Changes in Estate Tax Law and HIPAA May Affect You!

As of January 1, 2009, the federal estate tax credit (the amount a person can leave at death without incurring a federal estate tax) increased to $3.5 million. However, MA still has its own separate estate tax, with a threshold of $1 million (not set to increase). As of 2003, the MA estate tax is no longer tied to the current federal estate tax laws. Prior to this change, Massachusetts simply collected a portion of the estate tax paid to the federal government, so there was no actual additional Massachusetts tax burden; therefore, estates that owed no federal estate tax also owed no Massachusetts estate tax. However, as a result of these changes, the structure of current estate plans may cause an increase in the overall estate taxes that will be due at death. While the changes to the Massachusetts estate tax laws result in additional estate taxes for many, there have been technical changes from the Massachusetts Department of Revenue that, with proper planning, provide opportunities to reduce both federal and Massachusetts estate taxes.
PLANNING IMPLICATIONS: The key impact of the change to the Massachusetts estate tax law is that the Massachusetts estate tax threshold is now lower than the Federal exemption. From a practical standpoint, this means that (a) some estates that do not owe a federal estate tax may now owe a Massachusetts estate tax, and (b) estates that owe a federal estate tax will owe an additional Massachusetts estate tax. Previously, if an estate was non-taxable for Federal estate tax purposes (less than the Federal exemption), no Federal or Massachusetts estate taxes were due. Now, an estate which exceeds the Massachusetts estate tax threshold will have to file an estate tax return (and may owe a tax) even if the estate is non-taxable federally. The new Massachusetts estate tax law raises planning issues particularly for married couples seeking to minimize Federal and Massachusetts estate tax on their combined estates, with the objective of passing more to their intended beneficiaries and less to the government upon the 2nd spouse’s death.

The following are most potentially impacted by this new tax law:

Married couples who have previously implemented “estate tax planning Trusts”, sometimes referred to as “A-B” Trusts, or “Revocable Trusts”. These types of Trusts are set up to allow a married couple to double the federal estate tax exemption (now $3.5 million), passing up to $7 million free of estate tax at the 2nd spouse's death. In many cases, as a result of the new Massachusetts estate tax, these Trusts will no longer accomplish optimal estate tax savings, and may cause an increase in the Massachusetts estate tax due. Accordingly, these clients may need to amend their revocable trusts in order to optimize their estate tax planning under the new Massachusetts tax system and allow doubling of the Massachusetts estate tax exemption as well as the federal.
Married couples with estates greater than $1 million who did NOT set up 2 Revocable Trusts because their estate was non-taxable for federal purposes may owe a Massachusetts estate tax. These clients may now want to consider the 2-Trust plan to reduce the Massachusetts estate tax that would be due upon the 2nd spouse’s death.
Non-married persons with estates greater than $1 million may now want to consider Trusts such as Irrevocable Insurance Trusts (to exclude the value of life insurance from the taxable estate), or annual gifting plans to reduce their taxable estates for both federal and Massachusetts estate tax purposes.

HIPAA* REGULATIONS:

There have been recent changes to the federal HIPAA regulations, dealing with a person’s ability to obtain medical information on another person. As a result, all Powers of Attorney and Health Care Proxies should be re-done to incorporate these changes. In addition, you should consider signing a simple “HIPAA Agent form” that we can prepare for you. Powers of Attorney should be re-done every 5 years or so anyway, because many banks and other financial institutions do not consider them valid after that amount of time.
*Health Insurance Portability and Accountability Act of 1996 (HIPAA)

It is a generally a good idea to have your estate plan reviewed every 5 years or so (sooner if you have personal or financial changes); and even more important if you fall into 1 or more of the above categories.

Please contact us if you wish to have your existing estate plan reviewed and potentially updated; if you do not have an estate plan in place and would like to receive an evaluation and recommendation for an estate plan; or if you have any questions about the Massachusetts estate tax or estate planning in general.