Estate planning involves many moving parts, and taxes are often at the forefront of people’s concerns. Whether you’re building wealth, protecting family assets, or planning for the future, it’s natural to wonder how estate taxes might affect what you leave behind. One of the most common questions we hear from clients is whether setting up a trust can help minimize or even eliminate estate tax liability in the Commonwealth of Massachusetts. Continue reading and reach out to a seasoned Massachusetts estate planning lawyer to learn how a trust can help you avoid estate taxes. Here are some of the questions you may have:
What Are Estate Taxes, and How Do They Work?
Before diving into trusts, it’s important to understand what estate taxes are and how they apply in Massachusetts. Unlike some states, Massachusetts does have a state-level estate tax, and it can be surprisingly costly. As of 2023, the Massachusetts estate tax applies to estates valued at more than $2 million. If your estate is even slightly over that threshold, the entire estate, not just the amount over $2 million, may be subject to taxation.
This is quite different from the federal estate tax, which doesn’t kick in until an estate exceeds $13 million. For many families, this lower state threshold means estate tax planning is not just for the ultra-wealthy. It’s something that needs to be considered carefully by anyone with real estate, retirement accounts, or other substantial assets.
How Can a Trust Be Used to Minimize Estate Taxes?
Trusts can be highly effective tools for managing or reducing estate tax liability, depending on how they’re structured and used. While a simple revocable living trust alone does not remove assets from your taxable estate, more advanced types of trusts can offer tax advantages.
One common strategy involves using an irrevocable trust, which transfers ownership of certain assets out of your estate. Since you no longer legally own the assets once they’re placed in an irrevocable trust, they are typically not counted when your estate is valued for tax purposes. This can help reduce the size of your taxable estate and, in turn, your estate tax bill.
Additionally, married couples may consider credit shelter trusts or marital trusts to make full use of each spouse’s exemption, essentially doubling the tax-free threshold. These strategies can preserve more wealth for children or other beneficiaries.
Is Setting Up a Trust Right for My Situation?
The decision to create a trust depends on many personal factors, including the size of your estate, your goals for asset protection, and your wishes for your beneficiaries. While a trust can offer tax benefits, it also provides greater control over how and when your assets are distributed. It can also help your loved ones avoid probate, which can be time-consuming and public.
If you have any further questions or think a trust might be right for your situation, simply contact Mark Liam Gannon, Attorney at Law, for an initial consultation today.
