What Constitutes a Taxable Estate in Massachusetts?
“…in this world nothing can be said to be certain, except death and taxes.” ~Benjamin Franklin
As adults know too well, death and taxes truly are unavoidable. However, not all adults realize that tax liability doesn’t always end at death. Depending on what you own at the time of your death, the loved ones who inherit from you may bear a significant financial burden in the form of an estate tax. And if you’re the executor for a loved one who dies without having done estate planning, that tax burden could fall to you.
In Massachusetts, a taxable estate is one that is worth $1 million or more per person. That means that a single person’s estate is taxable if they have more than $1 million in assets, while two spouses must each have assets of at least $1 million.
But what makes up your estate?
First, any real property in your name is counted toward your estate. If you own your home, its market value is included in your estate. The value of any other homes or properties you own is also included. You do get to subtract debts and liabilities when calculating the value of your estate. If you’re still paying a mortgage on your home, for example, the owed amount won’t count toward your estate value.
Financial assets – checking and savings accounts, retirement accounts, investment funds, etc. – are part of your taxable 
estate. The death benefit of your life insurance policy is included too.
Sounds simple enough. But this topic is a tricky one for a few reasons. For one, estate tax law is complicated! There numerous loopholes and confusing nuances around estate tax planning. Second, everyone has a unique situation. Say you and your next-door neighbor own identical homes and earn the same salaries – your estate tax liability may still be dramatically different from your neighbor’s, because it depends on so many factors.
This can get really complicated for married people, who must take their spouses’ assets and their joint assets into consideration. To demonstrate how one couple’s taxable estate is calculated, let’s look at one example.
Albert and Debra: A Taxable Estate Case Study
Let’s say that Albert and Debra, a married couple, visit an attorney who specializes in estate planning. Together, they calculate the value of their taxable estates.
Albert and Debra have joint assets including a primary residence in Framingham, Massachusetts, a vacation home in the Cape, a checking account, and some mutual funds. They have a mortgage on the vacation home. Their attorney adds up the value of those joint assets and subtracts the mortgage amount to get a final dollar figure for their joint estate, around $1.8 million. This number is then halved because Albert and Debra are each responsible for half of the joint estate.
Albert’s personal estate includes a few separate accounts and a $1 million death benefit from his life insurance policy. Debra also has a few personal accounts, but no death benefit. Albert’s estate is worth more than $1 million, so he’s automatically subject to the Massachusetts estate tax. Debra’s estate is valued at a little more than $500,000 – but when her half of the joint assets is added, she’s slightly above the $1 million cutoff.
Here in Massachusetts, estate taxes range from 0.8% to 16% of the taxable estate. When Debra dies, her heirs will be on the hook for tens of thousands of dollars in taxes because her estate is worth more than $1 million. But if she does estate planning now, her attorney can help her make a plan that will take her countable assets below that line so her heirs won’t have to pay any estate tax at all. They also won’t have to deal with the confusion and hassle that comes with navigating the complicated tax code.
By working with an attorney now, you too could save your loved ones a great deal of money and stress down the line. Life is unpredictable, but our full-service estate planning law firm can help you take control of your estate so that your financial future is secure. Contact Ladimer Law Offices today to schedule a consultation.