Have you completed your holiday shopping? For some people, the shopping season starts in August; others (including me) still have a few more days before the deadline. Choosing the right gift can be tricky—a book? a Roomba? a gift card (the easy way out)? Or how about a real surprise, as in the 2002 romcom My Big Fat Greek Wedding? In the film, Nia Vardalos, as Fotoula Portokalos, and her fiancé receive her parents’ wedding gift in advance of the holidays—a new home!
I’ll save the gift and estate tax issues that result from such a present for another blog post. Here, let’s take a closer looks at a different type of end-of-year gifting that people (usually parents and grandparents) engage in after consulting good lawyers—the gift of the gift tax “exclusion”.
Our clients who own at least $1 million in assets (which is more common than you might think, give that a retirement account and a home can make you a millionaire) know that in Massachusetts, their estate will pay an estate tax (in general, the estate of the surviving spouse owes a tax in the case of married couples). Please note that not all estates are treated equally. Your assets and particular situation must be analyzed by an estate and tax planning attorney before you make gifts intended to minimize the Massachusetts estate tax.
Minimizing Massachusetts Estate Taxes by Gifting
There are a few ways to minimize, if not eliminate, the payment of estate tax, so that your estate falls slightly under the $1 million threshold. One approach is to remove some value from your estate by making gifts. ‘Tis the season, after all. If your gift to an individual is $15,000 or less, it will meet the gift tax exclusion—the maximum you can give without having to pay a gift tax or file a gift tax return, which can be a legal expense.
Contrary to the popular epithet that Massachusetts is “Taxachusetts,” the Commonwealth does not impose a tax on gifts (unlike two states that do—we’re looking at you, Connecticut and Minnesota). There’s a gift tax under federal law for those with a net worth of $11.4 million or more, but that’s a complex topic for a future blog post. So if your net worth is below the federal threshold but is above the Massachusetts threshold, consider providing some holiday cheer by making a gift of $15,000 or less, and lower your estate’s value with no added expense. You won’t be in the same class as the generous parents in My Big Fat Greek Wedding, who would have had to file a gift tax return—but, who, on the up side, removed a lot of value from their estate!
Five Guidelines for Making Gifts without Paying Gift Taxes in Massachusetts
Here are some general guidelines for making gifts for purposes of the Massachusetts estate tax:
- You can give up to $15,000 per person each year. Married couples, however, can give up to $30,000 per person each year, by combining each spouse’s $15,000 exclusion. This concept is called “gift splitting.”
- The gift need not be in the form of cash, as long as the value of the gift does not exceed $15,000. If you own a business and want to pass it along to the next generation over time, consider making annual gifts of the shares of your business—for example, a percentage of your LLC worth $15,000, or $30,000 if you’re gift splitting with a spouse.
- The gift tax exclusion may change, so watch for updates. In 2019 and 2020, though, the exclusion remains at $15,000.
- The gift must be readily accessible to the donee—in other words, you must give him or her the gift outright, with no restrictions.
- Timing is important. Remember the rule is “per person, per year.” If you’re in a hurry to make more gifts to the same people, you can give up to $15,000 per individual before December 31, which takes care of 2019, then make additional gifts to those same individuals in 2020, as soon as January 1.
As noted above, each individual’s situation is unique and deserves special attention. Please call me (508-453-6276) or email me (firstname.lastname@example.org) to determine the best plan for you and your family.
Your lawyers at Mountain, Dearborn & Whiting LLP wish you and yours every blessing this holiday season!