Broker Check

Estate Planning – Updates and Coordination

| December 12, 2016

Last month I outlined the upcoming cost of living increase in Social Security benefits for 2017.  Another recent announcement for 2017 was in regards to estate taxes.  While the annual gift tax exclusion ($14,000 per donee) and the top tax rates will remain unchanged, the federal estate tax exclusion amount will be increased from $5,450,000 to $5,490,000 next year. 

This reminds me of a question I recently received: Do lifetime gifts over the annual exclusion amount effect the estate tax paid at the state level in places like Massachusetts? 

While New Hampshire is one state that has no estate tax, and Maine has the same exclusion amount as the federal system, Massachusetts and Vermont are states that have a much lower exclusion amounts than the federal system: $1,000,000 and $2,750,000 respectively. 

So how do lifetime gifts over the annual exclusion amount affect things in these states?

In the case of Massachusetts, there are two areas to look at:  the requirement to file an estate tax return, and the taxable estate of the deceased.  If a Massachusetts resident dies in 2016 with a gross estate of $999,999 and no lifetime gifts above the annual exclusion to report, then this person’s estate need not file an estate tax return nor would they owe any state estate tax. 

If, however, this person instead had lifetime gifts over the annual exclusion amount of say $100,000, they would be required to file an estate tax return as the combined gross estate and lifetime gifts is greater than $1,000,000.  The value used to determine if estate tax is due in this example however would still be $999,999, because unlike the federal system, Massachusetts does not add these gifts back in for purposes of calculating this figure.

In Vermont, gifts over the annual exclusion amount made within two years of death are added back into the gross estate to determine the taxable estate value.

While Maine has adopted the federal estate tax exclusion amount, it has specific rules governing lifetime gifts.  Maine only considers taxable gifts within one year of death to be included in the taxable estate. 

This of course is general information only and is not intended to provide specific financial or tax advice or recommendations for any individual.  Whether or not you live in northern New England, your specific situation should be considered with your tax advisor before any planning is done.  If you are curious about another state, check out the Tax Foundation’s site for a current map: