The Tax Implication of Death

Death may be taxing
  • While there has been pressure to eliminate the federal "death tax", a/k/a the federal estate tax, Massachusetts' estate tax is alive and well. (New Hampshire does not presently have an estate or inheritance tax ("Live, fee, but die, free") but it will likely have a big hole in its budget due to education and health care costs ...stay tuned.)
  • The federal estate tax, which formerly taxed estates in excess of $3,500,000, is scheduled to briefly disappear in 2010, and come back in 2011 for estates in excess of $1,000,000 with a top marginal rate of 55%, unless new legislation is enacted. During 2010, the "step up" in capital gain basis upon death will effectively disappear for amounts above $1,300,000 (or $3,000,000 for amounts passing to a surviving spouse).
  • There are predictions that the $1,000,000 federal threshold will be raised in 2011, possibly to $3,500,000, with a top marginal estate tax rate of 45%.
  • However, the change to the federal law will not directly change the estate tax in Massachusetts, which presently takes effect at a $1,000,000 threshold.
  • In Massachusetts, the marginal estate tax rate is between 5.6% and 7.2% for taxable amounts between $1,000,000 and $2,000,000.
  • Rates in other states, and their formula for taxation, may vary.
  • Beware - an estate with $1,000,000 in New Hampshire and taxable $500,000 in Massachusetts will pay ~$21,465 to Massachusetts (but if all property were in Massachusetts, the tax would be $64,400).
  • The preceding examples are for individuals. With proper planning, a couple can pass on up to $1,000,000 each without Massachusetts estate taxes, and up to $3,500,000 each (projected) without federal estate taxes, for a total of $2,000,000 free of Massachusetts taxes and $7,000,000 (projected) free of federal estate taxes.

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    For More Information:
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    Wellesley, Massachusetts 02482
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