Most families in Massachusetts hear the phrase “estate tax” and assume it applies only to the very wealthy. At the federal level, that assumption holds. The federal estate tax exemption is $15 million per person as of 2026, a threshold that excludes all but a small fraction of households. Massachusetts, however, operates under its own rules, and those rules pull in far more families than most people expect. Understanding how the state exemption works, what the state counts, and what planning options exist is essential for any Massachusetts family with meaningful assets.
The $2 Million Exemption
Massachusetts updated its estate tax law in 2023. The change increased the state exemption from $1 million to $2 million, meaning the first $2 million of a Massachusetts taxable estate is not subject to estate tax.
Under the prior system, the tax applied retroactively to the first dollar once an estate crossed the $1 million threshold. This created unexpectedly large tax bills for families with modest estates that happened to include a home in a high-cost area. The current structure is more predictable. If an estate exceeds $2 million, only the amount above the exemption is subject to tax.
A Massachusetts estate tax return (Form M-706) must be filed whenever the gross estate plus adjusted taxable gifts exceeds $2 million. Even estates where the tax due is zero after credits may still need to file. The Massachusetts Department of Revenue provides guidance on filing requirements and deadlines (generally nine months from the date of death).
What Assets Count Toward the Massachusetts Exemption
The assets that make up the Massachusetts taxable estate often surprise families with how quickly they can accumulate. For Massachusetts resident decedents, assets commonly included are:
Massachusetts real estateBank accounts and investment accountsRetirement accounts (IRAs, 401(k)s, 403(b)s)Business interestsLife insurance proceeds (if the decedent owned the policy or retained incidents of ownership under IRC § 2042)
Life insurance is the asset that catches the most families off guard. A $500,000 term life policy owned by the decedent is included in the taxable estate at its full death benefit value. Combined with a Massachusetts home worth $800,000 and retirement accounts totaling $700,000, a family that considers itself solidly middle class is already at the $2 million line.
Out-of-state real estate and tangible personal property are generally excluded from the Massachusetts taxable estate computation for resident decedents under MGL c. 65C § 2A. Out-of-state intangible assets are not excluded on that basis alone. Out-of-state real property may, however, be relevant for federal estate tax purposes or for the estate tax of the state where it is situated.
Why So Many Massachusetts Families Are Affected
Real estate is the primary driver. Home values across Greater Boston and surrounding communities have increased sharply over the past decade. Properties purchased for $250,000 in the 1990s may now carry assessed values exceeding $1 million. These gains represent unrealized wealth that many homeowners do not think of as part of their “estate” until the tax question arises.
Retirement accounts compound the issue. Decades of contributions and market growth in a 401(k) or IRA can produce balances well into six figures. Add a life insurance policy purchased years ago for income replacement, and the total pushes past the exemption.
The other factor that catches families off guard is that Massachusetts does not offer portability of the exemption between spouses. At the federal level, a surviving spouse can use any unused portion of the deceased spouse’s exemption, but Massachusetts has no equivalent provision. If the first spouse dies and leaves everything outright to the surviving spouse, the first spouse’s $2 million exemption disappears. The surviving spouse later holds all the family’s assets with only a single $2 million exemption at the second death.
How This Differs From the Federal Estate Tax
The federal basic exclusion amount was $13.99 million per individual for 2025 and is $15 million for 2026, following the enactment of the One, Big, Beautiful Bill Act (P.L. 119-21), which made the elevated exemption permanent. At these levels, the vast majority of Massachusetts families remain below the federal threshold.
The Massachusetts system is the one that matters for the vast majority of state residents. Many assume that if they are “safe” under federal rules, they are safe everywhere. That assumption leads to missed planning opportunities at the state level.
Planning Approaches That Can Improve Outcomes
Several well-established tools can reduce or manage Massachusetts estate tax exposure. None of them require exotic strategies. Most are built into standard estate planning documents when properly drafted.
Credit shelter trusts. For married couples, this is the most common response to the portability gap. At the first death, assets up to the exemption amount are held in a credit shelter trust rather than passing outright to the surviving spouse. The surviving spouse benefits from trust income and discretionary principal, but the trust assets are excluded from the surviving spouse’s taxable estate. This means that two exemptions are used instead of one, sheltering up to $4 million.
Lifetime gifts. Massachusetts does not impose a state gift tax. The federal annual gift tax exclusion ($19,000 per recipient in 2026) allows families to transfer meaningful amounts over time without reporting. Gifts above the annual exclusion require Form 709 but trigger no immediate tax unless the lifetime exemption ($15 million) has been exhausted.
Irrevocable life insurance trusts (ILITs). If the ILIT is the original owner and applicant of the policy, the death benefit is excluded from the insured’s taxable estate under IRC § 2042. If the insured transfers an existing policy to an ILIT, the death benefit is pulled back into the estate only if death occurs within three years of the transfer.
Charitable planning. Charitable bequests at death reduce the taxable estate dollar for dollar under IRC § 2055. Families who already support charitable organizations can integrate these commitments into their estate plan in order to reduce the overall estate tax exposure.
When to Review Your Plan
Estate tax planning is not a one-time exercise. Asset values change, tax laws change, and family circumstances change. A plan that was adequate five years ago may no longer reflect current reality, particularly given real estate appreciation in Massachusetts.
Families should revisit their estate tax exposure after any significant change: a home purchase or sale, a retirement account rollover, a new life insurance policy, or a change in marital status.
Planning Ahead
The Massachusetts estate tax affects more families than most people realize, and the absence of spousal portability makes planning especially important for married couples. The tools to manage this exposure are well established, widely available, and effective when properly implemented.
RackiLaw focuses on practical estate tax planning that follows Massachusetts law and serves the family’s goals. If it has been more than a few years since your estate plan was reviewed, or if you are uncertain whether your estate approaches the $2 million threshold, a consultation can help clarify where things stand and what adjustments may be worth considering.
References
MGL c. 65C (Massachusetts estate tax statute), including § 2A (tax computation for residents)Chapter 50 of the Acts of 2023 (Massachusetts estate tax exemption increase to $2 million)IRC Section 2010(c)(4) (federal portability of estate tax exemption between spouses)IRC § 2035(a) (three-year rule for life insurance transfers)IRC § 2042 (life insurance includibility, incidents of ownership)IRC § 2055 (estate tax charitable deduction)IRC § 2503(b) (annual gift tax exclusion)Massachusetts Department of Revenue, Form M-706 (Massachusetts estate tax return)mass.gov/info-details/estate-tax (Massachusetts estate tax guidance)