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Minmizing the federal estate tax in estate planning

On Behalf of | Feb 10, 2020 | Estate Planning |

There are likely a number of things a person should do before they pass from the life. Estate planning is one of those things, and Massachusetts residents who have a number of assets might find planning easier if they know a few things about the federal estate tax or death tax as it is known. This federal estate tax is currently imposed upon estates worth $11.4 million or more, but when planning, a wealthy testator should know that amount — as of now — goes down to $5 million on Jan. 1, 2026. If there is tax owing, it must be paid within nine months of the testator’s death.

Those whose estates are affected by this tax should know that any gifts they made while they were alive will be figured into the tax and taken off the exemption amount. All assets will be figured into a wealthy testator’s gross estate and that includes stocks, bonds, value of jewelry, fine art and the like. Also, just because an estate might have sidestepped the probate process, doesn’t mean it will be exempt from estate tax — including assets in a revocable trust. 

Fifty percent of the value owned jointly with a spouse is included when calculating estate tax, while if a testator owned property with someone other than his or her spouse, 100% of its value will be subject to taxation. Some saving grace is that deductions can be made to offset the tax. Those could include legal expenses and tax fees and also any charitable donations.

A lawyer may be able to advise a client regarding estate tax. Some additional estate planning may be necessary in states that impose their own estate tax. For instance, Massachusetts has a $1 million estate tax exemption amount. An estate planning attorney can discuss what a client might be able to do to reduce any taxes that may be due.