The Massachusetts Estate Tax (Form M-706)
The Massachusetts Estate Tax (Form M-706)
Massachusetts residents need to take into consideration estate taxes and the form M-706. The threshold for the Massachusetts Estate Tax can be found here. Many residents dismiss this concern out of hand because they do not consider themselves particularly wealthy. However, many do not realize that this threshold counts ALL assets that you own on the date of your death. Including but not limited to your home, retirement accounts, brokerage accounts, bank accounts, life insurance policies, and personal property.
The Tax Cliff
The MA estate tax applies to the entire estate, not just the amount above the exemption. Therefore, if your estate is worth $10,000 above the exemption, you will be taxed on the entire amount. The chart below shows how the MA estate tax brackets work and how to calculate the amount you will pay. You use the chart by finding the row where your estate is valued more than the amount in Column A but less than the amount in Column B. Then, you subtract the amount in Column A from your estate value. Next, you multiply that by the percentage in Column D. Finally, you add that onto the amount in Column C, and that is the MA estate tax due.
The Chart
Column A Taxable Estate Amount Over | Column B Taxable Estate Amount Not Over | Column C Tax on amount in Column A | Column D Rate of tax on excess over amount in Column A |
| $1 | $40,000 | $0 | 0% |
| $40,000 | $90,000 | $0 | .8% |
| $90,000 | $140,000 | $400 | 1.6% |
| $140,000 | $240,000 | $1,200 | 2.4% |
| $240,000 | $440,000 | $3,600 | 3.2% |
| $440,000 | $640,000 | $10,000 | 4.0% |
| $640,000 | $840,000 | $18,000 | 4.8% |
| $840,000 | $1.04 million | $27,600 | 5.6% |
| $1.04 million | $1.54 million | $38,800 | 6.4% |
| $1.54 million | $2.04 million | $70,800 | 7.2% |
| $2.04 million | $2.54 million | $106,800 | 8.0% |
| $2.54 million | $3.04 million | $146,800 | 8.8% |
| $3.04 million | $3.54 million | $190,800 | 9.6% |
| $3.54 million | $4.04 million | $238,800 | 10.4% |
| $4.04 million | $5.04 million | $290,800 | 11.2% |
| $5.04 million | $6.04 million | $402,800 | 12% |
| $6.04 million | $7.04 million | $522,800 | 12.8% |
| $7.04 million | $8.04 million | $650,800 | 13.6% |
| $8.04 million | $9.04 million | $786,800 | 14.4% |
| $9.04 million | $10.04 million | $930,800 | 15.2% |
| $10.04 million | ——————- | $1,082,800 | 16.0% |
As an example, for an estate of $1.75 million, we would use row 10 and subtract the $1.54 million in Column A to get $221,000, then multiply that by 7.2% in Column D which gives us a value of $15,912, which we would then add onto $70,800 in Column C to give us an estate tax due of $86,712 for an estate size of 1.75 million.
How to Plan for the Tax
Married couples can double their Massachusetts Estate Tax exemption by using a Revocable Living Trust. Additionally, out of state residents who own real estate in Massachusetts are still liable to have the estate tax levied against them. This is because Massachusetts attaches the estate tax liability to the real property owned within the state’s borders. In order to get around this, out of state residents need to discuss with an attorney whether they can utilize a Trust, Limited Liability Company, or other entity to shield themselves from the tax.
Furthermore, it is important to note that the Estate Tax rate on the first $93,000 of assets over the exemption is 41%. Therefore, it still is extremely cost effective to implement Massachusetts Estate Tax planning even if your estate size is only slightly above the threshold.
Even if the estate is worth less than the threshold, the calculation includes adding the value of taxable gifts made by the decedent during their lifetime. Therefore, if the decedent’s estate is $100,000 lower than the threshold on their date of death, but they filed $200,000 worth of taxable gifts over their lifetime, their estate would be taxable. However, the tax would only apply to the current estate size and not the taxable gift portion.
For more information you can visit the Massachusetts published guide to the estate tax here.
