We are now into 2009. We will soon have a new president and some new tax laws. Mr. Obama is suggesting that he will pursue tax reduction, but that he is in favor of leaving the federal estate tax in place, with an exemption amount of $3,500,000 per estate and a rate of 45% on any amount in excess of $3,500,000.
If the estate tax law were not changed this year, then on December 31, at midnight, it would be abolished. A year later, unless Congress acted, it would return as it was decade ago. All of this would produce confusion and chaos in estate planning, and tax lawyers and accountants are all pleased that we are going to have a measure of certainty in the estate tax law.
In the case of married tax payers, proper planning will protect total assets of $7,00,000 from federal estate taxation. However, we will still be dealing with the Massachusetts estate tax.
The Massachusetts estate tax provides that if a taxable estate does not exceed $1,000,000, there will be no tax. If a taxable estate exceeds $1,000,000, it is taxed from the first dollar. Thus, the figure of $1,000,000 is a trigger, rather than a floor.
The Massachusetts estate tax should be repealed. Persons with substantial assets move their domiciles out of Massachusetts to avoid the estate tax. Persons with estates that are smaller, but still more than $1,000,000, pay the tax; thus, it is regressive.
By imposing the estate tax, Massachusetts loses more than it gains. People who move their domicile to another state no longer maintain substantial business relationships in Massachusetts, and no longer pay Massachusetts income taxes. If there were no Massachusetts estate tax, estate planning in Massachusetts would be much simpler.
This year I will see legislative support to abolish the Massachusetts estate tax. We may have to revisit the research done a few decades ago which showed the tax to be counterproductive, and it will take some effort to change the perception that all taxes produce revenue, so therefore in a time of budget shortfall we cannot afford to wipe out any tax.
In future Notes, and on our website, we will keep you informed on efforts to wipe out the Massachusetts estate tax.
