Under current law, if you leave an estate worth more than $1 million, it may owe Massachusetts estate tax. The maximum state tax rate is 16%. The tax is collected from the estates of residents and from the estates of nonresidents who own valuable Massachusetts real estate in or keep other tangible assets (a boat, for example) in the state.
The Filing Threshold
Estates must file a Massachusetts estate tax return if the estate’s gross value is more than $1 million. By contrast, in 2013 a federal estate tax return is required only for much larger estates, those worth more than $5.25 million.
To determine whether or not a Massachusetts estate tax return is required for your estate, your executor will have to calculate the value of your gross estate, which includes:
- Real estate
- Bank accounts
- Investment accounts, stocks and bonds
- Vehicles and other tangible items of property
- Proceeds from life insurance on your life, unless you didn’t own the policy (for example, if you transferred it to an irrevocable trust)
- Retirement account funds
- Small business interests (sole proprietorship, limited liability company, or small corporation)
- Certain taxable gifts made during your lifetime
For tax purposes, it doesn’t matter whether or not the assets go through probate; they’re all included in the gross estate. So, for example, if you own your house in a living trust or name a transfer-on-death beneficiary for your securities accounts, it won’t affect estate tax after your death.
Will the Estate Owe Tax?
Even if a return is required, it doesn’t mean the estate will owe tax. If you leave everything to your spouse, for example, it will all pass tax-free. Other deductions (funeral expenses and experts' fees, for example) are also subtracted from the gross estate to arrive at the taxable estate; if the taxable estate is under $1 million, no Massachusetts estate tax will be due.
Forms and Deadlines for the Massachusetts Estate Tax Return
The estate tax return must be filed, and any tax due paid, nine months after the death. It’s the executor’s job to file the return and use estate assets to pay the tax. If there’s no probate proceeding, and no executor or administrator is appointed, then it’s the responsibility of whoever inherits your property. The state may grant an extension of time to file the return, but the estimated tax must be paid on the original due date. Interest accrues on any unpaid tax.
If a Massachusetts return is required, the executor must also prepare and file a federal estate tax return (IRS Form 706), with the state, even if it isn’t required by the IRS. Because both returns are very complicated, the executor will need to hire an expert to prepare them. Massachusetts estate tax information and downloadable forms are available from the state department of revenue.