Everyone has an opinion (usually negative) about the Income Tax. It’s a topic of water cooler conversation, and we see it on our pay stubs each pay period. But this is where most people’s knowledge of the tax code ends. For those without direct experience, the Estate Tax is a mythical beast. But for the unwary, the Estate Tax can become very real indeed… Especially in Massachusetts.
At the Federal level, the Estate Tax is a political bargaining chip that presently affects only the very wealthy (at least $5 million of net worth). However, the Massachusetts Estate Tax kicks in on estates valued at over $1 million. It’s important to note that the term “estate” in a Tax context is different than in a Probate context. All of your assets are included in your estate for tax purposes, regardless of whether they go through Probate.
So the question is: Will I have over $1 million in my taxable estate?
Consider the following:
- Financial advisors often use $1 million as the goal for a family’s retirement savings.
- The median home price in Metro Boston is around $370,000, and significantly higher in several North Shore and suburban communities in Essex and Middlesex Counties.
- Life insurance death benefits count, even for term policies. And each parent of minor children should have at least $500,000 of term-life. That is the absolute minimum, and most parents should have around $1 million. That’s what it takes to replace the income of a deceased spouse.
So if you are only halfway to your retirement goal ($500,000), have half of your house paid off ($185,000), and have half of the life insurance that you need ($500,000), then you have a taxable estate of $1,185,000. Guess what? You owe a Massachusetts estate tax of around $44,000. That is $44,000 that would otherwise go to your children, or your church, or where ever else you decide.
So what should you do? You should talk to an experienced estate planning attorney.
If you’re in the Metro Boston, North Shore or Merrimack Valley areas, I have an office in Danvers. I have developed a system for calculating Estate Tax liability. Contact me for your Estate Tax estimate.