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I am located in Massachusetts and I have a estate question.

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Hi I am located in...
Hi I am located in Massachusetts and I have a estate question. My parents have a irrevocable trust splitting their assests between them. My question is what can be done with the trust to eliminate Massachusetts inheritance tax. Is there another trust to eliminate it? There is about 2.3 million in assets.
Submitted: 5 months ago.Category: Tax
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11/16/2017
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 5 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,007
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. My name's Lane.

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice 1986.

If you’ll please bear with me for a minute I’ll type up my initial response, and then we can go from there if you have further questions on this.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 5 months ago

No, they've already done about as much as can be done, by utilizing the Credit shelter trust technique.

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As you likely know, the MA exemption is $1MM. So at 2MM they're clear and free.

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Example: Husband and Wife have a few pennies less than $2million. They split their assets evenly, and hold them in revocable trusts with estate tax planning provisions. Husband dies, and leaves his half in a credit shelter trust. His half is under the threshold, so no estate tax is due. Husband's credit shelter trust is now available for Wife's benefit, but is not part of her taxable estate when she dies. Wife dies, and her taxable estate consists of the less than 1MM in her revocable trust, which is under the threshold.

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Lets say they end up at three million. They split their assets evenly, and hold them in revocable trusts with estate tax planning provisions. Husband dies, and leaves $1 million in a credit shelter trust, and $500,000 in a marital deduction trust. Because the marital trust is deductible, his taxable estate is only $1 million, and not over the threshold. Both trusts are available for Wife's benefit. Wife dies. Her estate consists of the $1.5 million in her own trust, and the $500,000 in the marital trust, for a total estate of $2 million. She is $1 million over the threshold, and owes a Massachusetts estate tax of around $100,000. That's a MA estate tax savings of $82,000! (over what it would be with no A/B= trust arrangement)

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Now, what they could consider is annual gifting (28000 between them, per person) to keep the estate below thresholds.

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If they're charitably inclined they may want to consider a charitable annuity trust, where a trust is established that generates income to them and the remainder goes to a charity. The taxable income to them is reduced because of the charitable deduction that's generated (present value of a future gift), then a life insurance trust is established (if established with crummey powers the premiums can be gifted to this irrevocable life insurance trust - ALSO not considered as part of the estate) and the death benefit goes to the heirs - income tax free - to replace what went to the charity.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 5 months ago

But generally speaking some level of A/B trust, lifetime gifting, and/or charitable planning are your options.

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If there are enough children to gift away what would be growth in the estate (at 28K per child or other person) you'd be freezing the estate at a size that is almost completely managed by the A/B trust arrangement.

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Customer reply replied 5 months ago
I will inheret 1 million in assets. do I need to pay inheritance tax on that in massachsetts. my brother will also inheret 1 million.
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 5 months ago

As long as there's enough in the gross estate to pay the estate taxes.

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MA doesn't have an inheritance tax (paid directly by the heirs). It has an estate tax (paid by the estate before being transferred TO the heirs.

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The personal representative, trustee or executor (depending on how they've set things up) will pay whatever estate tax is due then distribute according to the terms of the trust.

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It will only be he amount over 2MM that will have an estate tax levied against it.

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Lets say that the second to die passed today. At 2.3MM the TAXABLE estate is only 300,000. The tax will be paid out OF that 300,000 leaving the 2MM to be passed to your and your brother.

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