On December 20, Congressional Republicans passed tax reform and President Donald Trump signed it into law two days later.
This tax bill underwent many changes in its journey to passage. For instance, at one point the estate tax was going to be eliminated. At another point, it was not.
The version that was signed into law did not remove the federal estate tax, but it did increase its limits. While the current tax code only allows a couple to pass on $11 million in assets to their legatees without paying taxes, the new bill increases that limit to $22 million.
This sounds like great news for individuals undergoing high-asset estate planning, right?
State taxes can still hit your estate
Yes and no. While those estates will not be subject to federal taxes, the Massachusetts estate tax still affects those assets. And unfortunately, the state estate tax threshold is much lower.
Massachusetts residents will see their assets taxed if they are over $1 million in value, a significantly smaller amount than the federal limit. So while those $11 million estates won’t be hit with two estate taxes anymore, they are not exempt from taxes entirely.
Knowing this, it is worth reviewing your estate plan to be sure you are able to pass on as many of your assets as possible to your loved ones and not the government. You may want to make adjustments to an existing plan if you will no longer be subject to federal taxes but could still be hit by state taxes.