Key Thresholds in Federal Estate & Gift Tax and Massachusetts Estate Tax

Posted by Daniel LaForge on Nov 17, 2022 4:02:05 PM
Daniel LaForge
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The United States has taxed the estates of decedents since 1916, and gifts since 1924, with tax rates and exemption levels that have varied greatly over the last two decades. Massachusetts is one of several states in the country that has a state estate tax. Among those states, Massachusetts is one of two states with the lowest estate value that is subject to tax.

As we approach year end, I thought it would be helpful to outline some key forms and current thresholds relating to estate & gift tax.

Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return

Various dollar amounts and limitations in Form 706 are indexed for inflation. For decedents who died in 2022, the following amounts are applicable.

  • The lifetime exemption amount is $12,060,000 ($12,920,000 for 2023). For a surviving spouse, add to these amounts the unused lifetime exemption of a deceased spouse, where potability was elected. Due to current high inflationary times, the increase in lifetime exemption from 2022 to 2023 is significant. For deaths after 2025, under current law, the lifetime exemption will drop to about half of its then-current level.
  • For a surviving spouse, add to these amounts the unused lifetime exemption of a deceased spouse, where potability was elected.
  • Rev Proc 2022-32 extends the time period to elect Portability of a deceased spouse’s unused lifetime exemption to five years for qualifying estates.
  • The ceiling on special-use valuation is $1,230,000. 
  • The top estate and generation-skipping transfers tax rate remains at 40%. 

Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return

Various dollar amounts and limitations in Form 709 are indexed for inflation. For gifts made in 2022, the following amounts are applicable.

  • The lifetime exemption amount is $12,060,000 ($12,920,000 for 2023). For a surviving spouse, add to these amounts the unused lifetime exemption of a deceased spouse, where potability was elected. Due to current high inflationary times, the increase in lifetime exemption from 2022 to 2023 is significant. For deaths after 2025, under current law, the lifetime exemption will drop to about half of its then-current level.
  • The annual gift exclusion for 2022 is $16,000 ($17,000 for 2023). 
  • For gifts made to spouses who are not U.S. citizens, for 2022 the annual exclusion has increased to $164,000. 
  • The top rate for gifts and generation-skipping transfers remains at 40%. 

Form M-706: Massachusetts Estate Tax Return

For decedents who died in 2022, the following amounts are applicable.

  • The estate tax exemption amount remains at $1M. Keep in mind, the $1M is really a filing requirement threshold vs an exemption from taxation like the federal exemption. 
  • The top estate tax rate remains at 16%. 

The Biden administration’s earlier tax proposals had highlighted significant federal estate tax law changes, however, with the narrow democratic control in congress, the estate tax initiatives have taken a back seat to other agenda items. Now that the midterm elections have ended, we’ll keep an eye on the new congress agenda items.

Each year Massachusetts seems to have some pending legislation to increase the $1M exemption or eliminate the estate tax altogether, but has yet to pass. Legislation in 2022 to raise the exemption to $2M did come close to passing, but ultimately did not. We’ll see what the future holds.  

If you have questions about estate thresholds or other estate, gift and trust taxation items, leave a comment below, or feel free to reach out to me directly. I’m happy to help!

Topics: Estate Tax, Tax, Estate Planning