Photo by Meritt Thomas on Unsplash

Question:

My parents were Florida residents. My father passed away in 2020 and my mother this year. My father’s living trust holds title to their vacation home in Massachusetts. The trust was written to avoid the Massachusetts estate tax by putting the house into a Family Trust on his passing and the remainder of his estate into a Marital Trust. This was supposed to take the house out of my mother’s estate so there would be nothing to attach an estate tax to when she passed.

Now that my mother has passed away we are being told she needs to file a federal and state 706 for the purpose of a lien release. I am confused why she has to file anything since she is not an Massachusetts resident and the property is owned by the trust.

Response:

I’m a bit puzzled as well. If the entirety of the house was allocated to the family trust (also commonly referred to as a “credit shelter” trust), it’s not in your mother’s estate and should not be subject to all the requirements you mention — Massachusetts estate tax return and lien. However, if the value of the house exceeded $1 million in 2020, then part of it’s value may have been allocated to the marital trust which is in your mother’s estate and would be subject to these requirements. But that doesn’t sound like it’s the case. In fact, even if your mother had been a Massachusetts resident that would still not make the property in the family trust subject to Massachusetts estate taxes.

While the trust set up avoided any tax upon your father’s death, a Massachusetts estate tax return and release of lien were required at that time. Perhaps if they were not filed then, the law firm may be cleaning that up now by filing a return for your father’s estate.

The only drawback of the house being in the family trust share of your father’s trust is that while it received a step-up in basis upon your father’s death it did not receive a second step-up upon your mother’s death. So, if your family is selling the property, you will have to pay a tax on any increase in its value since 2020.

Related Articles

Should QTIP Election Be Made on MA Estate Tax Return for Non-Resident Decedent with Property in Massachusetts? Does Your State Have Estate or Inheritance Taxes? Should We Keep Our Estate Tax Plan Under New Massachusetts Estate Tax Law?