Estate planning is about considerably more than determining who should inherit your property. If you have accumulated significant wealth, tax planning can be just as important because federal and Massachusetts transfer taxes can affect how much ultimately reaches your beneficiaries. Even families who are unlikely to owe federal estate tax may have Massachusetts estate tax exposure because the state threshold is dramatically lower than the federal exemption. Tax planning should therefore be integrated into your estate plan rather than addressed only after someone dies. Lifetime gifts, trusts, charitable planning, marital planning, asset ownership, liquidity, and even decisions about whether to transfer appreciated property during life can have significant tax consequences. Understanding the fundamentals can help you recognize when additional planning may be appropriate. With that in mind, the attorneys at Legacy Care Law Firm discuss what you need to know about gift and estate taxes in Massachusetts.
Understanding the Difference Between Gift and Estate Taxes
Gift and estate taxes are transfer taxes that potentially apply when wealth changes hands. The federal gift tax applies to taxable transfers you make during your lifetime, while the federal estate tax potentially applies to property transferred at death. The two taxes operate as part of a unified federal transfer-tax system, meaning substantial taxable gifts made during your lifetime can affect how much exemption remains available to your estate when you die.
Massachusetts takes a different approach than the federal tax system. Although the Commonwealth imposes its own estate tax, Massachusetts does not impose a separate gift tax comparable to the federal gift tax.
The Federal Estate and Gift Tax Exemption Is $15 Million in 2026
The federal estate and gift tax exemption is substantially higher than the Massachusetts estate tax threshold. For 2026, the federal basic exclusion amount is $15 million per individual. With appropriate planning, a married couple may potentially protect as much as $30 million from federal gift and estate taxation. The maximum federal estate and gift tax rate remains 40 percent, making proactive planning particularly important for individuals and families whose estates approach or exceed the federal exemption.
You should also remember that the value of your estate today is not necessarily the value that will matter at your death. Appreciating real estate, investment portfolios, business interests, retirement accounts, and other property can substantially increase an estate over time. Life insurance proceeds and other assets that people sometimes overlook when estimating their estates may also be relevant to estate tax calculations.
Massachusetts Has a Much Lower Estate Tax Threshold
Massachusetts residents face a separate state-level estate tax regime. For people dying on or after January 1, 2023, a Massachusetts estate tax return is generally required when the gross estate plus adjusted taxable gifts, calculated under the applicable Massachusetts rules, exceeds $2 million. A Massachusetts resident with an estate of $3 million may have no federal estate tax liability because the estate is well below the $15 million federal exclusion available in 2026, but the same estate may nevertheless have a Massachusetts filing requirement and state estate tax exposure.
How Does the $99,600 Massachusetts Estate Tax Credit Work?
For deaths on or after January 1, 2023, an estate is allowed a Massachusetts estate tax credit of up to $99,600. In practical terms, the credit eliminates Massachusetts estate tax for estates at or below the $2 million statutory level and reduces the tax calculated for larger taxable estates. The Massachusetts estate tax is calculated using a system based upon the former federal credit for state death taxes and the federal Internal Revenue Code as it existed on December 31, 2000, subject to Massachusetts modifications. Consequently, the Massachusetts estate tax should not be understood as a simple percentage applied to every dollar above $2 million. Massachusetts uses a graduated calculation with tax rates ranging up to 16 percent.
Lifetime Gifting Can Reduce a Taxable Estate
Lifetime gifting is one strategy that may reduce future estate tax exposure, but careful planning is crucial. For 2026, the federal annual gift tax exclusion is $19,000 per recipient, meaning that a taxpayer can gift up to $19,000 to an unlimited number of recipients each year without using their federal lifetime gift and estate tax exemption. Married couples may potentially combine their annual exclusions, allowing them to transfer as much as $38,000 per recipient under the federal annual exclusion rules when the applicable requirements are satisfied. Repeated over many years, gifts made using the annual exclusion can remove substantial wealth, as well as future appreciation on that wealth, from a taxpayer’s estates.
Gifts Above $19,000 Are Not Necessarily Taxable Immediately
If you give someone more than $19,000 in 2026, that does not automatically mean you will immediately owe federal gift tax on the excess. Instead, gifts exceeding the annual exclusion generally begin using part of your available lifetime federal gift and estate tax exemption and may trigger a federal gift tax return filing requirement. For example, if you make a $119,000 gift to an adult child in 2026 and no other exclusions apply, the first $19,000 may qualify for the annual exclusion while the remaining $100,000 generally reduces your remaining lifetime exemption.
Direct Payment of Certain Medical and Educational Expenses Can Provide Additional Tax Avoidance Opportunities
Federal tax law provides additional gifting opportunities beyond the annual exclusion. Qualifying tuition payments made directly to an educational institution on someone else’s behalf can generally be made without being treated as taxable gifts. Similar treatment can apply when qualifying medical expenses are paid directly to the healthcare provider. These exclusions can be particularly valuable for grandparents or parents who want to assist younger generations while also reducing their taxable estates.
Be Careful When Giving Away Appreciated Property
Reducing the size of your estate is not the only tax consideration involved in lifetime gifting. Capital gains taxes also matter. When you give appreciated property during your lifetime, the recipient generally receives your existing tax basis in the asset, commonly referred to as a “carryover basis.”
Consider an investment property that you purchased decades ago for $150,000 and that is now worth $1 million. If you give the property to your child during your lifetime, your child will likely receive your tax basis of $150,000. If the child later sells the property for approximately $1 million, the taxable capital gain could be substantial.
Property inherited at death, however, often receives a basis adjustment to its fair market value as of the applicable valuation date. In our example, the basis would increase from $150,000 to $1 million. Consequently, giving away highly appreciated property solely to reduce estate tax exposure can sometimes exchange one potential tax problem for another.
Charitable Giving May Accomplish Personal and Tax Objectives
If philanthropy is already important to you, charitable planning can potentially provide both legacy and tax benefits. Qualified charitable transfers may reduce the property included in or subject to tax in your estate. Lifetime charitable gifts can also potentially generate income tax deductions, subject to applicable limitations. More sophisticated strategies may involve charitable remainder trusts, charitable lead trusts, donor-advised funds, or private foundations.
Do Not Ignore Estate Liquidity
Calculating an anticipated estate tax is only part of planning. You also need to determine where the money to pay the tax will come from. Liquidity can become a serious concern when much of an estate consists of real estate, a family business, investment partnerships, or other assets that cannot quickly be converted to cash. If estate taxes, debts, administration expenses, and other obligations become due, your Personal Representative may face pressure to sell property.
Tax Apportionment Provisions Matter
Your estate plan should also address who will bear the burden of estate taxes. Imagine, for example, that your estate plan dictates that one child receives a $2 million residence, another inherits a $2 million business interest, and a third receives $2 million in cash and investments. If the estate plan directs all taxes and administration expenses to be paid from the residuary cash assets, the third child’s inheritance could effectively bear a disproportionate share of the tax burden while the other beneficiaries receive their specific assets intact.
Can We Help You Understand Gift and Estate Taxes in Massachusetts?
For more information, please join us for an upcoming FREE seminar. If you would like assistance with gift and estate taxes in your Massachusetts estate plan, contact our estate planning attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Salem and Nashua, New Hampshire office can be reached at (603) 894-4141.
- What You Need to Know about Gift and Estate Taxes in Massachusetts - September 17, 2026
- Commonly Asked Estate Planning Consultation Questions - September 15, 2026
- Five Common Mistakes to Avoid During the Probate of a New Hampshire Estate - September 3, 2026
