A Matter of Life and Death
Article published in Northampton Living
(August 2023)
What happens when Uncle Sam and the Grim Reaper join forces? The death tax, otherwise known as the largest tax bill you’ll ever pay but never see. Thankfully, unlike death itself, this tax can be avoided or minimized with proper estate planning.
Most taxes haunt us. We brace for Tax Day every April, pay extra cents at the pump, and fork over quarterly property assessments from City Hall. The estate tax is different – and often overlooked – because it doesn’t kick in until the bucket is kicked.
So, what is this tax that lingers over the grave? As the immortal IRS puts it, the estate tax is imposed on the transfer of property at death. It’s based on the total value of your assets, including your home, retirement accounts, business interests, investments, personal belongings and even life insurance proceeds.
Like most forms of taxation, the estate tax comes in two ghastly flavors: federal and state. The Massachusetts estate tax is currently one of the harshest in the country at $1 million. Even those who do not consider themselves wealthy are subject to this tax.
Fewer people are subject to this scary tax at the federal level. The current federal estate tax exemption is $12.92 million, rendering it a non-concern for most individuals – at least for now.
Both the state and federal estate tax laws are in flux. In Massachusetts, the legislature is poised to increase the estate tax exemption to $2 million; and the federal estate tax exemption will likely be halved like a magician’s assistant unless Congress acts before the end of 2025. With a significantly lower threshold, the federal estate tax could be a ticking timebomb for many. And, thanks to eleventh-hour Congressional deals and presidential campaigns, expect this uncertainty to remain a future concern.
But leave that to the lawyerly equivalent of the Ghostbusters. Estate planning attorneys craft wills and trusts that take advantage of specific tax laws applicable only to married couples. With creative and strategic estate tax planning, married couples can save up to $160,000 on their estate tax, and possibly more as the law changes, thereby increasing the inheritance for loved ones. These lawyers craft documents flexible enough to adapt to changing state and federal estate tax laws, which saves the time and expense of amendments to your estate plan.
With foresight, your estate tax savings can be up to 60 times the amount of your estate planning legal fee. Even if you can’t escape Uncle Sam and the Grim Reaper, you can make sure they get less than they came for.