Advice to Avoid/Minimize MA Estate Tax

[friar1610]

There are a number of things that are not glaringly obvious.

If you move to NH or Florida, for example and become residents of that state with all the moving of drivers license, car registration, sell all property in Mass, etc, Mass still has a 5 year look back. My mom is in this quandry, about to move to florida (again) and will make it her official residence.

I tried Googling for more details on what you mentioned but didn’t find anything. I know there is a 5 year look-back period for assets disposed of as it pertains to eligibility for Medicaid, MassHealth in this case. This could potentially effect people who are trying to reduce their estates by gifting to the max every year and then find themselves short of assets if they end up in a nursing home but are ineligible for Medicaid because they had gifted away assets. But it sounds like you’re saying that MA has a claim on estate taxes for decedents who have moved to another state within the past 5 years. Do you have any specific sources where I could read up further on this?

Thank you.

[ipdiddly]

friar1610:
You are correct. The 5 year lookback is applicable to people who try to deplete their estate in order to become eligible for state benefits, typically to pay for nursing home care. It has nothing to do with estate taxes.

In fact, my understanding is that gifting property removes that property from the MA estate tax, although it is counted to determine the bracket on which you pay estate taxes. In other words, if you have $5MM in assets, and give away $3MM a year prior to death, your taxable estate is $2MM, but your tax rate is that rate that would be applicable to a $5MM estate. At least that's my understanding based on some things I've read. It's possible there may be a short lookback period (say 90 days) to avoid death bed gifts, but I haven't looked into that.

[ipdiddly]

A lawyer in Massachusetts told me about a case where the estate indeed brought such a challenge, and prevailed. She said that they now report the out-of-state property at zero value. Here are a couple of articles about the case: https://hembar.com/uploads/1280/doc/MLW ... _FINAL.pdf. https://www.wealthmanagement.com/estate ... onal-issue.

The case involved real estate in a French SCI. It's not clear whether the court understood what an SCI was.

That case is very interesting. It's good to know that non-MA real estate should not fall within the MA estate tax. It makes no sense that it would be. In fact, it looks like in that case the DOR did not even argue that it could tax non-MA real estate. It's argument was that the decedent owned "shares" in a French SCI rather than real estate. The court said, no -it's real estate.

[friar1610]

friar1610:
You are correct. The 5 year lookback is applicable to people who try to deplete their estate in order to become eligible for state benefits, typically to pay for nursing home care. It has nothing to do with estate taxes.

In fact, my understanding is that gifting property removes that property from the MA estate tax, although it is counted to determine the bracket on which you pay estate taxes. In other words, if you have $5MM in assets, and give away $3MM a year prior to death, your taxable estate is $2MM, but your tax rate is that rate that would be applicable to a $5MM estate. At least that's my understanding based on some things I've read. It's possible there may be a short lookback period (say 90 days) to avoid death bed gifts, but I haven't looked into that.

Ipdiddly,

Thank you. No plans to leave MA at the moment. But, depending on how life turns out for us, a move to NH could be a possibility in the future. Our main sources of income (SS and a military pension) are treated as well tax-wise in MA as they would be in NH. But when it comes to assets it would sure be better for our kids if we were to die north of the border. And I could be closer to one of my daughters who lives in the Merrimack Valley if I were in a NH resident.

[Lee_WSP]

A lawyer in Massachusetts told me about a case where the estate indeed brought such a challenge, and prevailed. She said that they now report the out-of-state property at zero value. Here are a couple of articles about the case: https://hembar.com/uploads/1280/doc/MLW ... _FINAL.pdf. https://www.wealthmanagement.com/estate ... onal-issue.

The case involved real estate in a French SCI. It's not clear whether the court understood what an SCI was.

That case is very interesting. It's good to know that non-MA real estate should not fall within the MA estate tax. It makes no sense that it would be. In fact, it looks like in that case the DOR did not even argue that it could tax non-MA real estate. It's argument was that the decedent owned "shares" in a French SCI rather than real estate. The court said, no -it's real estate.

