In a letter to a friend, Benjamin Franklin once wrote, “In this world nothing can be said to be certain, except death and taxes.” Though he said it in the 18th century, it remains true to this day. Today we’re discussing both death and taxes — we’re delving into the taxes that are owed on your estate after you pass away.
Let’s start with the happy part first.
Can my assets avoid estate taxes when I die?
Yes! With proper estate planning you can eliminate estate taxes (or at least minimize those taxes to the greatest extent possible). With certain kinds of trusts, you can pass money and property directly to your loved ones and it will not be taxed or even considered a part of your taxable estate when you die.
That’s great news and all the more reason to get started with an estate plan if you haven’t already.
Will estate taxes be due to the state or to the IRS?
Maybe both. There is a federal estate tax due to the IRS for assets over a certain amount (currently $11.4 million per person, although subject to change by Congress). If you live in Massachusetts, the Commonwealth imposes an state-level estate tax on assets over $1 million.
Are any estates small enough to avoid state taxes?
Yes. In Massachusetts, if your estate is valued at or below $1 million, there is no estate tax due.
My estate is valued over $1 million. At what rate will it be taxed?
This depends on the total value of your estate. Massachusett applies its estate tax in brackets. The highest bracket in Massachusetts is 16%. The IRS federal estate tax rate is a flat 40%. An experienced estate planning attorney can help you determine which tax bracket you fall into.
How long will my personal representative have after my passing to pay taxes?
If due, estate taxes must be paid within 9 months of your death.
What paperwork will be involved with my estate taxes?
There is potentially a large amount of paperwork involved in the filing and payment of estate taxes. Your personal representative would certainly benefit from hiring professionals (including an experienced estate planning attorney and CPA) to help make sure everything is handled correctly. Forms they can expect to fill out include IRS Form 706 (federal tax return) and Form M-706 (Massachusetts tax return).
Who can help me create a strong estate plan that avoids estate taxes as much as possible?
If you are interested in getting started with an estate plan, our team will be happy to help. Give us a call at (978) 263-6900.