Estate Tax – Massachusetts

Congress last year enacted a phase out of the federal estate tax over the next 10 years. Most states, Massachusetts included, piggyback their estate taxes on the federal tax, taking the maximum the federal tax permits as a credit for state estate taxes paid.

The federal estate tax phase out enacted last year has resulted in a substantial reduction in state estate tax revenues nationwide. That loss of revenue will deepen as the phase in continues. In addition, the federal credit for state estate taxes will phase out over the next few years.

The Massachusetts legislature has frozen the state death tax credit as it stood in the year 2000. This means that the threshold for taxation will be different for Massachusetts estate taxes than for federal estate taxes beginning January 1, 2003. Here are the limits under current law: 

Year

Massachusetts

Federal

2003

$700,000

$1 million

2004

$850,000

$1.5 million

2005

$950,000

$1.5 million

2006-2008

$1 million

$2 million

2009

$1 million

$3.5 million

2010

$1 million

No Tax

2011 and thereafter

$1 million

$1 million

For the foreseeable future, many estates will be subject to a Massachusetts estate tax while not subject to a federal estate tax. The Massachusetts estate tax is a much lower rate than the federal estate tax (4.8 to 16 percent as opposed to 41 to 45 percent), and only on the amount of the estate above the threshold.