Christopher Suh, Esq. The Wagner Law Group One Financial Center, Suite 3610, Boston, MA 02111 (617) 271-5282 csuh@wagnerlawgroup.com 2025 1 Transfer Taxes 2 Transfer Taxes • Federal Estate Tax • Federal Gift Tax • Massachusetts Estate Tax • Federal Generation-Skipping Transfer Tax 3 Federal Estate Tax 4 Federal Estate Tax • A decedent is subject to a 40% tax to the extent his or her taxable estate exceeds the $13.99 M lifetime exemption upon death. • The amount of the lifetime exemption is scheduled to decreased to $6.995 M starting in 2026. • After death, one’s taxable estate gets a step up in basis. 5 Federal Gift Tax 6 Federal Gift Tax • Annual exclusion: One can gift away up to $19K per person to a beneficiary per year provided that the gift is a present interest. • To the extent one exceeds the annual exclusion, gifts will use up your $13.99 M lifetime exemption. • Once the entire lifetime exemption is used up, one will be subject to federal gift or estate tax. • The federal gift tax is taxed at the same rate as the federal estate tax. • There is no Massachusetts gift tax. 7 Deductions for Federal Estate Tax and Gift Tax • Marital Deduction: You can give away an unlimited amount to one’s spouse without using up one’s lifetime exemption. • Charitable Deduction: You can give away an unlimited amount to charity without using up one’s lifetime exemption. 8 Marital Deduction • In general in order to receive the marital deduction one cannot give assets to your spouse with strings attached. • However there is an exceptions for QTIP property. Requirements: • All income to spouse for life. • QTIP election must be made. • If one gives all of one’s assets to one’s spouse upon death, one misses out on the opportunity to use one’s own lifetime exemption, because the property will be considered part of the spouse’s taxable estate and use up the spouse’s lifetime exemption upon the spouse’s death. 9 Trust to Shield Lifetime Exemption • Ideally, what one wants to do is to shield one’s lifetime exemption if one predeceases one’s spouse, • so that it is available for the benefit of one’s spouse if the spouse survives you, • But is using up your lifetime exemption not your spouse’s. • Example: Husband has $10M and the Wife has $10M. Exemption is $13.99M. If Husband dies and gives all his assets to Wife, when Wife dies she will have $20M and have to pay $1.38 M in federal estate tax. • If Husband uses a trust to shield his $10M from federal estate tax upon his death, neither he nor his wife will have over $13.99M upon death and so no federal estate tax will be due on either death. 10 Massachusetts Estate Tax 11 12 How much Massachusetts estate tax will be due? Massachusetts Estate Tax 2 M $ 0 2.5 M $ 39,200 3 M $ 82,400 3.5 M $ 129,600 4 M $ 180,800 4.5M $ 236,000 5 M $ 292,000 5.5 M $ 351,200 6 M $ 410,400 7 M $ 538,400 8 M $ 673,600 9 M $ 816,800 10 M $ 968,000 11 M $ 1,127,200 12 M $ 1,287,200 13 M $ 1,447,200 14M $ 1,607,200 15 M $ 1,767,200 20 M $ 2,567,200 Basic Marital Plan for Couple under $13.99 M 13 Federal Generation- Skipping Transfer Tax 14 Federal Generation-Skipping Transfer Tax • The estate tax can apply to every generation of a family. A grandparent can be taxed, a parent can be taxed, a child can be taxed, and a grandchild can be taxed. • Instead of being taxed at every generation, a grandparent might want to simply give money directly to a grandchild or more remote descendant to avoid paying taxes at every generation. • The IRS allows this, but there is a limit to how much one can transfer to a grandchild or more remote beneficiary before the IRS will tax you. • This limitation is called the GST Tax Exemption and it is currently $13.99 M 15 Basic Marital Plan for Couple with over $13.99 M 16 Gifting 17 Gifting • Any assets which remain in the taxable estate of a person are potentially subject to federal estate tax and Massachusetts estate tax when the individual passes away to the extent it exceeds their lifetime exemption. • If the person gives away property during their lifetime, it uses up their lifetime exemption. 18 However there are a number of benefits to gifting away assets: • Annual exclusion • No Massachusetts gift tax • Value of assets can be much larger upon death due to appreciation than it was at the time that it was gifted away. 19 Negatives to gifting away assets • The person making the gift does not have control of the property anymore. • The person receiving the property might lose the property through spending, creditors, divorcing spouses, etc. • No step up in basis upon death 20