The Massachusetts Legislature Has Finally Raised the Massachusetts Estate Tax Exemption to $2,000,000.00, Yet Many People Will Still Move Away Because of Our Estate Tax

As part of the new Massachusetts tax law signed by Governor Maura Healey on October 4, 2023, the Massachusetts estate tax exemption has been increased to $2,000,000.00. The good news for some families is that the law was made retroactive to January 1, 2023. Our office has reached out to the Massachusetts Department of Revenue and learned that, for any estate that paid an estate tax so far this year, refunds will be automatically processed (eventually) without the need for filing an abatement.

The previous, ill-conceived Massachusetts estate tax law had what was known as a cliff. If the adjusted taxable estate went over $1,000,000.00, the tax on the first million was also payable. The new Massachusetts estate tax law (which continues to be ill-conceived) provides a credit of $99,600.00 when the estate tax is calculated. Since the estate tax on a $2,000,000.00 adjusted taxable estate is $99,600.00, the so-called cliff has been eliminated.

The Massachusetts estate tax is based on the adjusted taxable estate, which is on line 3 on the Federal Estate Tax Return that must be prepared. The fact that gifts do not appear until line 5 on the Federal Estate Tax Return means that gifts will not get pulled back in and be taxed. (I’ll get into strategies in a later blog post.)

Raising the Massachusetts tax exemption to $2,000,000.00 (without any future inflation adjustments) was supposed to be done in the interests of making our state competitive, yet all the Massachusetts legislature did was lift our exemption from the absolute worst in the nation to the second worst (for now). Rhode Island is now in last place at 1,733,264, but since Rhode Island annually adjusts its figure for inflation, we could end up back in last place in a few years. I suppose that, after two decades of lazy inattention to the Massachusetts estate tax (while the median price of a home tripled), we shouldn’t have expected a great deal of deep thought about the ramifications of this type of tax from the Massachusetts legislature. Thus, clients with whom I’ve discussed changing domicile from Massachusetts for estate tax purposes should continue to explore those plans, as it could well be another two decades of lazy inattention before our elected officials get back to relooking at this issue.

The Massachusetts estate tax had actually been repealed in the late 1980’s, effective in 1996, by a Massachusetts legislature that had seen evidence that we were losing so much in income tax revenue from people leaving Massachusetts that the estate tax was not worth keeping. Somehow, that information did not get passed along.

This economic development bill geared towards making our taxes and economy more competitive actually kept in place this Massachusetts estate tax which could quite possibly be a net loss to our economy. (Note: to Governor Healey’s credit, she did propose an increase to $3,000,00.00, and it was our legislature that insisted on the figure being $2,000,000.00.) Putting aside Rhode Island, let’s look at what the other New England states have done, and why people might want to move there for estate tax reasons: New Hampshire, no estate tax; Connecticut, no estate tax below $11,400,000.00; Maine, no estate tax below $6,410,000.00; and Vermont, no estate tax below $5,000,000.00. Let’s also look at some of the states where some of my clients are intentionally moving to avoid our estate tax: Florida, no state estate tax; North Carolina, no state estate tax; South Carolina, no state estate tax; Georgia, no state estate tax; and Arizona, no state estate tax. We are in the minority; there are 33 states that don’t have any type of estate or inheritance tax.

Since staying in Massachusetts and dying while living here is essentially is the same thing as putting a provision in your will giving a part of your estate to the Massachusetts government (as if our income taxes aren’t enough), there is no doubt that people will continue to move out due to the lousy job done by our legislature when they were supposedly working on economic development.