Many Massachusetts families breathed a sigh of relief when Congress made the federal estate tax exemption permanent at $15 million per individual. If that number is well above what you own, it’s easy to assume your estate has no tax problem. That assumption is costing some families hundreds of thousands of dollars.
Massachusetts runs its own estate tax on a completely independent legal track. The federal exemption rising to $15 million has no effect on what your estate owes to the Commonwealth. For over 30 years, our attorneys at Percy Law Group, PC have helped Massachusetts families understand this distinction before it becomes an expensive surprise for their heirs. The gap between what families expect and what state law actually requires is wider in 2026 than it has ever been.
What the Massachusetts Estate Tax Actually Looks Like in 2026
Massachusetts imposes its own estate tax under MGL c. 65C, and the current structure looks different from what many people remember. Since January 1, 2023, each individual has a $2 million exemption, technically implemented as a $99,600 credit that eliminates all Massachusetts estate tax on the first $2 million of an estate. This replaced the old “dollar-one cliff,” where crossing $1 million meant the entire estate was taxed from the first dollar. Not just the amount over the threshold.
The other critical structural fact: Massachusetts estate tax law is frozen at the Internal Revenue Code as it stood on December 31, 2000. Federal changes, including the One Big Beautiful Bill Act signed on July 4, 2025, don’t move the Massachusetts exemption. The Commonwealth sets its own rules, and those rules haven’t followed Washington. Tax rates under the state’s computation range from roughly 0.8% to 16% on the adjusted taxable estate, and Massachusetts is one of only 12 states plus the District of Columbia that still imposes a separate state estate tax at all.
Why the Federal Change Creates a False Sense of Security
The One Big Beautiful Bill Act gave married couples a combined $30 million federal shield. For most Massachusetts families, that means no federal estate tax liability whatsoever. But Massachusetts is what tax attorneys call a decoupled state: it operates entirely independently from the federal system. A family that owes nothing to the IRS can still face a significant Massachusetts estate tax bill.
The dollar difference isn’t trivial. A Massachusetts estate worth $3 million may owe approximately $82,000 in state estate tax. A $5 million estate may owe approximately $292,000. In both cases, the federal liability at 2026 exemption levels is zero. Families who updated their plans based on federal news alone and didn’t account for Massachusetts exposure may be leaving their heirs with a bill they never anticipated.
How Quickly a Southeastern Massachusetts Estate Reaches $2 Million
The $2 million threshold sounds like a number that applies to wealthy families. For many homeowners in the greater Taunton area and across Bristol County, it isn’t. Home values have risen sharply over the past decade. A property purchased years ago for $300,000 may now carry an assessed value of $500,000 to $700,000 or more, and that appreciation often goes unexamined by families who set up an estate plan and haven’t revisited it since.
The Massachusetts gross estate includes more than real estate. It also includes bank and investment accounts, retirement accounts such as IRAs and 401(k)s, and life insurance proceeds if the deceased owned the policy at the time of death under IRC § 2042. That combination (a family home, a retirement account built over 30 years of work, and a life insurance policy purchased to protect the family) can push a solidly middle-class estate past $2 million without anyone realizing it.
One planning note worth understanding: a September 2024 amendment changed how out-of-state property is treated. Out-of-state real estate and tangible personal property are now excluded from the Massachusetts estate tax computation for resident decedents, but out-of-state intangible assets are not. If you own investment accounts held at out-of-state institutions, those assets still count toward your Massachusetts exposure.
The Portability Gap Married Couples Can’t Ignore
Federal estate tax law allows a surviving spouse to inherit the unused portion of a deceased spouse’s federal exemption, a concept called portability. Massachusetts doesn’t allow it. Each spouse has one $2 million exemption, and if the first spouse to die leaves everything outright to the survivor, that first exemption is gone permanently.
Consider what that means in practice. A couple with $4 million in combined assets who passes everything outright to the surviving spouse leaves the survivor with a $4 million estate and only one $2 million exemption. The Massachusetts estate tax on that amount could exceed $180,000. A credit shelter trust (sometimes called a bypass trust) established at the first death can shelter up to $2 million for the survivor’s benefit while preserving the first spouse’s exemption, potentially eliminating that bill entirely.
Massachusetts also allows a QTIP trust (Qualified Terminable Interest Property trust), which lets the first spouse’s estate claim the marital deduction while still controlling where assets ultimately pass. QTIP trusts are often used alongside credit shelter trusts to give married couples both tax efficiency and control over asset distribution, particularly useful in second marriages or blended family situations.
Planning Tools That Reduce or Eliminate Massachusetts Estate Tax
Several strategies can meaningfully reduce Massachusetts estate tax exposure, and understanding how they work helps you have a more informed conversation with our attorneys.
Lifetime Gifting
Massachusetts has no state gift tax and no clawback period, meaning completed lifetime gifts permanently remove assets from your taxable estate with no minimum holding period required. The federal annual gift tax exclusion in 2026 is $19,000 per recipient, or $38,000 per couple using gift splitting. Gifts above those amounts use your federal lifetime exemption without triggering any Massachusetts consequence, making gifting one of the most straightforward tools available for reducing a taxable estate over time.
Irrevocable Life Insurance Trusts
An irrevocable life insurance trust, or ILIT, removes life insurance death benefits from your Massachusetts gross estate when the ILIT is the original policy owner and applicant from the start. If you already own a life insurance policy and transfer it into an ILIT, a three-year lookback rule under IRC § 2035 applies: if you die within three years of the transfer, the proceeds are pulled back into your estate for Massachusetts purposes. Planning early matters here.
Trust Funding Structures
For married couples, ensuring both exemptions are used fully requires planning at the first death, not the second. That means reviewing whether your current documents include credit shelter provisions and whether those provisions are funded correctly under the current $2 million threshold rather than the pre-2023 $1 million threshold.
Signs Your Existing Estate Plan Needs a Review
If your plan was drafted before January 2023, it was built around the old dollar-one cliff and the $1 million exemption. The shift to a $2 million exemption may mean your trust funding formulas, credit shelter provisions, or beneficiary structures no longer work as intended. A plan that was well-designed five years ago may produce unintended tax consequences today.
Several events are clear signals that a review is overdue:
- Significant home value appreciation since your plan was drafted
- Receipt of an inheritance that increased your total estate
- Purchase of a new life insurance policy that you own personally
- Death of a spouse or a change in marital status
- A plan drafted before 2023 that has never been reviewed under the current exemption structure
If you’re currently administering an estate, the Form M-706 filing deadline is nine months after the date of death. A six-month extension is available, but only if at least 80% of the tax owed is paid by the original deadline. Interest accrues on unpaid tax from the original due date regardless of any extension, so timing matters even when more time is granted.
Where Your Estate Stands in 2026
The federal government offers more protection from estate tax than at any point in modern history, but Massachusetts operates on its own track and the $2 million threshold catches far more families than most people expect. A home, a retirement account, and a life insurance policy can cross that line without anyone in the family ever thinking of themselves as wealthy enough to have an estate tax problem.
We’ve been helping Taunton-area families assess their estate planning needs for over 30 years. Reach us at (508) 206-9900 to talk through where your estate stands and whether your current plan still does what you intend.