People often do not realize that they may be at risk of estate tax if they live in Massachusetts. The federal threshold for estate taxes is relatively high. People must own $13.99 million or more in 2025 to be at risk of taxation after their passing.
However, Massachusetts also imposes an estate tax, and the threshold for state estate taxes is much lower. Anyone with $2 million or more in assets is vulnerable. Both the federal estate tax and the Massachusetts state estate tax have progressive tax rates.
The more an estate exceeds the threshold, the higher the final tax rate that applies. Those who have significant investments, real property holdings or an interest in a business could have estates that go well beyond the current state threshold.
How can people plan ahead of time to minimize how much of their estate goes toward taxes instead of to their selected beneficiaries?
By creating a trust
Establishing and funding a trust is one of the most effective ways of diminishing the value of an estate. Individuals can transfer the ownership of many of their most valuable resources to the trust. Assets held by a trust typically do not have to pass through probate court as they are not part of someone’s estate. Those assets also do not contribute to the value of the estate for the purposes of calculating estate taxes.
By making gifts to loved ones
Another common way that people reduce their estate tax obligations is by transferring some of their wealth to beneficiaries while they are still alive. Every year, there is a different exempt amount that individuals can gift to others without incurring gift taxes. In 2025, that amount is $19,000 per recipient. Individuals with many children, grandchildren and other loved ones can significantly diminish the value of their estates by making multiple years of strategic gifts.
By taking on co-owners
Typically, only assets that belong solely to the deceased individual become the property of their estate. Those who make arrangements to share their ownership interest with others during their lives can potentially keep those assets from becoming part of their estate after they die. There are different ways to achieve co-ownership goals depending on the nature of the assets.
There are a host of other possible options available as well, such as adding transfer-on-death designations to certain financial accounts. Considering every possible solution for reducing the overall value of an estate can help people limit their tax liability. Proactive estate planning and tax planning are both important for those who want to maximize what their selected beneficiaries ultimately inherit from their estate.