The Facts about Death Taxes

Federal and State Death Taxes – and Exemptions
After your death, your family may be liable for federal estate tax and state inheritance tax. These taxes are in addition to any expenses you may have to pay such as probate and legal fees, and, under current federal law, can be between 41–55% of every dollar of your estate over the exemption thresholds outlined below. “Estate taxes” are often referred to as “Death taxes.”

The Federal Death (“Estate”) Tax
After your death, the federal government allows your beneficiaries to receive up to $5,340,000 (indexed for inflation) without paying death taxes. Every dollar above that will be taxed unless there is a plan in place before your death to avoid high death taxes.

Massachusetts Death (“Estate”) Tax
Many estates that do not owe federal estate tax will, nevertheless, owe Massachusetts estate tax.  This is because the amount that passes tax-free for Massachusetts’ purposes is much less than what passes tax free under federal law. While the federal estate tax exemption is currently $5,340,000 per person, the Massachusetts exemption is only $1,000,000.  Although the $5 million estate of a Massachusetts resident will pay no federal tax, that same estate nevertheless will owe substantial Massachusetts tax on over $4 million in assets. 

The Massachusetts Estate Tax applies to all estates of Massachusetts residents.  The $1,000,000 exemption is a filing threshold.  That is, a Massachusetts estate tax return must be filed—even if no tax is actually due—for any Massachusetts decedent whose “gross estate” (the gross value of all property owned at death or the ownership of which otherwise legally is attributed to the decedent) exceeds $1,000,000.