Massachusetts Estate Tax Planning: What to Know About the $2 Million Exemption in 2026

Massachusetts Estate Tax Planning: What to Know About the $2 Million Exemption in 2026

For many families, the Massachusetts estate tax becomes a critical planning issue once total assets exceed the state’s $2 million exemption threshold. Unlike the federal estate tax exemption—which remains historically high—Massachusetts imposes its own estate tax on estates over $2 million, often creating unexpected tax exposure for homeowners, retirees, widows, and business owners. Understanding how the Massachusetts estate tax works—and proactively coordinating trusts, gifting strategies, and asset titling—can help preserve wealth, protect liquidity, and reduce tax burdens for the next generation.

The Current Massachusetts Estate Tax Landscape

Massachusetts does not impose an inheritance tax, but it does levy an estate tax on estates exceeding $2 million. While the structure has improved in recent years, it remains complex and impactful.

A true $2 Million exemption: A $99,600 estate tax credit effectively shelters the first $2 million of assets.

Graduated tax rates: Once the threshold is exceeded, graduated rates apply, rising toward 16% at higher estate values.

Broad asset inclusion: For Massachusetts residents, the tax generally considers worldwide assets, including investment accounts and business interests. As of 2025, most out-of-state real estate is excluded.

For many families, this means that even a comfortable estate can generate a meaningful tax obligation.

Putting the Numbers to Work: A $4 Million Estate

Consider a Massachusetts resident with a $4 million estate—perhaps a primary residence, retirement assets, and a closely held business interest.

Gross Estate: $4,000,000

Estate Tax Credit: −$99,600

Estimated Massachusetts Estate Tax on assets over $2 Million: Approximately $180,800

This tax is due within nine months of death and must be paid in cash. Without planning, heirs may be forced to liquidate investments, sell a family home, or disrupt a business simply to meet this obligation.

Married Couples: Preserving Both Exemptions

In Massachusetts, each spouse has their own $2 million estate tax exemption, but the unused exemption doesn’t transfer to the surviving spouse. That means leaving everything outright to the surviving spouse can cause the first spouse’s exemption to be lost.

Example:

A married couple owns $4 million jointly. At the first death, all assets pass to the surviving spouse. No estate tax is due at that time. At the second death, the surviving spouse’s $4 million estate may face an estimated $180,000+ Massachusetts estate tax.

With a properly structured credit shelter (bypass) trust, up to $2 million can be permanently excluded from the surviving spouse’s taxable estate—potentially reducing the eventual tax liability by nearly half.

Trust Planning: Sheltering Assets and Appreciation

Trusts are among the most effective tools for managing Massachusetts estate taxes when designed and implemented correctly.

  • Revocable Trusts preserve state exemptions for married couples while maintaining access to assets for the surviving spouse.

  • Irrevocable Trusts remove assets—and critically, their future appreciation—from the taxable estate, locking in today’s lower valuations.

Over time, removing appreciating assets from the estate can translate into hundreds of thousands of dollars in avoided estate taxes.

Strategic Gifting: Lowering the Taxable Estate During Life

As of 2026, the annual gift tax exclusion remains $19,000 per recipient.

A married couple can gift $38,000 per year to each child or grandchild.

Over five years, gifting to two children alone could remove $380,000 from the taxable estate.

In addition to reducing estate tax exposure, lifetime gifts shift all future growth on those assets outside the reach of Massachusetts estate taxation.

Special Considerations for Widows and Business Owners

For Widows:

After the loss of a spouse, estate tax exposure often increases quietly. Assets consolidate, exemptions may have been lost, and appreciation continues.

Scenario:

A widow owns $4 million following inheritance and asset growth. At her death, the estate could face $200,000+ in Massachusetts estate taxes—despite the couple never exceeding $4 million during their joint lifetime.

Revisiting trusts, beneficiary designations, and gifting strategies after a loss is critical to preserving long-term financial security.

For Business Owners:

Business interests are frequently the largest component of a taxable estate—and the least liquid.

Without advance planning, estate taxes can force heirs into rushed decisions that threaten continuity. Valuation strategies, entity structuring, buy-sell agreements, and trust ownership can reduce tax exposure while protecting the business legacy.

Why Coordination Matters

Estate planning is not a one-time legal transaction. It is an ongoing financial discipline that must evolve alongside asset values, tax laws, and family dynamics.

By working closely with a fiduciary advisor who coordinates with estate attorneys and CPAs, families gain:

  • Clear modeling of estate tax exposure
  • Thoughtful implementation of trusts and gifting strategies
  • Ongoing refinement as circumstances change
  • Alignment between tax efficiency and long-term wealth objectives

Your Next Step

At WH Cornerstone, we have found that estate plans are most effective when they are proactive, not reactive. The families who preserve wealth across generations address potential tax exposure before it becomes a liquidity event or a burden on their heirs.

A coordinated review with your financial advisor ensures your trusts, titling, gifting strategy, and overall balance sheet are aligned—and that your estate plan works the way you intend.

If your estate is approaching or exceeds $2 million, or if you simply want clarity around your current structure, schedule a conversation with us. We’re here to help.