Today, 99.8 percent of estates owe no estate tax at all.

Last year only 0.2% of estates were large enough to be subject to federal estate tax. That number is expected to shrink even further because of the newly enacted Tax Cuts and Jobs Act. This act changing gift and estate tax exemption levels,.  The estate tax has essentially doubled to $11.2 million for individuals and $22.4 million for married couples. Estates that exceed these amounts are subject to a flat tax of 40% on every dollar over the cap.

The annual gift exclusion has also been raised, to $15,000. This means you can make that gift to as many individuals as you would like, and spouses can each make individual gifts. Gifts beyond the annual exclusion amount count toward the combined gift/estate tax exemption.

So, it is all good, right? Right. Unless you live in Massachusetts.

Massachusetts has its own estate tax that applies to estates over $1 million. Those tax rates ranging from 0.8 percent to a maximum of 16 percent.  The calculation of an estate value includes such items as the value of your home/s, life insurance, and retirement accounts. Many Bay State residents can easily find themselves breaking through the $1 million barrier.

Massachusetts estate tax applies to the entire value of any estate valued over $1 million– not just the amount above the threshold. Even if you exceed the limit by just one dollar, the entire value of the estate is taxed. As a result, a Massachusetts resident with a $1.2 million estate would end up paying more than someone with an estate of $11 million, who lives in a state without estate tax.

Keep in mind, the federal gift and estate tax exemption is temporary- in 8 years it will revert to pre-2018 levels in 2026.

The Tax Cuts and Jobs Act of 2017 is a complex overhaul of our federal tax laws. We urge you not to make changes to your estate plan until you have discussed it with a certified tax professional.