Why Estate Tax Is Not So Bad

WHY ESTATE TAX IS NOT SO BAD

By Attorney Melinda Kwart, Percy Law Group

Everyone is concerned with the payment of estate taxes. As you can see from the chart below, the effective rate of Massachusetts estate tax is really quite low when compared with taxes you may have to pay if an asset were transferred other than at death. For example, if you were to inherit a piece of real estate at the death of your parents, you would not pay capital gains tax on that property upon sale because you received the property with a tax basis equal to its date-of-death value. However, if your parents gifted you that property during their lifetimes, you would have their basis in the property. Upon your sale of the property (if it was not deemed to be your principle residence), you would pay capital gains tax on the appreciation, and that could be considerable. For example, if it was sufficiently valuable, it would boost your capital gains tax rate to 23.8%. If your parents had left it to you at their deaths, there would be no capital gains tax upon its sale but there could be an estate tax imposed on your parents' estates. However, even estates as big as $3,000,000.00 have only a 6% estate tax, and anything below $1,000,000.00 does not trigger estate tax at all.

In general, although state estate tax rates range from 6.4% to 16%, that rate is only applied to amounts exceeding $1,000,000.00. Therefore the overall effective rate is much lower when you take the size of the entire estate into consideration.

Note that estates over $5,430,000.00 (or if your spouse dies before you, then estates over $10,680,000.00) would be exposed to federal estate tax as well as state estate tax. Federal estate tax is taxed at a flat rate of 40% on amounts exceeding the exemption amount just mentioned. In reality, this federal estate tax affects less than 1/3rd of 1% of all Americans.

Size of estate

Massachusettsinheritance tax

Federal estate tax

Total

As % of estate

$1 million

$33,200

$0

$33,200

3.32%

$1.25 million

$48,400

$0

$48,400

3.87%

$1.5 million

$64,400

$0

$64,400

4.29%

$1.75 million

$81,600

$0

$81,600

4.66%

$2.0 million

$99,600

$0

$99,600

4.98%

$2.25 million

$118,800

$0

$118,800

5.28%

$2.5 million

$138,800

$0

$138,800

5.55%/9.25%

$2.75 million

$160,000

$0

$160,000

5.8%

$3 million

$182,000

$0

$182,000

6.07%

If you have any questions regarding Estate Tax, please feel free to call me at 508-828-1900 or email me at mkwart@percylawgroup.com.