If you live in Massachusetts, the estate tax very likely applies to you — and most families have no idea, because they’re benchmarking against the federal number.
The scenario. Linda and Frank, a married Massachusetts couple, had a home worth $850,000, retirement and investment accounts of $1.4 million, and a $500,000 life insurance policy — about $2.75 million combined, far below the federal exemption. They assumed they’d never owe estate tax. They held everything jointly and left everything to each other outright. When Frank died, everything passed to Linda tax-free under the marital deduction. But when Linda later died with the full $2.75 million in her name, her estate exceeded the Massachusetts $2,000,000 threshold — and because Massachusetts offers no portability, Frank’s $2,000,000 exemption was wasted. The estate owed a sizable Massachusetts estate tax that planning could have largely eliminated.
The problems.
- All assets passed outright to the survivor, stacking everything into one estate.
- Massachusetts has no portability, so the first spouse’s $2M exemption was lost.
- The survivor’s estate exceeded $2M, triggering avoidable Massachusetts estate tax.
The planning solution.
Start with the gap that drives everything: the federal exemption is $15 million per person (2026), but the Massachusetts exemption is only $2 million — and, crucially, Massachusetts does not allow portability between spouses. Federally, a surviving spouse can inherit a deceased spouse’s unused exemption; in Massachusetts, the first spouse’s $2 million is “use it or lose it.”
The classic fix is a credit shelter (bypass) trust. Instead of leaving everything to the survivor outright, up to $2 million funds a trust at the first spouse’s death that uses that spouse’s Massachusetts exemption. The surviving spouse can still benefit from the trust (typically receiving income and access to principal for health, education, maintenance, and support), but because the assets are held in the bypass trust rather than owned outright, they are not taxed in the survivor’s estate at the second death. The result: the couple shelters up to $4 million ($2M + $2M) instead of just $2 million.
Two practical points make this work. First, asset titling matters: jointly held assets pass automatically to the survivor and cannot fund a bypass trust, so each spouse should individually own enough (roughly $2 million) to fund the trust. Second, because Massachusetts has no portability, you may also use a Massachusetts QTIP election for additional flexibility, and you can still elect federal portability to preserve the much larger federal exemption.
Lifetime planning helps too: Massachusetts has no gift tax, so annual and larger lifetime gifts can move assets out of the taxable estate (subject to a three-year pull-back rule for gifts made shortly before death).
Key takeaways.
- Massachusetts taxes estates over $2M and offers no spousal portability.
- A credit shelter trust captures each spouse’s $2M exemption — up to $4M sheltered.
- Title assets so each spouse owns enough to fund the trust; use MA’s lack of gift tax.
Massachusetts families: don’t assume you’re under the line. Ask about a credit shelter trust and a titling review to protect your heirs from avoidable state tax.