Skilled Lawyers Providing Help in Avoiding Estate Taxes for Residents of Cape Cod and The Surrounding Islands

There are a few widely-used strategies for you to consider when it comes to avoiding estate taxes as a MA resident. Proper planning is key to ensure your beneficiaries will be able to receive your assets in the way you intended to transfer them. Being hit with an expensive estate tax bill can jeopardize the integrity of your estate and the beneficiaries’ ability to receive financial support from it.

The state of Massachusetts requires estate taxes to be paid on any estate that totals at least one million dollars or more. For assets that fall below that number, no estate taxes are required. For those who fall into the category of $1 million or more, taxes will be applied to the entire value of the estate and not just the amount that exceeds the threshold. But there are a few strategies that are commonly used to reduce or avoid paying estate taxes in Massachusetts. Let’s look at three of the most common ones.

Reducing Your Estate Size by Giving Annual Gifts

This is a strategy that allows you to reduce the size of your estate over a period of time. It does come with a caveat — the IRS knows that many may give gift funds to avoid paying estate taxes, so it has set a limit to the amount of non-taxable gifts one can give in a year’s time. This limits each individual to only $14,000.00 dollars per person, per year. A husband and wife can make gifts separately to the same person which would total up to $28,000.00 in a year.

By making gifts to your family members over time, the size of your estate will be gradually reduced. If what remains of your assets totals less than one million dollars, your estate is now free from paying taxes. This strategy might not be right for everyone and must be done carefully in order to avoid gifting any money above the allowed tax-free amount. Anything over $14,000 dollars a year will be subject to taxes.

Using Charitable Donations To Avoid MA Estate Tax

There is no annual limit to the amount of your estate that you can give to charity, and such donations can reduce the size of your estate and also count as a taxable deduction. While this is definitely an option to avoid estate taxes in Massachusetts, many individuals with families would rather preserve their estate and keep it in the family. For those individuals, charitable donations may not be the best option.

Using Trusts to Preserve Your Estate Size and Avoid MA Taxes

For individuals who do not wish to get rid of part of their estate in order to reduce its size and would rather preserve its integrity and have more control over how the money will be passed on, setting up a trust becomes the most favorable option to achieve both goals of preservation and tax protection. There are many different types of trusts available.

Generally speaking, a living trust is a document that allows you to place all your assets in a trust and name yourself as a trustee to stay in full control of your assets for your lifetime. It also allows you to determine who will receive those assets upon your death. With a living trust, your wealth is transferred directly to a successor trustee that you previously named in the document, avoiding the probate process altogether.

Some of the most commonly used trusts are Revocable Living Trusts and Irrevocable Trusts. Here, the term “revocable” means it can be amended or revoked at any time, and the term “living” means that it has been funded — in other words, assets have been transferred to the trust, and the title is now in the trust and no longer owned by you personally. Revocable trusts can be changed or amended at any time, or even cancelled altogether, while Irrevocable trusts are permanent and cannot typically be changed in most cases.

In either situation, the assets transferred into a trust will no longer be your property and will not be part of your taxable estate, as they will technically be owned by the trust. You can set up one or multiple trusts that will individually fall below the one million tax threshold, allowing you or your surviving spouse to avoid paying MA estate tax.

Whatever you choose to do, make sure to always consult a professional estate planning attorney to decide which strategy is right for your specific situation. We can help guide you. Call us at (508) 775-7800.