That is what the arguments came down to.

Does the statute require you to disclose ownership of gold bars?

[ipdiddly]

Does the statute require you to disclose ownership of gold bars?

The estate tax, whether state of federal, requires you to total up all assets, including getting an appraisal of assets owned by you (e.g., a Picasso, gold bar, toothpick collection, etc.).

That said, I have no doubt that some estates may have things go missing prior to the appraiser arriving.

[oldfort]

From Bsteiner's comments, a MA resident could buy a nice house in NH and put a substantial amount of assets in physical property there. $400k would pay for some very high quality safes and security. The major limit would be how much one would be willing to allocate to gold and collectibles. Run the risk of the metals being a lot less precious at death than they were when you bought them. Heirs would then get a stepped down basis and would have taxable gains if the asset prices were to recover.
Real estate might not be diversified unless one bought multiple parcels in different parts of no tax states. Presumably, each property would be in its own LLC.

Investing in gold bars or collectibles is letting the tax tail wag the investment dog. Losses on gold or other collectibles, or the opportunity cost of not investing in higher performing securities, could negate any benefits of paying a lower MA estate tax.

[qwertyjazz]

MA has a punitive estate tax that kicks in on any estate over $1MM. If the deceased has an estate valued at $5MM, the MA estate tax is about $400K. That's a hefty levy against someone who paid taxes to the state his/her whole life.

I am looking for advice from those who have seriously considered the topic about the best way to avoid or minimize the MA estate tax bite.

To simplify matters, let's assume the deceased is single with one adult child (married with children) and has an estate of $5MM on death. Assets comprise a home, a modest bank account, a taxable brokerage account and an IRA, with most of the assets in the brokerage and IRA accounts (e.g. 50/50). I am doubtful that the breakdown of assets is relevant, but I specify it in case someone thinks it matters. Obviously, the Fed estate tax is exempted at this point and should not enter the equation - again, let's keep it simple.

Question to be answered. Be specific.

What constructs should the above individual have in place to avoid/minimize MA estate tax.
Are there particular types of trusts that will get there? How do the funds flow? Title assets a certain way? You name it, I want to hear it. Again, be specific. (For example, should I buy a llama farm? Ok, just being funny there.)

The following matters should NOT be included in your advice:

1) Consult a good estate tax attorney. Duh!!! That's the plan. I plan to meet with our attorney to update our current estate plan. I want to be sure I have a variety of ideas to explore with him. In other words, maybe he doesn't know everything.

2) Give everything to charity or a donor advised fund (DAF). Again, duh! Obvious and not helpful.

3) Move to a state with no estate tax. Again, duh! Obvious and not helpful.

As a matter of courtesy:

If in your response you wish to quote me or some other responder, PLEASE kindly limit the quote to the precise sentence relevant to your response. There is nothing more annoying than seeing a response that quotes a long thread chain, only to provide a one sentence response. When you hit the quote button, you can actually delete portions of the quote and save only the small portion you are responding to.

Oops. Move to Illinois.

Funny
Maybe donate the money to charity with explicit distribution rules that outlive yourself. 2 birds one stone - lower taxes and get to define rules

[sailorg]

Would anyone share the names of MA (or NH licensed in MA) estate attorneys they've been happy with?

I've gone the normal route of ACTET and friends. After interviewing a couple of attorneys, I realized I won't know if the attorney is any good until executing the estate. Also, the attorneys don't seem to have a basic grasp of investing, real estate and business, as they've been immersed in the law their whole professional lives. Estate planning is really an interdisciplinary en devour.

Thanks

[TomatoTomahto]

Would anyone share the names of MA (or NH licensed in MA) estate attorneys they've been happy with?

I’ll PM you.

[dmcmahon]

You might consider a near-zero’ed GRAT.