You can easily break down the reasons people commonly give for comprehensive estate planning in to two categories. The first involves control over their legacy, such as deciding who gets what and allocating assets to charity.
The second relates to a person’s need to protect family members from the potential consequences that will stem from their death. From ensuring a smooth transfer of accounts and real estate ownership to naming a guardian for minor children or a dependent with special needs, there are many important steps that will protect the people you love.
Estate taxes exist at the awkward intersection between those two motives for estate planning.Taxes could impact the legacy you can leave behind, while tax liability could put your family in to a financially or legally vulnerable situations.
Given that you’ve already paid income on the money you’ve earned and the assets you’ve acquired throughout your life, you may not relish the idea that your estate could likely wind up taxed as well. However, both the state of Massachusetts and the federal government assess estate taxes in certain situations.
The estimated value of your estate will determine whether or not you pay estate taxes, as well as how much of the estate goes toward tax payment. For Massachusetts state estate taxes, the total value of your estate needs to be a million dollars. Higher values will result in higher tax liabilities. The federal limit for estate taxes in 2020 is substantially higher, at $11,580,000.
If you believe there’s potential liability for estate taxes in your situation, careful estate planning, including the creation of a trust, could help you reduce or even eliminate those tax liabilities, thereby protecting your legacy and the people you love.
