On February 27, 2023, Governor Maura Healey unveiled a tax proposal that includes almost $850 million in annual tax relief. This package is part of the governor’s FY24 budget (July 1, 2023–June 30, 2024). One welcome portion of the proposal is estate tax relief. If passed, each estate would have a non-refundable tax credit of $182,000. This will eliminate a Massachusetts Estate Tax on estates up to $3 million. Estates larger than $3 million will still benefit from the tax credit but will have some MA estate tax liability. Smaller estates will be able to eliminate estate taxes by using the credit, but they will not receive a refund if the estate tax is less than the credit. For example, an estate of $1.5 million is subject to an estate tax of $64,400. The credit of $182,000 will eliminate the tax, but the estate will not receive the unused credit as a refund. There are several points that are not clear. We do not know if the credit will be available to out-of-state residents who are still subject to the Massachusetts estate tax. Also, it is not clear if the credit will be portable between spouses, like the US exemption is portable. Finally, this is only a proposal. There have been many proposals to reduce the Massachusetts estate tax over many years, yet none of them have been signed into law. You may wish to contact your state legislators to encourage them to pass this much-needed tax reform. Additional information about the governor’s proposal may be found here.

This is not the first-time proposals to increase the Massachusetts Estate Tax have been placed before the legislature.  For approximately 5 years there have been proposals to increase the estate tax exemption to $2 million per person.  Just before the pandemic lockdowns, there was significant support for raising the exemption.  Unfortunately, discussions fell apart and there has not been consensus on the issue since.

While there is not a lot of detail about the governor’s proposal, it does appear that the exemption and filing requirement will remain at $1 million.  It appears that under her proposal of a tax credit will save many families from the tax, they will still be required to file an estate tax return (MA Form M-706) and still be required to obtain an estate tax lien release that attaches to Massachusetts real estate automatically.  Another concern about the governor’s proposal is whether or not (and how) the credit can be eliminated.  All the details will depend upon what legislation is ultimately passed.

For now, Massachusetts still has one of the most aggressive estate tax laws in the country.  Residents of Massachusetts and non-residents who owns real estate or personal property located in Massachusetts, will still have to pay an estate tax when the estate is valued at more than $1 million.