You have been very fortunate in your life – worked hard, saved your money and own your home. Throughout the years, you have been able to rely on a wonderful loved one. They check in on you often, help with your shopping and doctor’s appointments. In recognition of this important relationship, you decide to leave them your vacation home on Cape Cod after you pass away. What an exciting, thoughtful gift…or so you thought. That gift can have one big unintended consequence: Estate tax liability.
Massachusetts Estate Tax
In Massachusetts, the estate of a deceased individual may be subject to an estate tax. The estate tax rate ranges from 0% to 16% and is levied on estates worth over $1 million. This tax applies to the entire estate, including the value of assets that passed outside of your probate estate such as retirement assets, life insurance values and trust assets. What this means is that the estate tax applies to the whole estate value, not just those assets passing through your Will or Revocable Trust.
If your estate is valued over $1 million dollars at the time of your death, all beneficiaries may have a responsibility to pay a proportional share of the estate tax bill. This means that your loved one, who received your Cape Cod vacation home as a gift from you at the time of your death, may need to come up with money out of their pocket to pay their portion of the estate tax bill. If they don’t have the cash on hand to cover their share, they may have to sell the property, and possibly defeat your intent in leaving it to them.
Addressing the Estate Tax Issue
You can address the Massachusetts Estate Tax issue while working with your estate planning attorney. Here are some possible solutions:
- If possible, leave your estate a life insurance policy that is intended to be used to cover the entire estate tax liability.
- Specifically state that the gift to your loved one is to pass without being subject to estate tax liability (this may have further unintended consequences on your other beneficiaries who now bear a larger share of the burden).
- Leave your loved one an additional cash gift that can be used to cover their portion of the estate tax liability thus allowing them to keep the property as you intended.
Working with an experience estate planning attorney who has experience with all aspects of the probate process is important so they can properly counsel you regarding the best way to ensure that your goals are met after your death.
If you would like to explore putting a plan in place to avoid or minimize estate taxes, contact our skilled probate and estate planning attorneys at Generations Law Group. Founded by a nurse attorney and with offices in Acton, Burlington, and Sudbury, Massachusetts, Generations Law Group helps families navigate the complex areas of estate planning and elder law to inform and protect loved ones of every generation.
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