Massachusetts Estate Tax Exemption — The $2M Cliff, No Portability, and How to Plan Around It

The federal estate tax exemption is $13.99 million per individual in 2025. If that was all you needed to worry about, fewer than one in a thousand Massachusetts families would face estate tax.

But Massachusetts imposes its own estate tax with a $2,000,000 threshold — less than the median home value in many Greater Boston zip codes combined with a retirement account and a life insurance policy. And unlike the federal system, Massachusetts offers no portability between spouses.

How the $2M Threshold Actually Works

The tax reform signed in late 2023 — retroactive to January 1, 2023 — doubled the estate tax threshold from $1,000,000 to $2,000,000 and eliminated the old cliff tax. Under the previous system, an estate worth $1,050,000 faced roughly $20,500 in tax because the entire estate was subject to graduated rates once it crossed the threshold.

The current system is more rational but still punitive for middle-class families:

• The $99,600 credit. Massachusetts calculates estate tax on the entire gross estate using graduated rates under M.G.L. c. 65C, then subtracts a credit of $99,600. That credit equals the tax on the first $2,000,000, so estates at or below $2,000,000 owe nothing.
• Graduated rates. Taxable value above $2,000,000 is taxed at rates from 8% to 16%.
• Everything counts. The gross estate includes your home, bank accounts, retirement accounts (IRAs, 401ks), brokerage accounts, and the death benefit of any life insurance policy you own or control at death.

A $2,500,000 estate pays roughly $36,000 to $40,000 in Massachusetts estate tax. A $3,000,000 estate pays roughly $73,000 to $82,000.

The Portability Problem

Under federal law, if one spouse dies without using their full estate tax exemption, the surviving spouse can claim the unused portion — effectively doubling the family's tax-free threshold to roughly $28 million.

Massachusetts does not allow this. Each spouse gets exactly one $2,000,000 exemption, and if it is not used at the first death, it vanishes.

Here is what this means in practice: A married couple owns a $3,500,000 estate. The first spouse dies and leaves everything outright to the surviving spouse. Thanks to the unlimited marital deduction, no estate tax is due at the first death. But the first spouse's $2,000,000 exemption is now gone. When the surviving spouse dies with $3,500,000, only $2,000,000 is sheltered — and the remaining $1,500,000 faces state estate tax.

Had the couple used a credit shelter trust, the first $2,000,000 would have been placed in trust at the first death, preserving that exemption. The surviving spouse's remaining $1,500,000 falls under their own $2,000,000 exemption. Total tax: zero.

No Inflation Adjustment

The $2,000,000 threshold is not indexed for inflation. It will remain at $2,000,000 until the Massachusetts legislature changes it. Meanwhile, home values across the Commonwealth have appreciated significantly — the median sale price in Middlesex County alone exceeded $700,000 in 2024. Add a retirement account and a life insurance policy, and a middle-class family can easily cross the threshold.

What Counts in the Gross Estate

People are often surprised by what Massachusetts includes:

• Life insurance death benefits. If you own a $500,000 life insurance policy, the full death benefit is part of your taxable estate — even though the cash goes directly to your beneficiary outside of probate.
• Jointly owned real estate. For married couples, the deceased spouse's one-half interest is included.
• Retirement accounts. The full value of your IRA or 401k at death counts toward the gross estate.
• Revocable trust assets. Assets in your revocable living trust are still part of your taxable estate. The trust avoids probate, not estate tax.

Planning Strategies

Credit shelter trust (bypass trust). The most common tool for married couples. At the first death, up to $2,000,000 funds an irrevocable trust for the benefit of the surviving spouse. This preserves both exemptions, sheltering up to $4,000,000 total.

Irrevocable life insurance trust (ILIT). If life insurance pushes your estate over $2,000,000, transferring the policy to an ILIT removes the death benefit from your taxable estate. The trust must be established at least three years before death; transfers within three years are "pulled back" into the estate.

Lifetime gifting. Massachusetts does not impose a separate gift tax. Strategic lifetime gifts can reduce the size of your taxable estate. However, gifts within three years of death may be subject to federal clawback rules.

Charitable bequests. Assets left to qualifying charities are deducted from the gross estate before tax is calculated.

Filing Requirements

If the gross estate exceeds $2,000,000, the personal representative must file Massachusetts Form M-706 with the Department of Revenue within nine months of the date of death. An automatic estate tax lien attaches to all real property owned by the decedent at death — the executor must obtain a Release of Estate Tax Lien (Form M-792) and record it at the Registry of Deeds before the property can be sold.

The Massachusetts Estate Planning Kit includes an estate tax worksheet that helps you calculate your estimated gross estate and determine whether your family's asset profile warrants trust-based tax planning.

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