the clerk in the registry when the deed is transferred from the trust to my son? What type of filing is required to tell the state of Massachusetts I died?

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Response:

First, you personally will never be liable for an estate tax since nothing will be due during your life. Your trustee and the personal representative of your estate, however, are legally obliged to pay the tax, but no one is going to come after them if they don’t. Your son may be required to file a Massachusetts estate tax return if your son chooses to sell the house. The state gets an automatic lien on real estate passing upon death to another person. This can only be removed by filing an estate tax return or an affidavit signed under the pains and penalties of perjury that no estate tax was due. This lien, however, expires 10 years after the date of death of the decedent. So, if your son waits 10 years, he would be able to sell the house without paying the estate tax.

Given that the house constitutes only about 5% of your estate and the tax is prorated, we’re talking about a tax of about $20,000 (plus legal or accounting fees to prepare the estate tax return) under the new Massachusetts estate tax. Here’s how it’s calculated. The tax on a $6 million estate if you died a resident of Massachusetts would be about $400,000. Since the Massachusetts real estate constitutes 5% of this, your estate would be assessed 5% of the tax for Massachusetts decedents.

It might be easiest for your son to simply pay this, though it’s a pain in the neck to prepare the tax return on your entire estate to figure this out. The other option would be for you to give the house to your son now and avoid any potential Massachusetts estate tax issues. Of course, the loss of a step-up in basis on the sale of the property might cost your son more than $20,000 on its sale depending on whether he lives there and the amount of appreciation there has been.

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