Is My Wife’s Estate Taxable in Massachusetts?
My wife passed away. In simple terms, how does one figure or include items to determine the Massachusetts estate tax? I believe there is a $1 million exemption.
I’m sorry to hear about your wife’s death.
You are right that the threshold for Massachusetts estate taxation is $1 million. To determine what is in your wife’s estate you must include everything she owned or in which she had an ownership interest. This would include your home, jewelry, savings, investments, retirement plans, and life insurance proceeds, as well as any taxable gifts your wife may have given away during her life. Gifts are taxable if they exceed the exemption amount—$16,000 in 2022—to any individual in a calendar year. Everything is includible whether or not it goes through probate. So, accounts with a designated beneficiary or property that is jointly owned is added in. For property or accounts that are jointly owned with you, you would count half in your wife’s estate.
This calculation determines whether you will need to file an estate tax return for your wife’s estate, but not whether there’s an estate tax. Everything that passes to you qualifies for an exemption. So, let’s assume that your wife’s estate totals $1.2 million and that $1 million passes to you and $200,000 to your children. You would have to file an estate tax return, but no tax would be due. The estate would be over $1 million for purposes of determining whether you need to file a return, but only $200,000 for determining whether it’s taxable.
Depending on the size of your own estate, there can be tax benefits to disclaiming some of what you would receive from your wife. Let’s assume that both you and your wife have estates totaling $800,000. There’s no tax on your wife’s estate because it’s less than $1 million. But if you were to pass away with a $1.6 million estate, it would be subject to a Massachusetts estate tax. There are a number of techniques you could use to eliminate or reduce the tax (including moving out of Massachusetts). One would be to disclaim some or all of what you are to receive from your wife. Whatever you disclaim will be treated as if you had predeceased your wife and pass to the contingent beneficiaries in her estate plan. You must take this step within nine months of her date of death.
For more information on the byzantine ways of the Massachusetts estate tax, download our legal guide here.